SC orders 15 percent TDS on foreign services

KATHMANDU: In a decision, the Supreme Court (SC) has established a precedent regarding Tax Deducted at Source (TDS).

The ruling states that a 15% advance tax must be deducted on services provided by foreign companies not registered in Nepal, but operating within the country through technology.

The ruling, stemming from a dispute involving Standard Chartered Bank, expands the scope of Section 88(1) of the Income Tax Act to encompass foreign companies.

The judgment, recently disclosed by a joint bench comprising Justice Prakash Kumar Dhungana and Hariprasad Phuyal, elucidates the legal reasoning behind this decision.

The SC’s rationale hinges on the interpretation of Section 67(6) of the Income Tax Act, which designates the source of payment as within Nepal.

Consequently, the Court has decreed that advance tax should be levied on payments made to foreign companies, irrespective of their registration status in Nepal.

The judgment specifies that the tax deduction will be set at 15%, aligning with the location of the payment source within Nepal.

This decision sets a new standard for TDS regulations in Nepal and has far-reaching implications for foreign companies operating within the country.