From Nepal to the World: Legal Pathways and Emerging Investment Challenges

Nepal’s investment landscape has entered a transformative phase with the Ordinance Amending Several Acts Related to Economic and Business Environment Reform and Investment Enhancement (the Ordinance) which was later passed by the parliament dated March 31, 2025 (2081.12.18 B.S.). A key feature of this reform is the amendment to the Foreign Exchange (Regulation) Act, 2075 (FERA), which formally permits outward investment by Nepali companies and institutions. Combined with recent regulatory guidance from Nepal Rastra Bank (NRB), this change represents a significant step toward enhancing capital mobility and integrating Nepali enterprises into the global economy.

Legal Reform: FERA Amendment and Outward Investment 

The Ordinance introduces Sub-section (g)(4) under Section 2 of FERA, expanding the definition of foreign exchange transaction to include outward investment by Nepal-incorporated entities. Previously, domestic enterprises had limited legal avenues to invest abroad, with Nepali citizens primarily able to invest only through funds earned or held abroad. Under the new framework, companies can now invest in unlisted shares of foreign entities, acquire listed shares (up to 20% of issued capital), reinvest income earned from such investments, establish branch or liaison offices, and hold funds in foreign bank accounts. This broadens opportunities for Nepali firms to participate in international markets and align with global investment practices.

Eligibility Criteria 

The Ordinance also clarifies eligibility for outward investment. Permitted categories include industries exempted under the Act Restricting Investment Abroad, 2021 (ARIA), which has not been issued by the government of Nepal, IT companies classified under prevailing industrial law, funds earned by Nepali citizens abroad, and foreign currency received as royalty from technology transfer under the Foreign Investment and Technology Transfer Act, 2075 (FITTA). The ARIA previously prohibited outward investment except where explicitly allowed, and violations carried significant penalties. This amendment, therefore, marks a fundamental shift from restrictive practices to enabling a more outward-looking investment regime.

Employee Stock Ownership: ESOPs

A noteworthy addition is the introduction of Employee Stock Purchase Plans (ESOPs), allowing foreign parent or sister companies to provide share ownership to Nepali employees of local subsidiaries without remittance of foreign currency. This reform aligns employee incentives with corporate performance, strengthens talent retention, and fosters greater participation in global corporate growth.

Delegation to NRB and Procedural Oversight

While FERA establishes the legal foundation, it delegates authority to NRB to set sectoral limits, approval procedures and compliance requirements applicable for outward investment. To operationalise this framework, NRB issued the Fourth Amendment to the Foreign Investment and Foreign Loan Management Bylaw, 2021 (2078), specifically enabling outward investment for IT companies. This regulatory move is historic, creating Nepal’s first structured legal pathway for IT firms to invest abroad.

Key Provisions for IT Companies

Permitted Sector: Only IT companies, as defined under Annexure 7a of the Industrial Enterprises Act (IEA), may invest abroad. IT companies include those engaged in technology parks, software development, BPO/KPO, cloud computing/data centres, web services, digital signatures, and other IT-related services.

Operational Requirement: Companies must have exported IT services and earned foreign currency in each of the last three fiscal years. As per NRB requirements, the foreign currency must be accounted for in the company’s Nepal-based bank account. Once properly accounted, the funds may be used for direct investment abroad in accordance with the approved outward investment application.

Investment Limit: The investment ceiling is the lower of 50% of foreign currency earnings over the last three years or $1,000,000 (or equivalent), whichever is lower and cannot exceed the company’s paid-up capital, ensuring prudent capital deployment.

Application process: Applications for outward investment must be submitted to the Foreign Exchange Facilitation Unit of Nepal Rastra Bank at the One-Stop Service Centre in Tripureshwor, Kathmandu. The application should include the company’s registration certificates, Memorandum and Articles of Association, PAN certificate, audited financial reports, tax clearance, shareholder and director registers, board resolutions, and details of beneficiaries, including their names and bank account information. However, a major challenge arises because the prevailing laws particularly ARIA and FERA restrict Nepali entities from opening foreign bank accounts or establishing subsidiaries abroad without prior NRB approval. Conversely, NRB Bylaws require disclosure of the subsidiary’s name and bank account details at the time of application, creating a procedural contradiction. Although the Bylaws stipulate that NRB must issue approval within 15 working days and no security deposit or government fee is required, in practice, the process often faces delays, and the statutory timeline is rarely met.

Compliance Requirements: Audited financial statements of the foreign investee and Nepali parent company must be submitted within six months of fiscal year-end, unless audits are not mandatory abroad. NRB may also request reports or statistics to monitor compliance.
Repatriation of Returns: Any profits, dividends or income earned abroad must be repatriated through proper banking channels. No prior NRB approval is required for inward remittances, facilitating seamless capital flows.

Analysis: Opportunities and Challenges 

These reforms are landmark steps for Nepal’s outward investment landscape. By providing a clear legal and regulatory framework, domestic enterprises particularly IT firms can engage globally, attract foreign partnerships, and strengthen competitiveness. Procedural clarity, compliance guidelines and repatriation mechanisms provide predictability and reduce regulatory risk. However, challenges remain. Companies must also navigate cross-border regulatory risks, reporting obligations, tax implications and repatriation rules.

Further, NRB Bylaws require the submission of details regarding the name, address and bank account number of beneficiaries in the foreign country. This implies that if any IT company intends to set up a subsidiary abroad, such subsidiary must have legal incorporation to provide its name and open a bank account overseas. On the other hand, ARIA defines investment as a foreign bank account, which restricts opening a bank account or transferring funds from Nepal to a foreign bank account without NRB approval. In this context, investors face a dilemma: they cannot open a foreign bank account without NRB approval for foreign exchange, while NRB does not issue such approval without an existing bank account detail disclosure. This issue should be clarified through amendments to ARIA and NRB Bylaws.

In the context of investment in an existing company abroad, notarised documents of the investee company and ultimate beneficiary must be submitted to NRB for approval. When investing in companies with multiple layers of ownership, furnishing documents for the ultimate beneficiary can be inconvenient, as foreign entities may not have access to or permission to share such information. Therefore, documents disclosing the immediate beneficiary of the company or a declaration from the investing company regarding its shareholders or beneficiaries should be sufficient for NRB’s screening process.

Conclusion 

Nepal’s amendment to the Foreign Exchange Regulation Act (FERA) and corresponding NRB regulations mark a decisive shift from an inward-focused economy toward global participation. The new framework provides structured legal channels for Nepali enterprises to invest abroad, attract partnerships and integrate into international markets. However, while FERA envisions broader outward investment, NRB Bylaws currently limit it to the IT sector, leaving other potential areas such as investment in foreign securities and non-IT companies. To realise FERA’s full intent, comprehensive legislative alignment is essential. 

The Act Restricting Investment Abroad (ARIA) should be amended to harmonise with FERA, and NRB Bylaws need to be revised to expand sectoral scope, clarify procedures for subsidiary registration and foreign account operation, and streamline documentation. Administrative reforms, including a digital approval system and time-bound decision mechanism, should further enhance efficiency. In essence, Nepal has established the foundation for an outward-looking investment regime, but its success depends on coordinated legal amendments and institutional modernisation to ensure predictability, confidence and global competitiveness.