More and more people in Nepal are becoming freelancers. They work for companies in other countries, doing jobs like writing, making websites, or giving advice. This way of working is good for both the freelancers and the foreign companies.
Freelancers in Nepal like this because:
- They can work with many companies
- They can earn money in foreign currencies
- They pay less tax than regular workers
Foreign companies like hiring Nepali freelancers because:
- They don’t have to pay for things like health insurance or pensions
- They can find skilled workers at good prices
The Nepali government has made it easier for people to be freelancers. They don’t need to start a whole company to do freelance work. This helps more people take on jobs from other countries.
In this article, we’ll talk about:
1. The 5% tax for freelancers
2. How to get a PAN (Permanent Account Number)
3. How to get a tax clearance certificate
4. What freelancers need to do to follow the tax rules
Let’s start by looking at the 5% tax for freelancers.
Understanding the 5% Freelancer Tax
If you’re a freelancer in Nepal and you earn money from foreign companies, you need to pay a 5% tax. This tax is called an “advance tax”. It’s lower than what regular workers pay.
The 5% tax applies to money you earn from:
- Making software
- Giving advice (consulting)
- Creating content (like YouTube videos)
- Other services for foreign clients
How the 5% Tax Works
When you get paid by a foreign client, your bank should take out 5% of the money as tax. Here’s an example:
Let’s say you get paid NPR 100,000 for your work. The bank should take out NPR 5,000 as tax. You would get NPR 95,000 in your account.
This 5% is all the tax you need to pay on that money. You don’t need to pay any more tax on it later.
What If the Bank Doesn’t Take Out the 5% Tax?
Sometimes, banks don’t take out the 5% tax when you get paid. If this happens, you need to pay the tax yourself. Here’s what you should do:
1. Get a PAN (Permanent Account Number) if you don’t have one
2. Tell the government how much money you earned
3. Pay the 5% tax yourself
We’ll talk more about how to do these things later in the article.
Changes in Freelancer Tax Rules
The rules for freelancer taxes have changed a bit in recent years:
- The tax used to be 1%, but now it’s 5%
- Banks used to always take out the tax, but now some don’t
- If you earn more than NPR 4 million in a year, you need to file a special tax form called D4
Now, let’s talk about how to get a PAN.
Getting a PAN (Permanent Account Number)
A PAN is like an ID number for paying taxes. If you’re a freelancer in Nepal, you need to get a PAN. Here’s how to do it:
1. Go to the Inland Revenue Department (IRD) website
2. Click on “PAN Registration”
3. Fill out the form with your information
4. Upload a photo of yourself and a copy of your citizenship certificate
5. Submit the form
6. Wait for the IRD to approve your application
7. Once approved, you can print your PAN certificate
Having a PAN is important because:
- You need it to pay your taxes
- It helps you keep track of your income and taxes
- You might need it to open a bank account or get loans
Next, let’s look at how to pay your taxes if the bank doesn’t take them out.
Paying Your Taxes Manually
If your bank doesn’t take out the 5% tax when you get paid, you need to pay it yourself. Here’s how:
- Keep track of how much money you earn from foreign clients
- Calculate 5% of that money
- Go to the IRD website
- Log in with your PAN
- Click on “Pay Taxes”
- Enter the amount you need to pay (5% of your earnings)
- Choose how you want to pay (bank transfer, e-payment, etc.)
- Make the payment
- Keep the receipt for your records
For example:
If you earned NPR 500,000 from foreign clients in a year, you would need to pay NPR 25,000 in taxes (5% of 500,000).
Remember to do this regularly, maybe every month or every three months. Don’t wait until the end of the year to pay all your taxes at once.
Getting a Tax Clearance Certificate
A tax clearance certificate shows that you’ve paid all your taxes. You might need this if you want to:
- Travel to another country
- Apply for a loan
- Show that you follow the tax rules
Here’s how to get a tax clearance certificate:
1. Make sure you’ve paid all your taxes
2. Go to the IRD website
3. Log in with your PAN
4. Click on “Apply for Tax Clearance Certificate”
5. Fill out the form
6. Upload any documents they ask for
7. Submit the application
8. Wait for the IRD to review your application
9. If approved, you can download and print your certificate
Remember, you can only get a tax clearance certificate if you’ve paid all your taxes. So make sure you’re always up to date with your tax payments.
What If You Earn More Than NPR 4 Million?
If you earn more than NPR 4 million (40 lakh) in a year from your freelance work, you need to do a few extra things:
1. File a D4 tax return
2. You still only pay 5% tax, but you need to fill out this special form
3. You might need to keep more detailed records of your income and expenses
Here’s an example:
If you earned NPR 5 million in a year, you would:
- Pay NPR 250,000 in taxes (5% of 5 million)
- Need to file a D4 tax return
- Keep detailed records of all your earnings and payments
Why It’s Important to Pay Your Taxes
Paying your taxes is very important. If you don’t, you could have problems:
1. You might have to pay extra money as a penalty
2. You might have to pay interest on the taxes you didn’t pay
3. It might be hard to get a tax clearance certificate
4. You could get in trouble with the government
Paying your taxes on time helps you avoid these problems and shows that you’re a responsible freelancer.
Tips for Freelancers to Stay Tax Compliant
Here are some tips to help you follow the tax rules:
1. Always check if your bank is taking out the 5% tax
2. If the bank doesn’t take out the tax, make sure you pay it yourself
3. Keep good records of all the money you earn and the taxes you pay
4. Put aside 5% of your earnings for taxes, just in case
5. Check the IRD website often for any new rules or changes
6. If you’re not sure about something, ask an accountant or tax expert for help
Wrapping Up
Being a freelancer in Nepal can be a great way to earn money and work with clients from around the world. But it’s important to understand and follow the tax rules. Here’s a quick summary:
- You need to pay 5% tax on money you earn from foreign clients
- Get a PAN if you don’t have one
- Pay your taxes regularly, either through your bank or by yourself
- Keep good records of your income and tax payments
- Get a tax clearance certificate if you need one
- If you earn more than NPR 4 million, you need to file a D4 tax return
By following these rules, you can enjoy the benefits of freelancing while staying on the right side of the law. Remember, paying your taxes helps support your country and keeps you out of trouble. If you ever have questions about your taxes, don’t be afraid to ask for help from a tax professional.
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