An Overview of Technology Transfer Law in Nepal

This article incorporates the key aspects of technology transfer law in Nepal, focusing on the provisions outlined in the Foreign Investment and Technology Transfer Act, 2019 ("FITTA"), and related regulations.

 

The principal legislation governing technology transfer in Nepal is the Foreign Investment and Technology Transfer Act, 2019 (2075). This Act replaced the earlier Foreign Investment and Technology Transfer Act, 1992. Additionally, the Foreign Investment and Technology Transfer Regulations, 2021 ("FITTR"), provides more detailed guidelines for the implementation of the FITTA. 

 

 

The primary authority for approving and regulating technology transfer agreements in Nepal is the Department of Industry ("DOI"). DOI operate under a "One-Stop Service Center" mechanism to simplify the approval process for foreign investors. Furthermore, the Nepal Rastra Bank ("NRB"), the central bank, is responsible for providing final approval for the repatriation of foreign currency, including royalties.

 

 

Under Section 2(f) of the FITTA, "Technology transfer" refers to any transfer of technology made under an agreement between an industry and a foreign investor on the following matters:

• Patent, design, trademark, goodwill and technological specificity, formula process
• User's license, technological know-how sharing or use of technological knowledge (franchise)
• Provision of Management and technical services, information Technology, marketing and market research, finance, accounting and auditing, engineering, outsourcing, human resource outsourcing, digital data processing and digital data migration design services or other technical skills or knowledge.

 

Crucially, technology transfer is permitted even in sectors where direct foreign investment might be restricted, provided it receives approval from the Department of Industry.

 

 

All technology transfer agreements in Nepal must obtain prior approval from the relevant governing authority that is DOI. This approval is a mandatory prerequisite for the enforceability of the agreement and the subsequent repatriation of royalties.

 

While specific requirements may vary, generally, the following documents are needed for the approval of a technology transfer agreement.

 

S.N.	Documents Required
1.	Application in the prescribed format
2.	Detailed project proposal outlining the proposed technology transfer, its scope, expected economic benefits to Nepal, and implementation plan.
3.	Draft of Technology Transfer Agreement
4.	Technical specifications of the technology
5.	Proof of ownership or right to transfer the technology
6.	Valuation report of the technology (if applicable)
7.	Financial credibility documents of the foreign investor
8.	Company registration certificate and other corporate documents
9.	Board resolution approving the technology transfer agreement
10.	Tax clearance certificate of the Nepali company

 

 

The FITTR establishes ceilings for the repatriation of royalties and other fees, which depend on the type of technology transfer and whether the sales are local or for export.

 

a) Ceiling of Royalty amount or other fees for all types of Technology Transfer for Industry

Royalty	Local Sales	Export Sales
Total amount or total sales amount	Lump sum or gross sales revenue: Up to 5% of gross sales revenue (excluding taxes).	Lump sum or gross sales revenue: Up to 10% of gross sales revenue (excluding taxes).
If the royalty is based on net profits	Up to 15% of net profits	Up to 20% of net profits

 

b) Ceiling of the Royalty amount or other fees for use by Trademark

Local Sales	Export Sales
Alcohol and tobacco industries: Up to 2% of gross sales revenue (excluding taxes).	Alcohol and tobacco industries: Up to 5% of gross sales revenue (excluding taxes).
Other industries: Up to 3% of gross sales revenue (excluding taxes).	Other industries: Up to 6% of gross sales revenue (excluding taxes).

 

Note: The royalty amount or other fees will be as per the approved agreement, provided they remain within the prescribed ceilings.

 

 

 

The FITTR established specific repatriation limits for royalties under two categories: (a) technology transfer agreement that does not involve the use of a trademark, and (b) technology transfer agreements entered for usage of trademarks.

 

(i) Technology transfer agreement that does not involve the use of a trademark.

Royalty	For Local Sales	For Export
Lump sum or gross sales revenue	Up to 5% of gross sales revenue excluding taxes	Up to 10% of gross sales revenue excluding taxes
Net profit	Up to 15% of net profit	Up to 20% of net profit

 

(ii) Technology transfer agreements entered for usage of trademarks.

Industry	For Local Sales	For Export
Alcohol and tobacco industries	Up to 2% of gross sales revenue excluding taxes	Up to 5% of gross sales revenue excluding taxes
Other industries	Up to 3% of gross sales revenue excluding taxes	Up to 6% of gross sales revenue excluding taxes

 

Disputes arising from technology transfer agreements in Nepal are addressed through the following methods;

 

• Mutual Discussions/Negotiations: The FITTA, mandates that disputes between a foreign investor, a domestic investor, and the industry must first be resolved through mutual discussions in the presence of the Department of Industry. A 45-day period is typically provided for such discussions.
• Agreement-based Resolution: If mutual discussions fail, the dispute should be resolved as per the dispute resolution mechanism specified in the joint investment agreement or the technology transfer agreement itself. This often includes provisions for arbitration.
• Arbitration: If the dispute cannot be resolved through mutual discussions or agreement-based mechanisms, it must be resolved in accordance with the prevailing arbitration laws of Nepal. The Arbitration Act, 1999, governs arbitration proceedings in Nepal. Parties can also agree to international arbitration rules, such as UNCITRAL rules, if specified in the agreement.

 

The Nepal Council of Arbitration (NEPCA) plays a vital role in promoting and facilitating arbitration as a dispute resolution method in Nepal.

 

 

Date of Publication: 11 June 2025. 

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