Why So Many Nepali Freelancers Don't File Tax, and What It Costs Them

Many Nepali freelancers who earn from foreign clients are already paying tax without knowing it, and many others pay nothing and keep no record at all. An IIDS survey cited by Samriddhi Foundation found that 57.9% of freelancers surveyed were unaware of Nepal's tax rules. The same research put a freelancer's average earnings at USD 4,723 a year (Samriddhi Foundation). That is a large group of earners with very little paperwork behind their income.

The cost of that gap rarely shows up as a fine. It shows up years later, when a freelancer needs to prove what they earn.

How is foreign freelance income taxed in Nepal?

An individual who is not running a registered business pays a flat 5% on foreign-currency payments received through a bank, financial institution or licensed money transfer company. The rule covers software and electronic services, consultancy for clients outside Nepal, and income from uploading audio-visual content to social media. The bank or remittance company withholds the 5% when the money arrives (Baker Tilly Nepal, Tax Fact FY 2082/83).

For individuals, tax guides describe this 5% as a final withholding tax on that income, so no further slab tax is added on top (Kharchapatra; Nepacalc, Budget 2083/84 guide). To use it, the money must come through a licensed bank channel and your PAN should be linked to the receiving bank account (Kharchapatra).

Sources: Baker Tilly Nepal (5% rule, IT and BPO concession); Kharchapatra (final-tax treatment, TDS on Nepali clients, Hundi and crypto).

A simple example: if a foreign client pays you Rs 10 lakh into your Nepali bank account, the bank withholds Rs 50,000 and Rs 9,50,000 reaches you. Keep the bank's deduction record. It is your proof that the tax was paid.

Why do so many freelancers skip it?

• They don't know the rule. Most freelancers learn their trade on Upwork, Fiverr or YouTube, not from the Inland Revenue Department, and the 57.9% figure shows it.
• They think the bank's deduction is the whole job. Because the 5% is taken automatically, many never get a PAN, never link it to their account, and never keep invoices.
• They use informal channels. Money that comes through Hundi or crypto skips the 5% route entirely and leaves no record that the income was legal.
• The rules keep changing, and online guides disagree. The FY 2083/84 budget revised the income tax slab table (Kharchapatra). Some websites also mention a Rs 40 lakh limit for the 5% rate that the tax summaries I checked do not list.

What does not filing actually cost?

The biggest cost is having no proof of income when you need it most. A freelancer with five years of informal earnings can look, on paper, like someone with no income at all.

• Loans: banks usually ask for proof of steady income. Bank statements showing tax withheld, plus a PAN, are far stronger than screenshots of a platform dashboard.
• Visas and study abroad: embassies and universities often ask for income and tax documents from sponsors and applicants.
• Back tax and interest: if income is later treated as business income, late advance tax carries interest of 15% a year on the shortfall (Kharchapatra).
• Money at risk: informal channels offer no protection if a payment goes missing.

What should a freelancer do this year?

Six steps cover most freelancers who earn from foreign clients.

1. Get a personal PAN. It is free and starts on the IRD taxpayer portal (Global IME Bank).
2. Link your PAN to the bank account where foreign payments arrive.
3. Receive money only through banks or licensed remitters, including withdrawals from platforms such as Payoneer into a Nepali bank account. Ask your bank whether it withholds the 5%.
4. Keep records: invoices, contracts, bank statements and every tax deduction slip.
5. Check VAT: Service businesses must register for VAT once turnover passes Rs 30 lakh in 12 months, while exports listed under the VAT Act are taxed at 0% (Baker Tilly Nepal).
6. File on time: Kharchapatra puts the individual return deadline at the end of Ashoj, with an extension to the end of Poush for self-employed people. Confirm the current date on ird.gov.np.

What would make more freelancers file?

The rule is simple; the problem is that almost nobody explains it. Three small changes could help:

• Show the withheld 5% in each taxpayer's IRD portal automatically, so freelancers can see and download their own tax record.
• Publish a one-page freelancer guide in Nepali on the IRD website, covering PAN, the 5% rule, VAT and deadlines.
• Ask banks to send a short notice when they withhold the 5%, explaining what it is and that the freelancer should keep it.

Nepal wants more foreign currency to come home through formal channels. Freelancers already earn it. Making the rules easy to understand is the cheapest way to bring that income into the system.

This article explains general tax rules in plain language and is not tax advice. Rules change with each Finance Act, so confirm your situation with the Inland Revenue Department or a tax professional.

Prakash Nepali writes about business and tax rules for Nepali entrepreneurs at nepalbusiness.org, which offers free tools such as a Nepal income tax calculator.

Sources

• Samriddhi Foundation: Nepal's Freelance Frenzy, Dollars and Dilemmas
• Baker Tilly Nepal: Tax Fact 2025/26 (FY 2082/83)
• Kharchapatra: Side income and freelance tax in Nepal
• Nepacalc: Nepal Budget 2083/84 guide
• Global IME Bank: Process of applying for a PAN card in Nepal

Article By: Prakash Nepali