According to the 2022 Chainalysis Global Crypto Adoption Index, Nepal is currently ranked 16th, which means that even without official permission of banking activity, the adoption takes place on a grassroots level. But the use of all virtual currencies has been declared illegal by Nepal Rastra Bank (NRB) making the investors stand in a legal grey area.
As income of all forms is taxable according to Income Tax Act, 2058, one should understand how the Inland Revenue Department (IRD) will execute the existing provisions to tax crypto gains. This handbook is a summary of the laws that exist, implementation, and the likely reporting requirements to ensure the Nepali taxpayers do not fall out of compliance with the policy, which is still under development.
Tax Authorities & Regulations
Income tax: Main tax authority: inland revenue department (IRD) within the Ministry of Finance.
Key legislation:
World income and capital gains are taxed in the Income Tax Act 2058 (2002).
Value Added Tax Act 2052 (1996) VAT is imposed on a flat rate of 13%.
The foreign exchange (regulation) act 2019 (1962) and the NRB Act 2058 (2002) gives the NRB the right to prohibit the crypto transaction.
In the absence of any special rules, crypto-assets will be treated by IRD as property/investment assets. Any business real profit is, therefore, considered as provisions of business income or proceeds of capital gains respectively depending on the frequency of sales made and on purpose of the trading.
Types of Crypto Taxes in Nepal
Capital Gains Tax (CGT): This tax is charged upon the sale, exchange and use of crypto purchase of goods/services.
Income Tax: Taxes any tokens that are received as rewards in mining, staking, airdrops or play-to-earn, and tokens paid as salary.
Value-Added Tax (VAT): In the case where a normal supply is made in exchange of crypto, VAT of 13% can be realized.
Other taxes: The rules about wealth tax and inheritance tax are not accepting crypto at the present time, but they can be changed in the years to come.
Tax Rates & Brackets
investment assets (CGT):
Over 12 months: 5% of net increase.
Less than 12 months: 7.5 %.
CGT (entities): 10% on the gains of investments-assets; 25% where the gains are treated as ordinary business gains.
Income-tax-brackets (Personal- Income tax) (FY 2082/83): progressive: 1 to 39% on residents; 25% on non-residents.
Corporate: 20% ordinary, 25 % to banks and insurance, 30 % to tobacco/ alcohol.
Exempted: long term losses, can be offset against other capital gains; a concession of 1% on social security remains accessible on the first NPR 500,000 of annual salary earnings.
Crypto Transactions & Tax Treatment
Buying & holding: No tax till disposal but the cost basis records need to be maintained.
Selling at fiat: CGT is realized on the spread between the sale price and the cost.
Crypto-to-crypto exchanges: are considered two disposals; CGT is applicable on the asset given up.
Mining & staking: Mining rewards are treated as ordinary income when received; any subsequent disposal of the rewards gives rise to CGT on any appreciation.
Salary & payments: Fair-market rupee value is taxed as employment or business income at the date of receipt.
DeFi lending/yield farming Interest or incentive tokens are taxed as income, recoveries of impermanent-losses are CGT events.
NFT sales: Minting is not subject to tax, but primary sales, royalties and secondary flips are subject to CGT; royalties to creators are treated as business income.
Crypto Tax Reporting & Compliance
Nepali nationals complete a self-assessment on an annual basis, which is due by mid-July (individuals) or by mid-October (businesses). The digital asset gains and losses must be summarised on Schedule 2 of Form IRD 01/02 with other investment income.
The admissible evidence is the exchange CSV files, on-chain explorers, wallet screenshots and KYC statements. The IRD anticipates FIFO or specific-identification costing; the method to be used should be consistent. Late declaration with an interest of 15% p.a. and a late-filing penalty of up to NPR 10,000 or 1% of understated tax, whichever is the higher one are charged when the declaration is not made within 30 days of the deadline.
Tax Deductions & Exemptions
Although the law prohibits crypto trading, the IRD still permits real deductible expenses when the income is realised. Miners can claim electricity, depreciation of the hardware (straight-line over five years), pool fees and the internet. Exchange commissions, audit fees and cybersecurity insurance can be deducted by traders who are registered businesses. The capital losses on tokens disposed can be used to offset capital gains in the same year and any remaining are carried forward to up to seven years. Losses due to wallet hacking or scam are however treated as deductible only when a police report confirms the event within 35 days of the loss being discovered.
Enforcement & Penalties for Non-Compliance
Although the NRB has banned it, blockchain forensics software has now allowed the authorities to track wallets associated with Nepali IP addresses or local bank rails. Facilities that provide NPR pairs should conduct full KYC and Suspicious Transaction Reports to the Financial Information Unit, which passes information on to the IRD.
Any taxpayer who underreports over 25% of their crypto income is subject to a 50% surcharge of the unpaid tax and interest going back to the original due date. Evasion that is deliberate and amounts to over NPR 10 million attracts the provisions of Section 95 of the NRB Act, which provides confiscation of money, fines three times the value of money involved and up to seven years in jail.
In the case of illegal foreign-exchange channels (hundi), an extra penalty under the Foreign Exchange Regulation Act is charged, and the prison sentence is increased by two years in case of failure to pay the fines. The IRD also has the option of blacklisting noncompliant firms, which are blocked to get import permits and government tenders until they clear arrears.
Future of Crypto Taxation in Nepal
The Ministry of Finance is working on amendments that would acknowledge the existence of digital assets as the property of intangible movable property, which will open the way to the introduction of express CGT rules and the use of voluntary disclosure programs. The public consultations indicate that there could be a concession rate of 5% on long-term crypto gains and VAT exemptions on regulated exchanges, as long as the NRB shifts towards a sandbox regime. The Parliament will be anticipating the first draft bill in Q4 2025.
Conclusion
The IRD taxes crypto income as any other taxable profit, even in cases where there is a strict trading prohibition. Investors should thus maintain elaborate records, exercise uniform costing procedures, report profit in time and maintain supporting documentation not less than seven years.
Failure to comply may result in high fines, confiscation of assets, as well as imprisonment. With the shifting policy backdrop, consult a Nepali tax expert prior to major transactions so that you do not miss the deductions you are entitled to and do not get hit with penalties unexpectedly.
FAQs
1. Will I pay taxes to purchase crypto in a foreign country without ever returning to Nepal?
Yes. The Nepali citizens pay tax on global revenues, even on offshore crypto-related profits.
2. Am I liable to VAT when exchanging one token with another?
No. VAT is only charged when crypto is used in paying for taxable services or goods.
3. What is the IRD basis of valuing tokens on a peer-to-peer sale?
Apply the existing exchange rate on an established international site at the moment of transfer.
4. Will my salary income be able to cover mining losses?
Unless you operate a registered mining enterprise, you can only offset hobby level losses against capital gains and not against employment income.
5. What will occur in case the NRB legalises crypto in a year?
Your previous undeclared income is still subject to taxation; how it will be treated in the future will be subject to the text of the new law.
The post Crypto Taxation in Nepal: A Complete Guide appeared first on Coinfomania.