Nepal Opens Door for Investment in Abroad: Key legal Insights

Nepal has traditionally restricted outbound investment due to concerns about capital flight, loss of foreign exchange reserves, and limited engagement with international markets. In its historic major development is the enactment of the Improving Economic and Business Environment and Enhancing Investment Act, 2081 (2025 A.D.) (“IEBEEI Act”), which was approved by the House of Representatives on March 20, 2025. 

 

This amendments has made outbound investment possible by amending the Foreign Exchange (Regulation) Act, 2019 and the Foreign Investment and Technology Transfer Act, 2019 (FITTA). This article highlights the legal framework, regulatory authorities, eligibility criteria, and recent changes related to IEBEEI Act.

 

Previously, Nepali law broadly prohibited all forms of outbound investment, except where specific exemptions were granted. Section 3(1) of the Act Restricting Investment Abroad, 1964, strictly barred Nepali individuals and companies from making any investment outside Nepal. Violations were punishable by a fine equal to the investment amount, up to six month' imprisonment, or both, with a continuing daily fine of NPR 50 for non-compliance.

 

 

Following the recent amendment to the Foreign Exchange Regulation Act, 2019 (FERA), Nepal has formally clarified what constitutes "foreign investment" by domestic companies. This definition is critical, as it sets the legal boundaries within which outbound investment will be allowed under the newly liberalized regime.

Under the amended FERA, “foreign investment” refers to the following categories:

• Investment in unlisted foreign entities

           This includes the acquisition of shares in foreign partnerships, firms, investment funds, or companies with limited liability that are not listed on a foreign stock exchange.

• Investment in listed foreign companies (up to a certain limit)

           Companies incorporated in Nepal may invest in up to 20% percent of the paid-up capital of foreign entities listed on foreign capital markets. However, this limit does not apply to Nepali citizens        investing income earned while residing abroad.

• Establishment of foreign branches or liaison offices
  Nepali companies may open or register liaison or branch offices abroad.

• Deposits in foreign bank accounts
  Funds deposited by Nepali companies into accounts held with foreign banks.

• Reinvestment of earnings from prior foreign investments
  Income earned from earlier foreign investments (as per points 1 and 2) may be reinvested abroad.

 

What qualifies as “Foreign Investment” under FERA Amendment?

S.No.	Category	Description
1	Unlisted Foreign Entities	Investment in foreign firms, partnerships, funds, or companies not listed in foreign stock markets.
2	Listed Foreign Companies (Limited)	Investment in up to 20% of the paid-up capital of foreign companies listed abroad.
3	Foreign Branches or Liaison Offices	Investment to open or register a liaison office or branch abroad.
4	Foreign Bank Deposits	Depositing funds in accounts maintained with foreign banks.
5	Reinvestment of Income	Reinvestment of income earned from prior foreign investments (from categories 1 and 2).
6	Technology Transfer Earnings	Foreign currency earned by foreign investors under Section 7(A)(2) of FITTA, 2075, i.e., earned by technology transfer in a foreign country. However, such investment shall be made only in the form that ensures limited liability.

 

 

The Fourth Amendment to the NRB’s Foreign Investment and Foreign Loan Management Bye-laws, 2078 sets out regulatory conditions under which certain industries, primarily exempted industries and IT companies, can access foreign exchange facilities for outbound investment. Key provisions include:

 

a. Access for Exempted Industries

Industries permitted to invest abroad under the Act Restricting Investment Abroad, 2021 (1964) may apply to Nepal Rastra Bank (NRB) for the required foreign exchange facility.

b. Investment Permission for IT Industries

IT companies registered under Nepal’s prevailing industrial laws may invest abroad in IT-related businesses or sectors and can obtain the foreign exchange facility from NRB within the limits of their paid-up capital.

c. Minimum Export Performance Requirement
To qualify for foreign investment, the IT industry must have earned foreign currency by exporting IT services for at least the last three fiscal years.

d. Investment Limit
The maximum foreign exchange allowed for such investments is:
 - 50% of the average foreign currency earnings from the past 3 fiscal years, or
 - USD 1 million (or equivalent in convertible currency), whichever is lower.

e. Application Procedure

An application must be submitted to NRB along with the necessary documents as per Schedule–16Ka to access the exchange facility.

f. Decision Timeline

NRB is required to decide within 15 working days of receiving the application and must notify the applicant of its decision.

 

 

The enactment of the International Economic Business and Enterprise Investment (IEBEEI) Act, 2081 marks a turning point in Nepal's economic strategy. For the first time, outbound investment by Nepali entities and individuals is formally legalized and streamlined under a comprehensive legal framework. This reform has introduced following core advancements:

 

 a) Diversified Investment Channels

The Act expands the range of permissible investment destinations for Nepali investors, allowing capital outflows into various international ventures.

• Investment in unlisted foreign ventures

• Acquisition of up to 20% equity in listed foreign firms

• Establishment of foreign branches or liaison offices

• Deposits in foreign bank accounts

• Reinvestment of earnings from prior foreign investments

 

b) Clear Eligibility Criteria for Investors

The IEBEEI Act, along with amendments to related laws and NRB regulations, provides     much-needed clarity on who can invest abroad:

• Industries exempted through notification in the Nepal Gazette under the Act Restricting Investment Abroad, 2021 (1964)

• Registered Information Technology (IT) firms

• Non-Resident Nepalis (NRNs) with foreign passports

• Employees participating in Employee Stock Ownership Plans (ESOPs) offered by foreign affiliates of Nepali companies

 

c) Formal Recognition of cross-border ESOP

    A significant reform under the Foreign Exchange (Regulation) Act, 2019 is the expansion of the ESOP framework. It now allows Nepali citizens residing in Nepal if employed by a Nepal-incorporated company with a foreign parent or subsidiary to participate in international employee share schemes without remitting convertible foreign currency from Nepal. This removes a longstanding regulatory barrier and brings Nepal’s corporate landscape closer to global best practices in employee equity participation. promoting wider employee equity participation in multinational corporate structures.

 

The enactment of the IEBEEI Act, 2081, and the corresponding amendments to FERA, FITTA, and other related laws represent a landmark shift in Nepal’s economic and legal framework. For the first time, outbound investment by Nepali individuals and entities has been formally recognized and regulated within a defined legal structure. By expanding the scope of permissible investments, introducing eligibility-based criteria, and establishing clear procedural mechanisms, Nepal is signaling its intention to engage more proactively with the global economy. The liberalization of the ESOP regime and facilitation of foreign investment by IT companies and exempted industries further reflects Nepal’s evolving priorities centered on innovation, capital mobility, and competitiveness. Going forward, the success of this reform will depend on effective regulatory implementation, transparency, and investor compliance, but it undeniably sets a forward-looking precedent for Nepal’s integration into the international investment ecosystem.

 

 

Date of Publication: 18 August, 2025 

 

Disclaimer:  This article published on website of the law firm is just for information purpose only. It shall not be taken as the legal advice, advertisement, personal communication, solicitation or inducement. Bhandari Law and Partners or any of the team members of the firm shall not be liable for the consequence arising of the information provided. As the factual situation may be different on your case, thereof if you need further legal advice on the subject matter, please Contact US