With the growing ambitions of Nepalese IT companies to scale globally, a significant legal development has emerged: Nepal Rastra Bank (NRB) has introduced a detailed framework regulating abroad investment by Nepalese IT industries. This follows amendments to the Foreign Exchange (Regulation) Act, 2019 (FERA) and changes to the Foreign Investment and Foreign Loan Management By-laws, 2021, setting a new legal foundation for international expansion by Nepal-based IT entities.
This article provides a comprehensive overview of the legal basis, eligibility criteria, investment limits, approval process, and compliance obligations governing abroad investment by IT industries registered in Nepal.
1. Legal Background
Previously, Overseas Investment Prevention Act, 1964 (OIPA) prohibited Nepalese persons and companies from investing abroad. However, the Government of Nepal (GoN) could issue exemptions via notices in the Nepal Gazette.
Now, with amendments made through the Ordinance to Amend Some Nepal Laws Relating to Improvement of Financial as well as Business Environment and Investment Increment, 2081, key provisions of abroad investment have been incorporated directly into FERA. Accordingly, Nepal Rastra Bank has updated its By-laws (effective 18 June 2025) to reflect these legislative changes.
2. Key Provisions Under the Amended FERA
Eligibility to Make Abroad Investment
Section 10A of FERA permits abroad investment by the following:
- IT industries granted exemption under Section 3(2) of OIPA.
- IT industries registered under the Industrial Enterprises Act, 2076.
- Companies investing foreign currency received from technology transfers in foreign entities such as LLPs, funds, or companies.
Notably, Gazette notices are no longer a prerequisite for IT industries to make foreign investments.
Permissible Forms of Abroad Investment (Section 2(G4) FERA & Rule 2(L)(a) of By-laws):
- Equity Investment in Unlisted Foreign Entities: Includes LLCs, LLPs, investment funds, etc.
- Equity Investment in Listed Foreign Entities: Up to 20% of paid-up capital (limit not applicable to personal investments made while residing abroad).
- Establishment of Foreign Branches or Liaison Offices.
- Foreign Bank Deposits: Deposits in foreign accounts.
- Reinvestment of Returns: Returns from the above investments can be reinvested.
Employee Stock Ownership Plans (ESOPs)
Nepalese citizens employed by foreign parent or subsidiary companies can receive stock options. However, foreign currency cannot be remitted from Nepal to acquire such shares.
Regulatory Role of NRB
NRB is empowered to prescribe ceilings, conditions, and procedural steps for all abroad investments.
3. Amendments to NRB By-laws (2021)
Eligibility Criteria for IT Industry
To invest abroad, an IT company must:
- Be registered as an IT Industry under the Industrial Enterprises Act, 2076.
- Have earned foreign currency from export of IT services for at least the last three consecutive fiscal years.
4. Ceiling of Maximum Abroad Investment
The abroad investment amount is subject to three ceilings, and the lowest of the three will apply:
- Paid-Up Capital Limit: Investment cannot exceed the company’s paid-up capital.
- Foreign Exchange Ceiling:
- 50% of the average foreign currency earned over the last three fiscal years, or
- USD 1 million (or equivalent in convertible currency)
Thus, even if a company has a high paid-up capital, if it has earned less foreign exchange or hits the USD 1 million cap, that lower limit will apply.
5. Approval Requirements
Companies seeking to utilize the foreign exchange facility must apply to NRB’s Foreign Exchange Facilitation Unit, attaching all required documents (as listed in Annex-I of the By-laws). NRB must respond to such applications within 15 days.
6. Reporting Requirements
Investing IT companies must:
- Submit audited financial statements of the foreign investment annually within six months of the fiscal year-end (Nepali and host country calendars). If audit is not mandatory abroad, unaudited statements with exemption proof are acceptable.
- Repatriate income or principal returns to Nepal via formal banking channels.
- Submit investment-related data upon NRB request.
7. Non-Compliance Consequences
Investments found to violate legal requirements or involve foreign exchange misuse will be subject to legal action under applicable laws.
8. Additional Conditions (Annex 16A)
To be eligible for foreign exchange facility, the IT industry must also ensure:
- No overdue loans in any Nepali bank or financial institution.
- The industry and its officials (Board Members, CEO, Company Secretary, shareholders, and beneficial owners):
- Are not blacklisted by Credit Information Bureau (CIB)
- Have not committed offenses involving corruption, dishonesty, money laundering, or financial fraud in the last five years
- Are not currently serving in public office
- Are mentally sound and solvent
9. Required Documentation (Annex I)
Applicants must submit:
- Industry registration certificate
- PAN certificate
- Latest audit report
- Latest tax clearance
- MOA & AOA
- Updated shareholder & director register
- Declaration of no overdue loans
- Board resolution approving exchange request
- Compliance declaration
- Beneficiary bank details abroad
- Proof of foreign entity (if applicable)
- CIB clearance
- Criminal clearance (if applicable)
- Self-declaration of eligibility
10. Frequently Asked Questions
Q: What forms of abroad investment are permitted for Nepali IT companies?
A: Equity in unlisted/listed entities (up to 20%), foreign offices, bank deposits, and reinvestment of returns.
Q: Is a Gazette notice still needed for IT abroad investment?
A: No, post-FERA amendments, IT industries can invest directly subject to NRB rules.
Q: What if export earnings over 3 years average less than USD 2M?
A: Investment capped at 50% of that average (or USD 1M max, whichever lower).
Q: Can employees of Nepali IT subsidiaries get ESOPs from foreign parents?
A: Yes, but no forex transfer from Nepal for acquisition.
Conclusion
These developments signal a progressive shift in Nepal’s approach toward internationalizing its IT sector. While the regulatory door has been opened for abroad investment, the regime remains compliance-heavy, ensuring only serious, transparent, and export-capable IT firms can expand globally. For eligible companies, this marks a crucial opportunity to participate in the global tech economy.
