Concept of Reverse VAT

Reverse VAT is the system implemented by the VAT in every country where taxation system shifted the liability from the seller to buyer to pay VAT. It is mostly applied in case of services received from the foreign country where seller is not registered in the country and the transactions where high chances of fraud and error is possible.

Concept of Reverse VAT in Nepal

Reverse VAT is collected in Nepal in case of import of services from foreign countries, construction of building and carriage and transportation services. The provisions of reverse VAT in Nepal are:

Reverse Charge in case of Import of Service

Registered or unregistered person receiving services from person outside Nepal should collect tax (collection from own self) at taxable value at early date of payment date or Service date. It is applicable on following cases:

1. Person from foreign country supplies service to the person inside Nepal.
2. Service can be available in Nepal.
3. Service is supplied from foreign country.
4. Service is vatable service in Nepal.
5. Service provider is not registered in Nepal.

Reverse Charge in case of Carriage Service and Transport Vehicle Hire Service.

Registered or unregistered person receiving services of transport vehicle hire or carriage of goods from unregistered person should assess and collect tax at taxable value and deposit the vat early date of payment date or Service date.

Reverse Charge on Construction Contract

In case of construction of building, apartment, shopping complex or any other similar structure as prescribed by the department for more than Rs.50 lakhs for the commercial purpose, then such construction should be done through registered person only.

However, if such construction was made through unregistered person, tax should be deposited as if construction was made by registered person even if it is made through the unregistered person.

Computation of Reverse VAT in Nepal

The reverse VAT is calculated in the following ways:

1. In case of Import of Service, Carriage Service and Transport Vehicle Hire Service

Reverse is calculated on the cost of service received from the seller. For instance, if you receive service of 1,00,000 then the reverse VAT of 13,000 is calculated.

2. In case of Construction Contract.

Reverse is calculated in the following basis in the given cases of self-consumption and self-construction.

Case 1: Own Material + Construction from Registered Contractor = VAT to be paid by considering such goods supplied at Cost.

Case 2: Own Materials + Own Labors and Employees = VAT to be paid on the basis of MV of such infrastructure.

Case 3: Purchase of Materials + Own Labor and Employees = VAT to be paid is total VAT to be paid on cost of construction – VAT already Deposited (if Purchased Material from Registered Person)

Note:

For the computation of cost for the construction contract, cost directly related to construction work other than financial overhead should be included in the cost of the assets or amount to capitalized. .

However, expenses incurred before the commencement of the construction shall be excluded like mapping cost and survey expenses paid to third party.

Rate of Reverse VAT in Nepal

The rate of reverse VAT is same as the normal rate of 13% on the taxable value of the service or goods.

Can the Reverse VAT be claimed as input credit by the registered person in Nepal?

Reverse VAT paid in case of import of service, carriage service and transport vehicle hire service can be claimed as input credit but Reverse VAT paid in case of construction contract cannot be claimed.

When to pay the Reverse VAT in Nepal?

The reverse VAT calculated should be deposited within 25^th day of the following month to get relief from fines and penalties.