IT & Tech Tax Incentives in Nepal: IT Parks, SEZ & Export Concessions

Nepal treats information technology (IT) as a priority, export-earning sector and has built a stack of tax concessions to grow it. The catch for founders, investors and accountants is that no single law holds all the rules. Instead they are spread across the Industrial Enterprises Act 2076 (2019/20), the Income Tax Act 2058 (2002), the Special Economic Zone (SEZ) Act 2073 (2016) and the annual Finance Act, which is re-passed with the budget each Nepali fiscal year (the current one being the Finance Act 2082, for FY 2082/83 or 2025/26).

A software or IT company's effective tax bill therefore depends on three overlapping questions: what the business does (software, data processing, business process outsourcing, cloud), where it is located (an ordinary premises, a government technology park, or an SEZ), and whether its earnings are exported. Each answer unlocks a different concession, and the concessions generally cannot be stacked on the same income — an enterprise that qualifies for more than one exemption on a given income must choose only one.

The standard corporate income-tax rate in Nepal is 25%. Most IT incentives work by reducing the tax leviable on that base — a 50% exemption halves it to an effective 12.5%, and a 75% export rebate cuts it to roughly 6.25%. This guide sets out each concession with its legal source, its rate and, where the relief is time-limited, its expiry fiscal year, so readers can compare options rather than rely on a single Act.

The headline location-based break comes from Section 24 of the Industrial Enterprises Act 2076. It provides that industries carrying on software development, data processing, cyber-cafe operation or digital mapping established inside a technology park receive a 50% exemption on the income tax leviable on income from that business. In effect, a qualifying firm operating inside a designated park pays income tax at roughly half the normal rate for the covered activities.

Layered on top, guidance issued for IT industries operating within a technology park has, in practice, allowed a fuller holiday — full income-tax exemption for the first five years and a 50% exemption for the next two years — reflecting the government's stated aim of clustering software and outsourcing firms in dedicated zones. Because these enhanced terms are set through the Finance Act and departmental procedure rather than a single permanent clause, founders should confirm the current year's wording before relying on the full holiday.

The best-known physical facility is the Information Technology Park at Banepa/Panauti in Kavrepalanchok, about 28 km east of Kathmandu, built in the early 2000s (roughly 2059/60 BS). Its long-troubled operational history is a reminder that a 'technology park' concession is tied to the legal designation of the site, not merely to being an IT company; businesses should verify a location's formal technology-park status with the Department of Industry before assuming eligibility.

Nepal's most valuable concession for outward-facing tech firms is the export-income rebate. Income earned from exporting IT-based services — such as software programming, business process outsourcing (BPO) and cloud computing — qualifies for a 75% exemption on the income tax otherwise payable on that export income. Because the ordinary rate is 25%, a 75% rebate leaves an effective rate of about 6.25% on qualifying export earnings.

This rebate is time-limited. Sources tracking the Finance Act 2082 report that the 75% IT-export income exemption is available up to fiscal year 2084/85 (2027/28 AD), after which it is scheduled to lapse unless renewed by a future Finance Act. Founders planning multi-year contracts should model both the concession period and the post-expiry position rather than assume the relief is permanent.

A recurring compliance condition attaches to export concessions: the foreign earnings must be received into Nepal through legal banking channels — for example via SWIFT transfers into a licensed Nepali bank — and properly documented as export income. Payments settled informally or kept offshore generally will not qualify, and the burden is on the taxpayer to evidence that the receipts are genuine service exports.

The Finance Act 2082 introduced a simplified alternative: a 5% tax on income from exporting IT services abroad. The mechanics differ by taxpayer. For an individual, the 5% is a final tax — once paid on the export receipts, no further income tax is due on that income regardless of the person's total income, which is attractive for freelancers and sole proprietors billing overseas clients.

For a company, the 5% functions as an advance tax rather than a final settlement: it is collected up front on export receipts, and the company's final liability is still computed on its net profit, with the 5% credited against that liability. The practical effect is that incorporated IT exporters continue to file and reconcile normally, while individual exporters get genuine finality and simplicity.

As with the 75% rebate, the 5% regime targets bona fide IT-service exports — software development, web and mobile apps, cloud, cybersecurity, IT consulting, BPO and similar — and requires the money to arrive through formal banking channels. Individuals and companies should weigh the flat 5% route against the 75% rebate (about 6.25% effective) for their specific numbers, as the better option depends on cost structure and taxpayer type.

The Special Economic Zone Act 2073 (2016) offers the longest tax holiday available to export-oriented industries, including technology and IT-enabled manufacturing that locate inside a designated SEZ. Industries operating in an SEZ receive a 100% income-tax exemption for the first five years of commercial operation, followed by a 50% exemption for the remaining period of the agreement.

The relief is deeper for harder-to-reach areas: industries in SEZs located in hilly and mountainous districts receive full income-tax exemption for the first ten years, then 50% thereafter. Dividend distributions also benefit — a 100% dividend-tax exemption for the first five years and 50% for the following three years — and exports from an SEZ are zero-rated for Value Added Tax (VAT), with concessions on customs duties for eligible machinery and inputs.

SEZ benefits come with obligations. SEZ units are primarily export-oriented and are generally required to export a minimum share of production (reported at around 70%), and they must operate under an agreement with the SEZ Authority. Nepal's operational SEZ programme is anchored by the zone at Bhairahawa, with additional zones developed or planned elsewhere; prospective IT and tech investors should confirm current zone availability and the specific export threshold with the SEZ Authority before committing.

Beyond location and export, Section 24 of the Industrial Enterprises Act 2076 rewards job creation, and manufacturing and IT industries both qualify. An industry that provides direct employment to 300 or more Nepali citizens throughout the year gets an additional rebate of 15% of the tax leviable on that year's income; the rebate rises to 25% for industries employing 1,200 or more Nepali citizens. A further 15% rebate applies where at least half the workforce are women, Dalit or persons with disabilities.

Early-stage ventures have their own track. Nepal's startup framework provides qualifying startup enterprises a full income-tax exemption for an initial period (commonly cited as five years) subject to eligibility conditions on turnover and sector set by the government's startup procedures. Micro-enterprises separately enjoy a full income-tax exemption for seven years, extended by three additional years where the micro-enterprise is run by a woman entrepreneur, under Section 11 of the Income Tax Act 2058.

The crucial planning rule is that these concessions do not simply add together on the same income. Where an industry qualifies for more than one exemption under Section 24 with respect to the same income, it is entitled to only one — the one it chooses. IT firms should therefore run the numbers on each available route (park exemption, export rebate, 5% final tax, SEZ holiday, employment rebate) and select the single most favourable treatment rather than assume they compound.

The table below summarises the main routes side by side. Rates are indicative against Nepal's 25% standard corporate rate; time-limited reliefs show their expiry fiscal year where known. Always confirm the current year's Finance Act wording, because rates and expiry dates are reset annually and departmental procedures fill in eligibility detail.