Nepal slashes IT export tax to 5% in Budget 2082. What it means for startups, talent, and the future of Digital Nepal. Is this tax too good to be true?

If you run an IT company in Nepal, or have even thought about starting one, the latest budget probably made your eyes light up.

Why?

Because the Government of Nepal, in Budget 2082/83, just announced that companies exporting IT services will only have to pay 5% income tax.

Yes, you read that right.
No, this is not a typo.

Just 5% corporate tax (instead of the usual 25%) on the money you earn from foreign clients for services like:

• Software development
• Web or mobile app design
• SaaS products
• UI/UX design
• Cloud-based tech consulting
• And any other service that falls under the magical umbrella of “IT exports”

If you’ve ever struggled with rising compliance, growing competition, and limited cash flow, this 5% rate probably sounds like a gift from the Finance Ministry gods.

But before you pop the champagne, let’s dig a bit deeper, because while this is a huge win on the surface, it also opens up some tricky questions.

But first, let’s understand exactly what the government is offering, and why it matters.

What’s Actually in the Budget for IT Companies?

So, what’s all the fuss about?

The government is finally doing what people in the tech world have been asking for forever: treating IT exports as a real economic powerhouse.

And they’ve come through with three big changes. And yeah, they’re a pretty big deal.

1. You Only Pay 5% Tax on Export Income

This is the headline everyone’s talking about.

If you’re exporting IT services to clients abroad, your company now pays only 5% income tax on that revenue. That’s it.

Let’s say you made Rs. 50 lakh from international clients last year.
Under the old system, you’d pay around Rs. 12.5 lakh in taxes (25%).

Now? You’re down to Rs. 2.5 lakh.

That’s Rs. 10 lakh saved. Money you can use to:

• Hire more team members
• Invest in better tools
• Or even give yourself a well-earned bonus

It’s a big move. And honestly, one that could really push more tech entrepreneurs to take their businesses seriously and go global.

2. You Can Open a Branch Office Abroad (Legally!)

Ever had a foreign client ask, “Do you have a local office here?” and you just awkwardly said no?

Well, now you can.

The government’s new policy says IT companies in Nepal can:

• Reinvest up to 25% of the foreign income they earn into setting up a branch or rep office abroad.
• But you still have to bring at least 50% of your export earnings back to Nepal.

It’s actually a smart balance; the government is saying:

“Go global, chase big clients, expand your footprint… just don’t forget to bring some money home.”

This gives companies room to grow without feeling trapped, and for startups aiming to join global accelerators or partner with overseas firms, this opens up huge opportunities.

3. No Minimum Investment Requirement for Foreign Investors in IT

This one didn’t get as many headlines, but it should have.

In most industries in Nepal, foreign investors have to bring in at least Rs. 2 crore to legally invest in a company.

But for IT companies? That rule is now gone.

Whether a foreign angel investor wants to invest Rs. 10 lakh or Rs. 10 crore in your company, they can do it legally.

That means:

• Early-stage startups can now raise money more easily
• You don’t need to wait until you’re “big enough” to attract foreign funding
• Small-ticket cross-border collaborations can actually be formalized and funded

In Simple Words: What’s In It for You?

Up next, we’ll break down how you can actually set up a legal IT export business in Nepal, stay compliant with NRB and IRD, and make the most of these benefits.

And yes, we’ll also talk a little about the not-so-obvious risks that come with this low-tax policy, because not everyone playing this game is playing fair.

So, How Do IT Export Companies Actually Work in Nepal?

If all this talk about 5% tax and foreign clients has you thinking,
 “Wait, should I turn my freelance gigs into a legit company?”, 

you’re not the only one.

More and more people are now looking to formalize their side hustles or start export-focused tech companies. Some want to raise foreign investment. Others just want to get paid legally from international clients without jumping through a million hoops.

So how does it actually work? What’s the process for setting up and running an IT export company in Nepal?

Let’s break it down.

1. First, there’s the company registration part

In Nepal, the most common setup for a business offering services to clients abroad is a Private Limited Company, what we call a "Pvt. Ltd."

You register it at the Office of the Company Registrar (OCR). You choose a name, prepare your founding documents (MOA and AOA), and mention clearly that your company will be exporting IT services like software development, web design, or digital consulting.

This legal setup is what makes you eligible for the 5% tax rate on export income. Without it, you’re just operating as an individual, which doesn’t qualify.

2. Then comes tax registration (PAN and maybe VAT)

Once your company is registered, you need to get a Permanent Account Number (PAN) from the Inland Revenue Office. This is mandatory; it’s your business ID for tax purposes.

