Nepal Taxes Crypto Gains Despite Trading Ban

Nepal, currently ranked 16th in the 2022 Global Crypto Adoption Index, faces a complex landscape regarding cryptocurrency taxation. Despite the Nepal Rastra Bank (NRB) declaring all virtual currencies illegal, grassroots-level adoption persists, leaving investors in a legal grey area. The Income Tax Act of 2058 mandates that all forms of income, including cryptocurrency gains, are taxable. This guide aims to clarify the existing laws, their implementation, and the likely reporting requirements to ensure Nepali taxpayers remain compliant with the evolving policy.

The main tax authority in Nepal is the Inland Revenue Department (IRD) within the Ministry of Finance. Key legislation includes the Income Tax Act of 2058, which taxes world income and capital gains, and the Value Added Tax Act of 2052, which imposes a flat rate of 13% VAT. The Foreign Exchange (Regulation) Act of 2019 and the NRB Act of 2058 grant the NRB the authority to prohibit crypto transactions. In the absence of specific rules, crypto-assets are treated as property or investment assets by the IRD. Business profits from crypto are considered either business income or capital gains, depending on the frequency and purpose of the trading.

Nepal imposes several types of crypto taxes. Capital Gains Tax (CGT) is charged upon the sale, exchange, and use of crypto for purchasing goods or services. Income tax applies to tokens received as rewards in mining, staking, airdrops, or play-to-earn, as well as tokens paid as salary. Value-Added Tax (VAT) of 13% is realized when a normal supply is made in exchange for crypto. Other taxes, such as wealth tax and inheritance tax, currently do not accept crypto but may change in the future.

Tax rates and brackets for investment assets (CGT) are 5% for gains over 12 months and 7.5% for gains under 12 months. For entities, CGT is 10% on investment assets and 25% on ordinary business gains. Personal income tax brackets are progressive, ranging from 1% to 39% for residents and 25% for non-residents. Corporate tax rates are 20% for ordinary businesses, 25% for banks and insurance, and 30% for tobacco and alcohol. Long-term losses can be offset against other capital gains, and a 1% social security concession is available on the first NPR 500,000 of annual salary earnings.

Crypto transactions and their tax treatments vary. Buying and holding crypto is not taxed until disposal, but cost basis records must be maintained. Selling crypto for fiat currency realizes CGT on the spread between the sale price and the cost. Crypto-to-crypto exchanges are considered two disposals, with CGT applicable on the asset given up. Mining and staking rewards are treated as ordinary income, with any subsequent disposal subject to CGT. Salary and payments in crypto are taxed at their fair-market rupee value as employment or business income. DeFi lending and yield farming interest or incentive tokens are taxed as income, with recoveries of impermanent losses considered CGT events. NFT sales are subject to CGT, with royalties treated as business income.

Nepali nationals must complete a self-assessment on an annual basis, due by mid-July for individuals and mid-October for businesses. Digital asset gains and losses must be summarized on Schedule 2 of Form IRD 01/02 with other investment income. Admissible evidence includes exchange CSV files, on-chain explorers, wallet screenshots, and KYC statements. The IRD anticipates FIFO or specific-identification costing methods, which must be consistent. Late declarations incur an interest of 15% per annum and a late-filing penalty of up to NPR 10,000 or 1% of understated tax, whichever is higher, if not made within 30 days of the deadline.

Although crypto trading is prohibited, the IRD permits deductible expenses when income is realized. Miners can claim electricity, hardware depreciation, pool fees, and internet costs. Traders who are registered businesses can deduct exchange commissions, audit fees, and cybersecurity insurance. Capital losses on disposed tokens can be used to offset capital gains in the same year, with any remaining losses carried forward for up to seven years. Losses due to wallet hacking or scams are deductible only with a confirmed police report within 35 days of discovery.

Despite the NRB ban, blockchain forensics software allows authorities to track wallets associated with Nepali IP addresses or local bank rails. Facilities providing NPR pairs must conduct full KYC and Suspicious Transaction Reports to the Financial Information Unit, which shares information with the IRD. Taxpayers who underreport over 25% of their crypto income face a 50% surcharge on unpaid tax and interest from the original due date. Deliberate evasion exceeding NPR 10 million attracts confiscation of money, fines three times the value, and up to seven years in jail. Illegal foreign-exchange channels incur additional penalties and increased prison sentences. The IRD can blacklist noncompliant firms, blocking them from import permits and government tenders until arrears are cleared.

The Ministry of Finance is working on amendments to acknowledge digital assets as intangible movable property, paving the way for express CGT rules and voluntary disclosure programs. Public consultations suggest a potential 5% concession rate on long-term crypto gains and VAT exemptions on regulated exchanges, contingent on the NRB adopting a sandbox regime. The first draft bill is anticipated in the fourth quarter of 2025.

In conclusion, the IRD taxes crypto income as any other taxable profit, even with the strict trading prohibition. Investors must maintain detailed records, use uniform costing procedures, report profits on time, and keep supporting documentation for at least seven years. Non-compliance can result in high fines, asset confiscation, and imprisonment. Given the evolving policy landscape, consulting a Nepali tax expert before major transactions is advisable to avoid penalties and ensure compliance with deductions.