We may hate taxation, everybody does. But we know that we can’t avoid it either. And, especially if you are an aspiring start-up venture with long run vision and looking for scaling-up through external financing, you should never avoid paying taxes. We would tell you why on next article, but for now we want to drag your attention towards the tax-responsibilities of a start-up ventures registered as a company.
There are three types of taxes that a company needs to pay
TDS is amount deducted from the payment made in course of business, employment or investment transactions by the company to the various recipients. Such transactions include, but are not limited to, payment of salaries, interests, rents, royalties, general insurance, dividends, other services etc. That suggests, if the company makes payment for above mentioned reasons, it should do so only after deducting a certain percentage from the total amount and shall deposit the deducted amount to the government coffers. The applicable TDS rate ranges from 1.5% to 15% depending upon the nature of transaction.
In order to return file the TDS, company must prepare a monthly TDS statement detailing the transactions; recipients of payment, amount and TDS amount. Such statement along with the TDS amount should be submitted to the concerned Inland Revenue Office (Tax Office) until the 15th day of the following month. A TDS statement need not be submitted for months in which no TDS was deducted.
VAT is probably the most ‘recognized’ form of taxation in Nepal as almost all the businesses with annual sales revenue is Rs. 20 lakhs and above shall registered in VAT and file periodic VAT return. Additionally, the ventures with less than that revenue threshold can also voluntarily register for VAT. Except for the ventures with No or Low sales revenue, it is advisable for the start-ups to get themselves registered in the VAT.
Once registered, the company must collect Sales Book, Purchase Book, and VAT Account and collect VAT on sales and provide customer with tax invoice. The tax invoice will require the name and address of the seller and the purchaser, the seller`s PAN number and invoice number, the date of the transaction and a description of the sale including the number of items purchased, the unit cost of each item and a mention of any discounts given.
The tax invoice must be prepared in three copies and the first copy should be clearly identified as a tax invoice. The original copy is to be given to the purchaser; the second copy is to be retained for audit purposes while the bottom copy is for use by the seller in preparing a record of the transaction.
The difference of VAT collected on sales to VAT charged on purchases determines the amount a company must deposit to the government. Company must submit VAT return and pay tax within the 25th day of the following month. In general, VAT are payable monthly. However, if the company’s monthly transaction in very low, it can file VAT returns on bi-monthly or quarterly basis.
Income tax here referred to the corporate tax that the venture needs to pay on its profit-income. No venture is exempt from paying income tax. In Nepal, income tax is paid on the basis of venture’s own tax assessment unless the tax office find reason to review, alter or even investigate on such tax declaration.
Venture compulsorily needs to file advance tax return (Tax Payable) three times a year in following installments,
· by the end of the month of Poush 40% of the estimated annual tax payable
· by the end of the month of Chaitra 70% of the estimated annual tax payable
· by the end of the month of Ashad 100% of the estimated annual tax payable
The Inland Revenue Office may verify on the tax assessment provided by the venture. In addition, the office might opt to conduct a full-fledge assessment (tax audit) on the suspicion of the fraud, any time within four years.