Depending on your revenue (or sometimes at the request of foreign clients), you may also need to register for VAT. The threshold is currently Rs. 50 lakh per year. But even if you’re under that, some clients, especially big ones abroad, might require it for invoicing.

Confused about PAN and VAT registration? 

Again, none of this is too complex, but it does take a bit of time, paperwork, and knowing where to go.

3. Receiving foreign payments: what’s allowed and what’s not

This is one part that trips a lot of people up.

When you’re exporting IT services, you’ll likely be billing clients in USD, EUR, or AUD. But how do you get that money into Nepal legally?

Here’s the general rule:

• Payments should come through formal banking channels, mostly via SWIFT transfers.
• You need to have a business bank account in your company’s name.
• And the remittance should clearly say it’s for “service payment” or “IT consulting”  

You can’t receive payments via PayPal directly into a personal account. And you definitely can’t use informal channels like hundi. That might have been okay back when freelancing was a side hustle, but now you’re building a real business. The money needs to come in clean, through legal routes.

Following this process also helps prove that your income qualifies for the 5% tax bracket, since you’ll have the remittance documents and service invoices to back it up.

4. If you’re raising foreign investment, there’s a process for that too

If you’ve ever tried to raise money from someone abroad, you probably hit a wall: “Bring at least Rs. 2 crore, or don’t bother.”

Well, good news, that wall just came down.
The Rs. 2 crore minimum investment requirement has been scrapped for IT-based companies.

That means:

• Your foreign friend, client, or angel investor can now legally invest any amount in your IT company; even Rs. 5 or 10 lakh.
• You don’t have to pretend it’s a “loan” or route it through weird workarounds.

Even better, the government has introduced something called the “Automatic Route” for FDI in selected sectors like IT, tourism, energy, and more.

If you’re curious about which industries qualify and how the automatic route works, we’ve covered that in detail.

And if this sounds like a lot, that’s where we can help

We know that setting all this up; from registration and PAN to tax filings and compliance, can feel like a bit much, especially if you’re focused on building your actual business.

At , we help entrepreneurs and small businesses do all of this from scratch.

Just drop us a message;  we’ll handle the bureaucracy, so you can focus on the business.

Great for Companies, But What About the People Who Work in Them?

Okay, so this 5% tax on IT export income? Huge win for businesses.
But here’s something that’s not getting enough attention:

It’s actually making it harder for IT companies to hire top talent from Nepal.

How?

Let’s break it down.

1. The Freelancer Advantage

Right now in Nepal, if you’re a freelancer exporting digital services, you pay a flat 5% tax.
No slabs. No deductions. Just 5% on whatever you earn. Done and dusted.

For a lot of tech professionals; especially software developers, designers, and consultants, that’s a pretty sweet deal.

Now compare that to someone working as a full-time employee at a registered IT company:

• Their salary is taxed under the normal progressive system
• That means 10%, 20%, or even as high as 39% depending on income
• Plus: social security, pension, and other deductions kick in

So even if the company is enjoying 5% tax on exports, the employees might be taking home a lot less than their freelancing friends, even when doing the exact same work.

Naturally, many skilled folks are saying:

“Why should I join a company and lose money when I can freelance and keep more?”

2. What This Means for IT Companies

Here’s the irony:
The very policy that was meant to help IT businesses grow, is making it harder for them to hire and retain great Nepali talent.

Companies are:

• Losing developers to foreign freelance platforms
• Struggling to offer competitive net salaries
• Getting ghosted by potential hires who’d rather work independently

Some are even setting up hybrid models (contractors instead of full-time staff) just to stay competitive with the freelance market.

2. What the Government Could Do

There’s a simple, powerful fix:

Introduce a special tax slab for employees of certified IT export companies.

Something like:

• 10% flat tax up to a certain salary ceiling (say Rs. 25 or 30 lakh per year)
• Only applicable if the company is genuinely earning from exports and is tax-compliant
• Could be verified annually via IRD or a digital certification system

This would:

• Make salaried jobs more attractive
• Encourage people to stay within the formal system
• Help IT companies grow with local talent, not despite it

And honestly? It would cost the government very little, but pay off in productivity, retention, and economic stability.

So, Nepal’s 5% export tax is great, no doubt about it.

But if we want our companies to compete globally, they need great people behind them.
And right now, we’re not doing enough to make it worth it for those people to stay in the system.

The 5% Loophole? Let’s Talk About the Elephant in the Room.

Let’s get one thing straight, the government’s decision to bring down the corporate tax rate to 5% for IT export income is a bold and much-needed move.
It shows vision, especially at a time when countries are competing to attract digital talent and foreign earnings.

