In Nepal, foreign investors may invest in domestic industries through technology transfer arrangements without restriction on the category of industry. TT is one of the recognized forms of foreign investment and is governed by the Foreign Investment and Technology Transfer Act, 2019 (FITTA) and the Foreign Investment and Technology Transfer Rules, 2077 (2020).
These legal instruments clearly define the scope of Technology Transfer (“TT”) and prescribe limitations on the payment and repatriation of royalty under TT agreements.
Legal Framework Governing
TT in Nepal is regulated by:
- Foreign Investment and Technology Transfer Act, 2019 (FITTA)
- Foreign Investment and Technology Transfer Rules, 2077
Any TT agreement entered into between a foreign investor and a Nepali industry must be approved by the Department of Industry (DOI), which acts as the competent authority for foreign investment approval.
Scope Under FITTA
Under FITTA, TT includes agreements relating to:
- Use or assignment of patents, designs, trademarks, goodwill, formulas, processes, or technical specialization
- Licensing arrangements, franchising, or know-how sharing
- Provision of foreign technical consultancy, management, marketing services, or other technical skills and knowledge
The terms and conditions of TT including royalty structure are determined through mutual agreement between the foreign investor and the local industry, subject to statutory limits.
Royalty Payment Under TT Agreements
The Foreign Investment and Technology Transfer Rules, 2077 have introduced clear ceilings on royalty payments, calculated based on either:
- Total sales value, or
- Net profit of the local industry
The applicable limits vary depending on whether the product or service is sold within Nepal or exported abroad.
Statutory Limits on Royalty Payment
1. Royalty on TT (All Industries)
| Basis of Royalty | Sale within Nepal | Export outside Nepal |
|---|---|---|
| Based on total sales value (excluding tax) | Up to 5% of total sales | Up to 10% of total sales |
| Based on net profit | Up to 15% of net profit | Up to 20% of net profit |
Royalty may be structured as:
- A lump sum payment, or
- A percentage of sales or net profit, as agreed in the TT agreement.
2. Royalty for Use of Trademark
| Industry Type | Sale within Nepal | Export outside Nepal |
|---|---|---|
| Tobacco and alcoholic beverages | Up to 2% of total sales | Up to 5% of total sales |
| Other industries | Up to 3% of total transaction value | Up to 6% of total transaction value |
(All amounts are calculated excluding applicable taxes.)
Limitation on Multiple TT Agreements
Where a Nepali industry enters into multiple TT agreements with foreign investors, the aggregate royalty repatriated in a single fiscal year must not exceed the maximum limits prescribed for royalty on TT (as set out above).
This restriction ensures regulatory compliance and prevents excessive outflow of foreign currency.
Key Compliance Requirements
- TT agreements must be approved by the Department of Industry
- Royalty payment must comply with statutory ceilings
- Repatriation of royalty is subject to foreign exchange regulations
- All payments must be properly disclosed and reported
Conclusion
Nepal’s legal regime for TT offers flexibility to foreign investors while maintaining clear regulatory safeguards on royalty payments. The FITTA and its Rules provide transparency, predictability, and legal certainty for both foreign investors and domestic industries.
FAQ
Is prior government approval required for a technology transfer agreement in Nepal?
Yes. Under the Foreign Investment and Technology Transfer Act, 2019, every technology transfer agreement between a foreign investor and a Nepali industry must be approved by the Department of Industry (DOI). Without such approval, royalty payment and repatriation are not legally permitted.
Can a Nepali company pay royalty under more than one technology transfer agreement in the same fiscal year?
Yes, a Nepali company may enter into multiple technology transfer agreements. However, the total royalty repatriated in a single fiscal year must not exceed the maximum statutory limits prescribed under the Foreign Investment and Technology Transfer Rules, 2077, regardless of the number of agreements.
Onesphere Law Associates advises foreign investors and Nepali companies on structuring compliant TT agreements, obtaining regulatory approvals, and managing royalty repatriation efficiently.
For legal advice on foreign investment and TT in Nepal, contact Onesphere Law Associates.