The government has formally notified seven of its Double Taxation Avoidance Agreement (DTAA) partner countries about significant changes in Nepal’s domestic taxation laws.
The notification underscores Nepal’s commitment to preventing fiscal evasion and promoting a fair, stable, and transparent international tax environment. According to the Inland Revenue Department (IRD), official notices have been sent to the Competent Authorities of countries with which Nepal had signed DTAAs prior to the enactment of the Income Tax Act (ITA) 2002.
The countries informed include Norway, Thailand, Sri Lanka, Austria, Pakistan, China, and South Korea.
The new provision—introduced under Article 73(5) of the ITA—aims to reinforce the core purpose of DTAAs: facilitating legitimate trade and investment between partner countries. The rule serves as an essential domestic safeguard against the misuse of treaty benefits by third-country residents or entities seeking tax advantages through “treaty shopping.”
Under this anti–treaty shopping measure, entities whose 50 percent or more beneficial ownership is held by individuals or entities that are neither residents of Nepal nor residents of both Nepal and the treaty partner country will be denied treaty benefits, including reduced tax rates or tax exemptions.
The IRD emphasized that the notification centers on the introduction of this material anti-abuse provision in Article 73(5), designed to protect the integrity of Nepal’s bilateral tax treaties.
“Nepal is firmly committed to maintaining the integrity of its bilateral tax agreements and ensuring that they benefit only bona fide investors and taxpayers of the respective countries,” read the notification letters issued by IRD Director General Madan Dahal, Nepal’s Competent Authority.