But, and there’s always a “but,” right?

When you suddenly make it super easy and super cheap to bring money into the country under the label of “IT export”, you also open the door for people to misuse it.

Could This Be Misused? Let’s Talk Hypotheticals.

Let’s say someone in Nepal has a bunch of unaccounted cash. The kind you can’t exactly deposit in a bank or show on your tax return.

Now, thanks to this new 5% tax rate on IT exports, there’s a creative little workaround they could try:

1. First, they quietly send that money abroad using informal channels; hundi, for example. It’s not legal, but it happens, and it usually costs around 5%
2. Once the money is out, they set up a shell company in a tax haven, somewhere like Belize or the British Virgin Islands. Nothing fancy. Just a name on paper.
3. Then, that foreign company “hires” a Nepali IT firm; which, surprise surprise, they also secretly own, to provide some kind of digital service: web development, maybe, or software consulting.
4. The foreign company pays the Nepali firm for these “services” and wires the money in through formal banking channels.
5. Now here’s where it gets clever:
   Because it’s labeled as export income, the Nepali firm only pays 5% tax on the money. Clean, simple, and on paper? totally legal.

And if they really wanted to push it, they could even draw a salary from their own company and pay just another 5% as a contractor. No questions asked.

So what started out as black money in Nepal just came back as white, taxed, legal, and sitting pretty in a company account.
All in, the cost? Maybe 8 to 10%. Less than what you’d pay in VAT.

Is This Happening?

We’re not saying it is.
All we’re saying is it could.

Especially now that:

• FDI thresholds are gone for IT
• Service exports are hard to verify (unlike goods)
• And tax rates are at historic lows

The good news?
Nepal Rastra Bank has already started tightening up, especially with rules like mandatory Ultimate Beneficial Owner (UBO) disclosure for foreign investments. That’s helped curb fake FDI routed through shell companies.

But there’s still room for abuse in service-based transactions, where verifying whether work was actually done is not always straightforward.

What Policymakers Can Do

This doesn’t mean the government should roll back the policy.
It just means we need some smart guardrails, like:

• Random audits of IT exporters above a certain income level
• Cross-checking invoices with actual client correspondence or project delivery
• A digital compliance certificate for companies claiming the 5% rate
• Stronger Know-Your-Investor (KYI) protocols tied to NRB's FDI approval system

In Short

Tax breaks like this can power Nepal’s digital economy, if they’re used right.

But if we’re not careful, they can also become textbook loopholes that benefit the wrong people.

Let’s not lose a good policy to bad actors.

Nepal Just Took a Bold Step. Let’s Not Waste It.

Let’s call it what it is; a 5% tax rate for IT exports is a big, bold, business-friendly move.

For years, we’ve watched our best tech minds leave, our startups struggle for capital, and our freelancers quietly bypass the system just to survive.

But now?
For the first time in a long time, Nepal has said yes. Yes to innovation, yes to global ambition, yes to bringing the digital economy out of the sidelines and into the spotlight.

For founders and tech entrepreneurs:

This is your signal.
To go legit. To scale. To stop playing small.
With lower taxes, easier FDI, and permission to go global, this is your runway.

For freelancers and talent:

You’ve had every reason to stay out of the system.
But imagine if full-time jobs at Nepali IT companies paid you as well as your freelance gigs, without the tax penalty.
That’s not just fair, that’s future-proof.

For investors?

The red carpet has been rolled out, especially for IT.
The removal of the Rs. 2 crore threshold and the introduction of the automatic route are signals that Nepal is open for business, even for smaller, strategic investments.

But the truth is:

Policy is only half the story.
Execution is everything.

Because if we don’t plug the loopholes, verify what’s real, and protect honest builders, this entire reform could end up as just another way to game the system.

And we’ve seen how that story ends before.

What Needs to Happen Next?

Final Word: The Window is Open. Now We Build.

Nepal has finally made a move that favors builders.
Let’s not get in our own way now.

Let’s keep the incentives clean.
Let’s make sure the right people benefit.
And let’s build a digital economy that’s not just big, but fair, fast, and future-ready.

And if you’re ready to be part of that future. Whether it’s starting your own company, bringing in FDI, or scaling what you’ve already built, Khatapana’s here to help.

From registration to tax, accounting to compliance, we’ve got your back.
Let’s get to work.

Additional Resources:

• New Tax Rate in Nepal 2082/83: Budget Changes for Business
• Nepal Budget 2082/83: How IRD Nepal and Parliament Shape the Process
• Key Amendments in Company Act 2063: Boosting NRNs and Startups in Nepal
• Searching BYD Dolphin Price in Nepal? Know the EV Policy First