Related Tax Implications

1. Income Tax:

a. Income Tax on Dividend, Rights and Bonus: Dividend

There is no income tax on dividend received on the hands of investor as the listed company pays the dividend tax while distributing the amount in final withholding basis. Some exemptions are also provided to specific industries due to which such companies are not required to pay dividend tax.

Legal Provisions:
Section 53:
Section 54(1): In case of dividend paid by a Resident Entity, the tax shall be levied as follows:
a. In case a company distributes dividend to its shareholders or a partnership firm distributes dividend to its partner, dividend tax shall be levied as per Final Withholding basis.
b. In case the dividend is paid by any other entity, no dividend tax is levied.
Section 54(3): Notwithstanding anything mentioned in Subsection (1) dividend tax shall not be levied on redistribution of dividend received after deduction of dividend tax under Subsection (1).

Section 11(2): Dividend tax shall not be levied on Cooperatives registered under Cooperatives Act, 2074
Section 11(3Ka): Dividend distributed by industries established in Special Economic Zones (SEZ) shall avail 100% exemption for 5 years from date of commencement of business and 50% exemption thenafter.
Section 11(3Tha): Special Industries and Tourism Industries capitalizing their retained earnings to issue bonus shares for capacity enhancement may avail 100% exemption on dividend tax.

2. VAT:

No VAT is applicable on purchase and sales of securities.
Details: The process of purchase and sales of securities from NEPSE includes the following “Supplies”: Supply of stock, shares, bonds or other securities, brokerage services based on commissions, Depository Participants Services and Clearing House Services. All of these goods and services fall under Schedule I of VAT ACT, 2052 which has been exempted from VAT.

Refer VAT ACT, 2052 (Bare Act)

Refer Brokerage, Taxes and Other Charges

Legal Provisions:
Value Added Tax Act, 2052:
Section 5(3): Notwithstanding anything mentioned in Subsection (1), VAT is exempted on goods and services listed in Schedule I.
Schedule I, Group 11 (B): Other Goods and Services Entry 4:
….Clearing House Services, Money Transfer, Capital Market Business, Stock Market Business, Merchant Banking Business, Commodity Future Market, Stock and Commodity Broker Business.
Schedule I, Group 11 (A): Goods Heading 49.07: ….stock, share or bond certificate and similar documents of title. (Included in Subheading 4907.00.90: Others)