Nepal DTAA List: Double Taxation Treaties by Country & Rates

A Double Taxation Avoidance Agreement (DTAA), also called a Double Taxation Agreement (DTA) or tax treaty, is a bilateral agreement between two governments that stops the same income from being fully taxed in both countries. Without a treaty, a dividend, interest payment, royalty or consulting fee flowing from Nepal to a foreign resident could be taxed once in Nepal (the source country) and again in the recipient's home country (the residence country), leaving cross-border investors and workers overtaxed.

A DTAA fixes this in two ways. First, it caps the withholding tax the source country may charge on passive income such as dividends, interest and royalties, usually below the ordinary domestic rate. Second, it obliges the residence country to relieve the remaining double tax, typically by giving a credit for tax already paid abroad (the credit method) or by exempting the foreign income (the exemption method). Treaties also allocate taxing rights over business profits, employment income, capital gains and pensions.

For Nepal, DTAAs are a tool to attract foreign direct investment, ease trade and remittances, and give tax certainty to Non-Resident Nepalis (NRNs), exporters and foreign contractors. In Nepal, the legal power to conclude such treaties comes from Section 73 of the Income Tax Act, 2058 (2002 AD), which lets the Government of Nepal enter international agreements to avoid double taxation and grant exemptions or reduced rates.

As of the latest available compilations (including the NBSM 'Synopsis of DTAA of Nepal with 11 Countries', June 2019), Nepal has concluded and brought into force double taxation treaties with 11 countries. India was the first partner, and Bangladesh the most recent, signed in March 2019.

The full directory of treaty partners, in broad order of signing, is listed below. Where a specific signing or entry-into-force date is well documented it is given; some earlier treaty dates are recorded differently across sources, so verify the exact date and current text with the Inland Revenue Department (IRD) or Ministry of Finance before relying on it.

The Nepal-India treaty is the most economically significant, given the volume of trade, investment and NRN activity across the open border. The current comprehensive agreement was signed on 27 November 2011 and entered into force on 16 March 2012, replacing an earlier 1987 arrangement. It covers taxes on income in both countries and follows the general structure of the OECD/UN model conventions.

Under the Nepal-India DTAA, the withholding tax on dividends is capped at 5% where the beneficial owner is a company that holds at least 10% of the shares of the paying company, and 10% in other cases (Indian tax-authority compilations show up to 15% in some residual cases). Interest is capped at 10%, and royalties at 15%. There is no separate reduced treaty rate for fees for technical services, so such fees are generally taxed as business profits (where a permanent establishment exists) or under domestic law.

The treaty also sets rules for business profits, permanent establishments, shipping and air transport, capital gains, employment and pensions, and includes exchange-of-information and mutual-agreement procedures to resolve disputes between the two revenue authorities.

The Nepal-China treaty was signed in Kathmandu in 2001, with a protocol that took effect around the end of 2010. Under this treaty, published rate summaries show the withholding tax on dividends and interest each capped at 10%, and royalties at 15%. As with most Nepali treaties, fees for technical or management services are typically dealt with under the business-profits or domestic-law route rather than a separate reduced treaty cap.

Across the other partners, published synopses (such as the NBSM compilation) indicate broadly similar ceilings. Dividend caps commonly fall in the 5%-15% band depending on shareholding and the specific treaty; interest is generally capped around 10%-15%; and royalties are usually capped at 15%. For example, summaries record Qatar with dividend and interest around 10% and royalties around 15%, and Austria, Norway, South Korea and Mauritius with tiered dividend rates (often 5%/10%/15% depending on ownership) and royalties around 15%.

Because these percentages vary by treaty, by shareholding thresholds and by amendment protocols, always confirm the exact figure against the specific bilateral treaty text and the IRD before applying it to a transaction. Treaty relief lowers, but does not automatically eliminate, Nepali withholding; where a treaty rate is higher than the domestic rate, the lower domestic rate normally applies.

Nepal's domestic Income Tax Act sets standard withholding (tax deducted at source, TDS) rates on payments to non-residents, which the treaties then cap or reduce for residents of partner countries. In practice, a treaty is beneficial only when its capped rate is lower than Nepal's ordinary domestic rate for that income type; if the domestic rate is already lower, the taxpayer keeps the lower rate.

The four categories that treaties most often address are: dividends (profit distributions by a Nepali company), interest (on loans, bonds or deposits), royalties (for use of intellectual property, patents, trademarks or copyrights), and fees for technical or management services. Most Nepali treaties give explicit reduced caps for dividends, interest and royalties, while technical-service fees are frequently left to be taxed as business profits or under domestic law.

A key principle is 'beneficial ownership': the reduced treaty rate is available only to the genuine beneficial owner of the income who is a resident of the treaty partner, not to conduit entities inserted to shop for a better rate. Nepal's tax administration and commentators have flagged the need for anti-abuse and Limitation of Benefits provisions to protect the treaty network.

To benefit from a DTAA rate rather than Nepal's full domestic withholding, the foreign recipient must show they are a resident of the treaty partner and the beneficial owner of the income. The standard evidence is a Tax Residency Certificate (TRC) issued by the tax authority of the recipient's home country.

The recipient provides the TRC and supporting documents to the Nepali payer before the income is paid or credited. The payer then applies the treaty-reduced withholding rate at source instead of the standard domestic TDS rate and deposits the tax with the Inland Revenue Department. If tax has already been over-withheld, relief may be sought through the assessment or refund process.

For NRNs and foreign investors, this means keeping clean documentation: the TRC, proof of shareholding for reduced dividend rates, loan or licence agreements for interest and royalties, and evidence of beneficial ownership. Because procedures and rates are updated periodically, confirm current requirements with the IRD, the Ministry of Finance, or a qualified Nepali tax adviser before each transaction.

The authoritative sources for Nepal's DTAAs are the Government of Nepal itself: the Inland Revenue Department (IRD) and the Ministry of Finance (MoF), which negotiate, publish and administer the treaties, and the Nepal Law Commission for the underlying Income Tax Act, 2058 (2002). The Investment Board / InvestNepal portal also lists treaties and agreements relevant to investors.

For a consolidated overview, tax and audit firms in Nepal publish periodic synopses. The widely cited NBSM 'Synopsis of DTAA of Nepal with 11 Countries' (June 2019) tabulates the partner countries and their treaty rates in one place, and firms such as PKF and Baker Tilly Nepal publish annual tax-fact booklets. These are helpful summaries, but the legally binding figures are always in the specific bilateral treaty text.

Nepal has also signalled interest in expanding its treaty network, with negotiations reported at various times with countries such as the United Kingdom, Japan, Singapore, Malaysia and Oman. Any new treaty only takes effect once both governments complete ratification and the agreement enters into force, so treat 'under negotiation' announcements as prospective, not current, until the IRD confirms entry into force.