1.Who needs to register under VAT?
Every business enterprise does not need to register their transaction under VAT. VAT Act 2052 provides the threshold for registration in its Article 9. Small vendors having transactions lesser than the threshold are provided exemption. However, if one desires, he may register his transactions voluntarily.
2. What is threshold?
Threshold is the transaction number determining persons with specific annual transactions value to be registered.
Person who holds transaction of goods of more than 5 Million value, transaction of goods and services jointly and services alone of more than 2 Million transaction value in the last twelve months are not required to register their business transaction. But if any person imports taxable goods of worth exceeding NRs 10,000, he should get his business registered.
3. How can threshold be determined?
Generally, it is determined based on the purchase and sale transaction but sometimes, it can also be done based on proxy criteria. For example, if a person obtains business loan of more than NRs 10,00,000.00 from any bank in a year, he should compulsorily register his business transaction.
4. What is compulsory registration?
If a person desires to conduct taxable business transaction, he needs to register.
Similarly, if a person holds transactions value of more than the provided threshold in a year or finds that he may transact more than the threshold based on the expected transactions to be done in the next three months, he should register for VAT.
Furthermore, anyone holding business entity of following kinds are required to get registered within three months of operation of business services:
- production of bricks and its transactions, wines, alcohol, health club, disco, massage therapy, motor parts, electronic software, custom agent, business relating to toys, scrap and recycling related businesses, trekking, rafting, ultralight flight, paragliding, tourist transportation, sand mines, industries relating to slate and stones industries,
- hardware, sanitary, furniture, furnishing, automobiles, motor parts, electronics, marble, educational and legal consultancy, accounting and auditing services, catering services, party palace, parking services, dry cleaners with machinery equipment, restaurants with bar, ice-cream factory, color lab, boutique, tailoring business along with suiting shirting materials, educational institutions or health services institutions, or uniform supplying business to other bodies that are operated within the area as determined by concerned metropolitan city, sub-metropolitan city, municipalities or IRD.
5. Is registration under VAT also required while registering for PAN?
PAN registration does not require VAT registration and VAT registration is to be done for only those business transactions having met the threshold.
6. What are the required documents for VAT registration?
If you have already received PAN, you should get an application only. However, if you have not obtained one, then you will be needing following documents:
- An application in the format provided under Schedule 1 of the VAT Rules 2052,
- Two photographs (in case of personal firm),
- Certificate of business registration,
- Certified copy of citizenship (of directors in case of private limited companies, of all partners in case of partnership),
- Map of location of business,
- House lease agreement or house ownership certificate (if it is own home),
- Memorandum of Association and Articles of Association in case of companies,
- Power of Attorney.
7. What is Certificate of business registration?
This certificate refers to any of the following that a business entity may register for lawful transaction:
- Certificate of registration provided by Department of Industries or Department of Cottage and Small Scale Industries in case of industries,
- Certificate of incorporation provided by Office of Company Registrar in case of companies,
- Certificate of registration provided by Department of Industry, Commerce and Supplies in case of commercial trades,
- License in case of service oriented firms like Institute of Chartered Accountants, Nepal Medical Council, Nepal Bar Association, etc.
- Certificate of local registration provided by local government in case of small business entities
8. What are the documents required for registration of joint ventures?
You will be needing following documents for registering your joint venture:
- Agreement between two or more parties,
- PAN certificate of the parties,
- Tax clearance certificate of the parties.
9. Can joint ventures be registered in any offices?
Joint ventures can only be registered in any of the office where the parties of such venture has been registered. It cannot be registered in other offices.
10. Once a joint venture is registered, up to when does it exist and when should it be deregistered?
Registration of Joint venture exist for the time until the completion of purpose of its establishment. Registration is valid up to only such time period. For execution of other purposes, one must establish a new joint venture and register the same.
Deregistration of joint venture is determined on the basis of the purpose and time period mentioned on the agreement. It should be deregistered once the time period completes.
11. Should the focal person be present for VAT registration and what is the registration fee?
The chief authority of the business entity himself should be present for registration. No fees are required to be paid for VAT registration.
12. Are social organizations, NGO, INGO required to be registered under VAT?
If the social organizations, NGO, INGO incur transactions exceeding the given threshold, they are required to get registered. These should get registered if they meet any of following conditions:
- Transactions of taxable goods of worth exceeding 50,00,000 in a year,
- Transactions of taxable services of worth exceeding 20,00,000 in a year,
- Transactions of taxable goods and services of worth exceeding 20,00,000 in a year.
