Legal Pathway for Nepali Companies to Invest Abroad Through Technology Transfer

Earlier this year Nepal introduced a series of policy reforms that mark a significant shift in its approach to both inward and outward foreign investment. The reforms not only simplify how foreign capital enters Nepal but also, for the first time, create a clear route for Nepali companies to invest abroad through technology transfer.

1. Liberalization of Foreign Investment Rules

Recent changes in Nepal’s foreign investment framework have focused on making investment procedures more predictable and business friendly. Some of the most important updates include the introduction of an automatic route for certain types of foreign investment, a flexible valuation band allowing parties to negotiate within ten percent of a valuation report, and the removal of an additional Nepal Rastra Bank approval layer for greenfield investments.

With these steps, the government has also started reforming the rules governing outward investment, an area that had long been tightly restricted.

2. Expansion of Outward Investment to Technology Exporters

In the past, NRB under its Unified Directive had the mandate to provide approvals for export businesses to open branch, liaison office and showrooms outside Nepal. Nepalis residing and earning abroad were also allowed to invest in securities and businesses outside Nepal.

In 2025, this framework was expanded. Information technology companies were brought within the scope of outward investment, and now any Nepali company that earns income from outside Nepal by providing technology transfer services to a foreign entity can also invest those earnings abroad.

To facilitate the export of technology transfer Nepal companies are also now permitted to establish a branch office or unit in the foreign country. Previously, companies could provide such services internationally only from Nepal and were not allowed to invest the earnings outside Nepal. This restriction has now been eased.

3. FITTA Amendment: Legal Foundation for Technology Transfer Investments

The turning point came on 31 March 2025, when the Foreign Investment and Technology Transfer Act (FITTA) was amended. The amendment expanded the definition of technology transfer and, for the first time, allowed Nepali companies to invest abroad using the income earned from technology exports.

The term “technology transfer” includes:

1. The use or transfer of patents, designs, trademarks, trade goodwill, technical know-how, formulas, or processes
2. Licensing or sharing of technical information
3. Management, technical, IT, marketing, accounting, research, engineering, outsourcing, human resource, and digital data services
4. Reverse engineering

The new Section 7A of FITTA further provides that:

• Any industry or company established and operating in Nepal may transfer technology to an industry, firm, or company located abroad, overriding any prior legal restrictions.
• The foreign currency earned from such transactions may, with approval from Nepal Rastra Bank, either be repatriated to Nepal or invested abroad in an entity such as a company, partnership, or fund.
• A Nepali company may open a branch office or unit in the foreign country to facilitate such transfer of technology by obtaining approval from Department of Industries.

This provision creates a clear and comprehensive legal framework for Nepali companies to export their intellectual property and technical expertise while maintaining a business presence in foreign markets.

4. FERA and NRB Bylaws: Operational Mechanism

To align with FITTA, the Foreign Exchange Regulation Act (FERA) was also amended. Section 10A of FERA now allows Nepali companies to invest the foreign currency earned through technology transfer, with the maximum investment limits and procedures to be determined by Nepal Rastra Bank.

Subsequently, the NRB amended its Foreign Investment and Outward Investment Bylaws through a decision of its board on 2 June 2025. The Bylaws provide for prior approval and investment ceilings for companies in the IT sector but do not explicitly require prior approval for technology transfer-based outward investments. While this indicates a more facilitative regulatory approach.

The Bylaws also impose post-investment reporting requirements on all companies that invest abroad using earnings from technology transfer. Under this rule, the Nepali company must submit audited financial statements of both the Nepali and foreign entities within six months after the end of the financial year in each jurisdiction. If the foreign jurisdiction does not require an audit, the company may submit unaudited statements along with evidence that an audit is not legally required there.

5. Practical Implications for Businesses

These reforms provide a strong legal basis for Nepali companies, particularly those engaged in IT, engineering, consulting, and professional services, to expand internationally. Nepali companies can now:

• Earn foreign income by exporting technology or technical services
• Use such earnings to invest in foreign entities
• Establish branch offices or business units abroad to manage and deliver services more efficiently

This marks a clear shift in policy, moving from a purely inward-looking system to one that recognizes the growing capability of Nepali enterprises to compete globally.

6. Next Steps for Companies Interested in this Pathway

Businesses that are active in technology, digital services, or any other form of technical consultancy should consider the following actions:

1. Review existing service contracts to determine whether they qualify as technology transfer under the revised FITTA.
2. Evaluate opportunities for reinvestment of foreign earnings in overseas ventures.
3. Prepare internal compliance systems to meet NRB reporting obligations, including maintaining proper documentation of income flows and investment structures.
4. Seek timely approval or guidance from the Department of Industry or NRB where applicable.
5. Key Takeaway

The recent amendments to FITTA, FERA, and the NRB Bylaws have established a more conducive legal framework for Nepali companies seeking to expand their operations internationally through technology and service exports. Despite these positive developments, certain aspects remain unclear, such as the specific sectors eligible for investment and any potential investment limits. Companies interested in such ventures should also be aware of various legal and regulatory considerations before proceeding with foreign investments.