Navigating Technology Transfer Agreements and Royalty Repatriation in Nepal (2025/2026) 

1. Introduction
2. Nepal’s foreign investment framework recognises technology transfer as a legitimate and encouraged mode of foreign participation. The Foreign Investment and Technology Transfer Act, 2019 (“FITTA“) guarantees the repatriation of royalties, technical fees, and earnings arising from approved technology transfer arrangements. 

The difficulty, however, arises not at the approval stage, but at the point where royalties are calculated, capped, taxed, and ultimately presented for repatriation approval. 

2. Technology Transfer Under Nepalese Law

2.1 What Constitutes Technology Transfer 

Under FITTA, technology transfer is defined broadly and includes, among others: 

• transfer or licensing of patents, trademarks, designs, goodwill, formulas, and industrial processes 

• licensing, franchising, or sharing of technological know-how 

• Management and technical services, information technology, marketing and market research, financial, accounting, and auditing, engineering, outsourcing, human resource outsourcing, digital data processing and digital data migration, design services, or other technical skills or knowledge (this specific category as technology transfer was added  through an ordinance which is now ratified by a parliament. You can read about that in detail here.) 

This expansive definition has important regulatory implications. Activities that would ordinarily be treated as independent cross-border services in other jurisdictions are frequently subsumed into the technology transfer framework in Nepal, making them subject to approval requirements and royalty regulation. 

2.2 Approval and Duration of Technology Transfer Agreements 

All technology transfer agreements require prior approval from the Department of Industry (“DOI“). Although FITTA does not prescribe a statutory duration, regulatory practice has developed such that approvals are commonly granted for a maximum period of five years, subject to renewal. 

Renewals are evaluated against historical compliance, including adherence to approved royalty caps and payment patterns. Technology transfer therefore functions as an ongoing regulatory relationship rather than a one-time approval exercise. 

3. Royalty Regulation for Technology Transfer in Nepal

3.1 Statutory and Regulatory Framework 

FITTA itself prescribes a royalty cap only in relation to trademark use in the liquor industry. The broader and more detailed royalty regime is introduced through the Foreign Investment and Technology Transfer Regulation, 2021 (“Regulation“), which establishes quantitative ceilings applicable across industries. 

3.2 Prescribed Royalty Caps 

(a) General Technology Transfer Royalties 

(b) Royalties for Use of Trademarks 

The Regulations further provide that the aggregate royalty and other associated fees repatriated in a fiscal year must remain within the prescribed ceilings.

4. Royalty Calculation Where Both Local and Export Sales Exist

The regulations prescribe separate royalty caps for local and export sales but do not provide a statutory methodology for calculating royalty where an enterprise generates both. 

In the absence of statutory guidance, royalty calculations remain vulnerable to challenge at the repatriation stage, particularly where export revenues significantly exceed local sales. From a structuring perspective, royalty clauses must clearly define allocation mechanisms between local and export sales, and these mechanisms must be aligned with regulatory expectations at the approval stage.

5. Royalty Caps in Multi-Licensor and Group Structures

The Regulations do not clarify whether royalty caps apply per technology transfer agreement or apply in aggregate where a local entity has entered into multiple technology transfer arrangements with different foreign licensors. 

Regulatory practice has generally treated the caps as applying to the total royalty outflow of the local entity in a fiscal year, irrespective of the number of licensors. 

This creates legal risk in group structures involving: 

• layered intellectual property ownership 

• multiple technology contributors within the same operational entity 

• parallel licensing arrangements across jurisdictions 

Even where each agreement appears compliant in isolation, aggregate royalty payments may exceed permissible limits. Addressing this risk typically requires group-level structuring and prioritisation of royalty entitlements, which is most effectively undertaken at the drafting and approval stage.

6. Front-End Fees, Set-Up Fees, and Ceiling

International technology transfer arrangements frequently include non-recurring payments such as front-end fees, set-up fees, or implementation charges in addition to ongoing royalties. 

The regulations refer collectively to royalty and other fees, and regulatory practice has taken the position that no amount may be repatriated beyond the approved royalty cap, even where such fees are commercially distinct. 

From a legal structuring perspective, careful delineation between technology licensing and standalone service arrangements becomes critical. Whether such separation is defensible depends on drafting precision, scope definition, and regulatory interpretation, higlighting the importance of careful advice. 

7. Repatriation of Royalties and Regulatory Review

Royalty repatriation requires approval from Nepal Rastra Bank (“NRB“). In reviewing repatriation applications under the Foreign Investment and Foreign Loan Management Bylaw, 2021, NRB examines, among other things: 

• approval status and validity of the technology transfer agreement 

• compliance with prescribed royalty ceilings 

• tax clearance, including withholding tax compliance 

• a copy of the statement certifying the amount due to the technology transfer agreement by a certified auditor and the bill invoice issued by the respective investor 

Repatriation challenges most commonly arise where cumulative royalty exposure, renewals, or amendments were not anticipated at the approval stage. 

8. Structuring Technology Transfer for Repatriation Certainty

Within the constraints imposed by FITTA and Regulations, legally viable structuring approaches may include: 

• embedding explicit allocation mechanisms for mixed local and export sales 
• distinguishing technology licensing from operational services where legally supportable 
• aligning approval, tax, and foreign exchange positions at the entry stage.  

Here For further guidance on technology transfer issues please contact: 

📍 Trade Tower, Kathmandu ✉️ [email protected] 📱 +977-9803831179