13. What should you do if you want to establish branch in another city?
You can operate your business transactions establishing any number of branches with the same registration certificate. No new registration is required for new branches in other cities. You should apply and inform regarding addition of branches attaching along the house lease agreement in the office where you registered your business.
Likewise, if you want to add to your business transactions, you can use the same registration number after submitting application for addition of transaction in the office.
14. What is the process of registration for holding fairs?
There exist involvement of national and foreign entrepreneurs and industrialists while conducting exhibition and fairs for educational, industrial, commercial or other purpose. There is high probability of transaction of taxable goods and services in such fairs and exhibitions.
You should register if you qualify for compulsory registration. If it seems that transactions shall occur, the industrialists and entrepreneurs participating in the fairs should register themselves for a short time period. While registering temporarily, the tax officer may ask for necessary amount to be kept as security calculating probable transactions and such person has the duty to pay the amount.
Those who has temporarily registered for fairs and exhibitions should deregister submitting the tax returns along with tax amount within seven days from the date of end of such fairs.
15. When should you apply for VAT registration?
One wishing to involve in taxable transaction should submit an application before tax officer for business registration before operating the business transactions. You should apply if your annual transactions may probably meet the threshold determined by the law and stating the same in the application. However, if you could not assume it before registration and the transactions exceed the threshold, you need to register within thirty days from the date of exceed of transaction value.
16. What are the fines and penalties for non-registration?
You will be fined amounting NRs 10,000 for each tax period and 13% VAT of taxable amount.
17. Do you need to register in order to transact with government offices?
The government offices are required to transact with registered persons only while dealing contracts amounting to more than 20 lakhs or obtaining consultancy services amounting to more than one lakh. So, you need to register in order to transact with government offices.
18. What is voluntary registration and what are its advantages?
Small vendors having transaction value less than the threshold may register their business if they wish to. This is voluntary registration. It has following advantages:
- You can transact with government offices.
- You can easily deal with registered enterprises as such registered one may ask for VAT bills.
- You may ask for VAT deduction for the tax paid while purchasing.
19. When can you cancel your registration?
You can cancel your registration in following circumstances:
- Closure, or transfer or sale, or termination of organized institution,
- Death of the owner in case of personal ownership,
- Dissolution or death of partner in case of partnership,
- Stopping to do taxable transaction by registered person,
- Submission of zero transaction continuously for the twelve months,
- Transaction value of less than the threshold for the past twelve months,
- Registered by mistake.
20. What is the process for deregistration?
The tax payer should submit an application and tax returns in case of closure of business as per Schedule 11 of the VAT Rules. Then the documents for auditing are needed to be submitted within 15 days of submission of application. After tax evaluation by the tax office, tax remaining to be paid are required to be paid and the tax office will inform the tax payer in regard to deregistration within three months.
21. Can voluntarily registered person deregister on their own?
Small vendors that have voluntarily registered cannot cancel their registration until the completion of one year of registration, after the completion of one year, an application for deregistration may be submitted in thee tax office.
22. Can VAT registration number be transferred when selling the business?
You cannot transfer your registration number if you are sole proprietor. You need to deregister your business after selling your business. The person purchasing shall obtain a new registration number by following registration procedures. In case of closure or transfer of business, VAT should be paid for the capital goods in stock that are transferred, are treated to be sold at market price.
23. Can the same VAT number be used while converting your sole proprietorship into private limited company?
You cannot use the same VAT number in this case. The VAT registration for your sole proprietorship should be cancelled and should obtain a new registration number for Private limited company.
24. What should you do if tax office has not provided you notice of deregistration?
You are not required to submit tax returns if you have submitted the tax details for the process of deregistration. But it still cannot be called to be deregistered as the tax office has yet to provide the notice.
25. What should you do if you want to resume your business after cancelling registration?
If you have cancelled your VAT registration, you need to submit application for new registration, but if you have held your PAN, then you should fulfill all the registration procedures with the previous PAN.
26. What should you do if you want to change your transaction address?
You should first inform and change the transaction address in the registered office. The office may transfer your file to the new office stating any of your tax dues and inform the same to the IRD.
27. What should you do to claim for tax deduction if you have stocks that have been purchased paying taxes before registration?
You may claim for tax deduction if you have such stocks. You should submit an application in the prescribed format provided in Schedule 16 of the VAT Rules. You also need to submit all the bills and invoices of such purchase within 15 days of registration. You may enjoy the deduction only after the approval given by the tax officer after necessary evaluation.