The Ultimate Freelancer Tax Guide Nepal (2025): 5% Final Tax, Filing D01 & Legal Rights

The “Grey Area” is Over: Freelancing is a Taxable Business

For years, Nepali freelancers lived in a legal grey area. Money came in via Payoneer, Wise, or relatives, and tax was an afterthought. That era is over.

With the Finance Act 2081/82 (2024/2025), the government has explicitly recognized “Digital Service Exports.” Whether you code for a Silicon Valley startup, design logos on Fiverr, or earn ad revenue from YouTube, you are a business entity in the eyes of the Inland Revenue Department (IRD).

This guide answers the most specific questions freelancers have: How do I file?, Is 5% really the end?, and What if I get scammed?

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1. The Golden Rule: 5% Final Withholding Tax

The most significant update for 2025 is the tax rate for “Information Technology & Digital Services” exported from Nepal.

• The Rate: Expenses earned in foreign currency from software development, data processing, cyber security, YouTube, and digital services are subject to a flat 5% Advance Tax.
• Is it Final?
  • For Individuals (Natural Persons): YES. If you are not a registered company and this 5% is deducted by your bank upon receipt, it is treated as Final Tax Liability. You do not need to pay extra income tax even if you earn 50 Lakhs.
  • For Companies: It is an Advance Tax. You can claim expenses and pay tax on net profit.

⚠️ Warning: The 5% deduction must happen via a licensed bank. If you receive money via “Hundi” or crypto (USDT), it is 100% tax evasion and illegal.

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2. Taking Action: How to Instruct Your Bank

Banks often miss this deduction if you don’t tell them. Here is the exact process:

1. Receive Funds: Money arrives in your Nepali bank account (from Wise/SWIFT).
2. Email Your Branch Manager:
   • Subject: Request to Deduct 5% TDS on IT Export Earnings
   • Body: “I have received USD [Amount] from [Client] for IT services. Please deduct 5% TDS under ‘Export of Services’ and credit the remaining NPR to my account. Please issue a Tax Clearance Certificate for this deduction.”
3. Get the Certificate: At the end of the year (Ashad), go to the bank and get the TDS Certificate. This is your “White Money” proof.

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3. Filing Your Tax Return: D01 vs. D04

Just paying tax is not enough. You must File a Return to appear in the government system.

Option A: D01 Return (Small Taxpayer)

• Who: Turnover < NPR 30 Lakhs & Income < NPR 3 Lakhs.
• Process:
  1. Log in to taxpayerportal.ird.gov.np.
  2. Select “D-01 Return Entry”.
  3. Enter your turnover.
  4. The system will calculate tax (likely zero if 5% is already paid/adjusted).
  5. Submit.

Option B: D04 Return (Income Slabs)

• Who: Earning > NPR 40 Lakhs/4 Million.
• Process:
  • If you earned huge amounts (e.g., 1 Crore), filing D01 is risky. Use D04.
  • You declare total income.
  • You claim the 5% tax paid as a credit.
  • Since 5% is final for export, you shouldn’t pay extra, but D04 documents high income better for loans.

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4. VAT: The Trap for High Earners

• Service Threshold: NPR 30 Lakhs turnover per year.
• The Rule: If you cross 30 Lakhs, VAT Registration is MANDATORY.
• Good News: Export of services is 0% VAT.
  • You register for VAT.
  • You file monthly returns showing “Export Sales.”
  • You pay NPR 0 VAT.
  • Benefit: You can claim back VAT paid on laptops/internet (Input Tax Credit).

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5. What if the Client Doesn’t Pay? (Remote Work Law)

Working remotely is risky. Since there is no “Global Labor Court,” your options are limited.

Scenario A: You have a Contract

1. Legal Notice: Have a Nepali lawyer send a formal “Demand Letter” via email. It shows seriousness.
2. Foreign Action: If the amount is huge ($10k+), you can hire a debt collection agency in the client’s country.
3. Nepal Police: Cannot help you (it’s a civil dispute, not a crime).

Scenario B: No Contract (Upwork/Fiverr)

• Use the platform’s “Dispute Resolution Center.” They are your court.
• Prevention: Never work without a 50% advance or Escrow.

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6. Why Pay Tax? (The Advantages)

Why give the government 5%?

1. Visa Power: Embassies (US/Australia/Europe) reject visas if your bank shows Crores but you have no Tax Clearance Certificate.
2. Loans: Banks will NOT give Home/Car loans on “unverified” income.
3. White Money: You can buy land/shares without fear of “Asset Laundering” (Sampatti Shuddhikaran) investigation.

Summary Checklist 2025

Action	Threshold/Condition
Get PAN	Day 1 of Freelancing (Mandatory)
Pay 5% Tax	On every dollar received (Bank deducts)
Register VAT	If annual income > 30 Lakhs
File Return	D01 (Small) or D04 (Big) in Shrawan/Bhadra

Disclaimer: Tax laws are updated annually. This guide is for 2081/82. Consult a Registered Auditor for filing assistance.