New Tax Policy to Fuel Nepal’s Digital Service Exports
Nepal Cuts Income Tax to 5% for IT Professionals Working with Foreign Clients
In an important step to support Nepal’s growing digital industry, the Government of Nepal has announced a big tax discount for people and companies that provide IT services to clients in other countries. In the budget for the year 2082/83 (2025/26), Finance Minister and Deputy Prime Minister Bishnu Poudel said that only 5% income tax will be charged on money earned from exporting IT services. This means a 75% discount on the regular tax rate for this type of income.
This decision marks a significant milestone for the country’s growing tech and freelancing sector and is expected to encourage a wave of new digital entrepreneurs and remote workers.
The Key Announcement
On May 30, 2025, while presenting the national budget in the Federal Parliament, Minister Poudel announced the government’s intention to promote IT service exports through favorable tax policies. According to the new provision:
- Only 5% income tax will be imposed on individuals or entities in Nepal who earn income by exporting IT services abroad.
- The tax is final and conclusive, meaning no additional taxes will be imposed on this income.
- This policy reflects a 75% tax discount compared to the standard applicable rate.
What This Means for Nepal’s IT Sector
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Boost for Freelancers and Remote Workers
Nepal has witnessed a significant rise in freelance professionals and remote workers providing services such as software development, web design, digital marketing, data analytics, and cybersecurity to international clients. This tax reduction directly supports their efforts by reducing their financial burden and allowing them to reinvest more into their skills and tools. -
Encouragement for Tech Startups
Nepal’s startup ecosystem, especially in the tech space, has struggled with limited funding and heavy tax obligations. A flat 5% income tax on foreign income will encourage startups to scale globally without being overwhelmed by compliance costs. -
Formalization of the Digital Economy
Many digital service providers currently operate in an informal or semi-formal way due to tax-related complications. This friendly policy creates a pathway for more professionals to register their businesses legally and become part of the formal economy. -
Increased Foreign Currency Inflow
With higher motivation to sell services internationally, the country can expect an increase in foreign currency earnings, which is vital for Nepal’s economy, especially during times of trade deficit.
A Step Towards Becoming a Regional IT Hub
This policy brings Nepal one step closer to being recognized as a regional outsourcing destination. With a young, tech-savvy population, affordable labor, and a growing IT infrastructure, Nepal holds untapped potential in the digital service export industry. This move sends a strong signal to global clients and investors about Nepal's commitment to supporting digital innovation.
Challenges and Considerations
While this tax cut is a welcome move, it must be complemented with:
- Clear implementation guidelines: To ensure that freelancers and companies know how to claim the 5% rate and comply with relevant documentation.
- Improved digital infrastructure: Reliable internet, data centers, and cloud services are still underdeveloped in many parts of the country.
- Capacity building and training: To ensure that the workforce can deliver global-standard services and adapt to fast-changing technology trends.
Conclusion
The 5% flat tax on foreign IT service income is a progressive and strategic policy that recognizes the transformative potential of the digital economy. For Nepalese IT professionals, freelancers, and tech entrepreneurs, this announcement is more than just a tax break—it’s a powerful incentive to go global, dream bigger, and contribute to the national economy.
Nepal’s digital future just got brighter.
