Nepal Officially Cancels Double Taxation Avoidance Agreement (DTAA) with Mauritius

The Government of Nepal has officially announced the cancellation of the Double Taxation Avoidance Agreement (DTAA) signed with Mauritius in 1999. This decision was communicated by the Inland Revenue Department (IRD) through an official press release issued from Kathmandu.

The treaty was originally signed on August 3, 1999, between Nepal and Mauritius to prevent double taxation and promote investment. However, after reviewing global tax practices, Nepal has decided that the agreement is no longer beneficial in its existing form.

Why Nepal Cancelled the DTAA with Mauritius

According to the IRD, the cancellation is tied to major changes in global tax systems and the increased misuse of tax treaties for avoiding taxes. Key reasons include:

1. Preventing Treaty Misuse (Anti-Abuse Measures)

Nepal observed that the existing treaty was being used to shift profits artificially, causing loss of tax revenue. The government wants to ensure that only genuine investors benefit, not shell companies.

2. Limitation of Benefits (LOB) Issues

The old agreement lacked strong Limitation of Benefits (LOB) provisions, which opened the door to treaty shopping—where companies exploit tax treaties for unfair advantage.

3. Alignment with OECD’s BEPS Framework

Globally, tax administrations are adopting stricter rules under the OECD Base Erosion and Profit Shifting (BEPS) initiatives. Nepal aims to align with these global standards to:

Control profit shifting

Prevent tax base erosion

Ensure fair and transparent taxation

4. Need for Modern and Updated Treaties

The treaty from 1999 was outdated compared to modern tax treaties used internationally. Nepal wants updated agreements that protect national interests and ensure fair taxation.

Impact on Foreign Investment and Tax Governance

The government has clarified that the treaty cancellation does not mean Nepal is closing doors to foreign investors.

Instead, Nepal plans to:

Continue promoting foreign investment

Strengthen future tax treaties

Establish better frameworks like Bilateral Investment Promotion and Protection Agreements (BIPA) and updated DTAAs

Create a more transparent and modern tax environment

This move is aimed at bringing clarity, fairness, and global compatibility to Nepal’s international tax system.

When Does the Cancellation Take Effect?

According to Section 29 of the DTAA, the cancellation will be effective from the upcoming fiscal year 2082/83, starting from Shrawan 1.

What This Means for Businesses and Investors

Companies using the Mauritius treaty for tax benefits will no longer be able to claim them after the effective date.

New or existing foreign investors will need to follow updated tax guidelines once new agreements are drafted.

Nepal’s tax administration will gain more control and oversight, reducing misuse and revenue loss.

Conclusion

Nepal’s decision to cancel the DTAA with Mauritius marks a significant step toward strengthening the country’s tax governance. By aligning with global tax reforms and introducing anti-abuse measures, Nepal aims to protect its tax base while still fostering a transparent and investor-friendly environment.

This announcement highlights Nepal’s commitment to fair taxation, global compliance, and economic integrity.

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