The central bank will provide the required foreign currency exchange for information and technology companies to make foreign investments in IT-related sectors or industries within the limits of their paid-up capital, according to a new legal arrangement.

According to the Foreign Investment and Foreign Loan Management Bylaw, 2021, amended by the Nepal Rastra Bank on Thursday, the Nepali IT sector needs to have earned foreign currency by exporting information and technology related services in the past three fiscal years to enjoy the facility.

The government, in the budget for the upcoming fiscal year 2025-26, has announced to allow Nepali companies to invest abroad, marking a significant policy shift towards globalising domestic enterprises. Presenting the budget on May 29, Finance Minister Bishnu Paudel announced the provision, subject to approval from the Investment Board Nepal.

Under the new arrangement, Nepali companies will be permitted to set up sales branches and processing units overseas for semi-processed goods. However, up to only 25 percent of the annual income generated from exports will be allowed for reinvestment abroad, and 50 percent of the profits earned from such ventures must be repatriated to Nepal.

In a parallel move, the budget proposes legal provisions for Nepali citizens to receive sweat equity from foreign companies in exchange for providing technology, specialised knowledge, or unique services.

“Sweat equity will legally recognise the value of Nepali professionals and innovators working with foreign firms in non-monetary forms,” Paudel said while presenting the budget in Parliament. “This is a step forward in harnessing global opportunities for Nepali talent.”

An official at the central bank said that the amendment was meant to implement the announcement in the budget. The amendment has prioritised information and technology as a sector of foreign investment by Nepali firms.

With IT-related service exports from Nepal growing, there is a huge potential for the Nepali information and technology sector to expand to foreign countries, insiders say.

The central bank added this provision to the amended bylaw as Investment in Foreign Countries Regulations.

The amended bylaw provisions that the maximum limit of foreign currency to be made available for foreign investment by an IT firm will be 50 percent of the average foreign currency earned through exporting IT-related services or US$1 million.

IT companies need to submit an application and documents such as the copies of company registration, permanent account number, audited financial statement of the previous year, certificate of tax payment, and the decision of the board of directors to request for a foreign exchange amount to avail of the foreign exchange.

The central bank needs to inform the applicant about the foreign currency request within 15 working days of receiving the application.

The domestic information and technology companies need to submit the audited financial report of investment made in foreign countries according to the fiscal year of foreign branch and within six months after the end of the Nepali fiscal year.

But if there is no provision for financial audit in the law of the country of investment, such firms can submit unaudited financial reports.

The bylaw requires the use of the banking channel to repatriate the earnings on foreign investment and also to bring back the investment.

The bylaw mandates legal actions if the foreign currency exchanged for the stated purpose is misused.

Nepali companies investing in foreign countries need to submit the data or details related to investment as demanded by the central bank.

‘Technology transfer’ has also been redefined in the amended bylaw to include Nepali investors in foreign countries.

The amended bylaw defines ‘technology transfer’ agreement made between the industry and foreign investors or company being operated in Nepal with the industry, firm and company in foreign countries on patent, design, trademark, goodwill, technology specialty, use of tech knowledge, formula or process. Such technology transfer also includes user licence or know-how sharing.

The amended bylaw mandates a technology transfer agreement to address management and technical services, information and technology, marketing and market research, finance, auditing, engineering outsourcing, human resource outsourcing, digital data processing and digital data migration, design service or other technical skills and knowledge, and reverse engineering.