Nepal moves to tax local staff of UN agencies, diplomatic missions

Nepal's government is implementing a new tax provision that will require locally recruited staff of United Nations agencies, international organizations, and foreign diplomatic missions to pay income tax. This measure, introduced through the Finance Bill, specifically targets Nepali nationals and foreign residents employed locally who do not hold diplomatic status.

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The provision in Section 47 of the Finance Bill 2026 concerns income tax, interest and fee exemptions related to Nepalis or resident individuals working for the United Nations, international organisations or diplomatic missions.

Officials clarified that the change does not affect diplomats or personnel who are exempt under the Vienna Convention on Diplomatic Relations. The Inland Revenue Department stated that the new arrangement is aimed at locally hired staff, consultants, and temporary employees without diplomatic privileges. These individuals will now be subject to Nepal’s Income Tax Act.

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Permanent employees with diplomatic status generally receive income tax exemptions under the Vienna Convention. But locally recruited staff do not enjoy diplomatic privileges and therefore are not entitled to such exemptions.

For years, confusion has persisted regarding these privileges, with many locally hired employees arguing for the same benefits as diplomats. The situation was complicated by the fact that such organizations are not always legally obligated to deduct income tax at source. To resolve this, the government is encouraging voluntary declaration of income and tax settlement, offering a concession for past dues until mid-December 2026.

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To address this issue, the government has introduced a provision encouraging such employees to voluntarily declare their income and settle their tax liabilities.