Technology Transfer, Royalties and Service Fees
Licensing technology, a brand or a service into Nepal requires approval. What can then be paid out is capped by regulation and taxed at 15% on the way.
What counts as technology transfer
Until last year, section 2(f) of the Foreign Investment and Technology Transfer Act 2075 (2019) described technology transfer in the vocabulary of industrial licensing: patents, designs, trademarks, goodwill, technological specificity, formulas and processes; user licences, know-how sharing and franchising; and the provision of a foreign technical adviser or management and marketing service.
That definition worked for a manufacturer licensing a production process. It worked badly for the arrangements most international groups actually have with a Nepali subsidiary or partner. A regional head office invoicing for finance, HR and IT support. An offshore affiliate running the group’s data processing. A marketing services agreement. None of those was obviously a patent, a formula or a franchise. They were never prohibited; they simply left the foreign exchange system with no approved contract to release currency against.
The omnibus act authenticated on 31 March 2025 widened the definition to cover agreements for management and technical services, information technology, marketing and market research, finance, engineering, outsourcing, and digital data processing and migration. Of everything in that act, this is the change most likely to matter to a services or technology business. It legalises arrangements that already existed and were being paid for awkwardly or not at all.
What the approval gives you
Section 7 requires a technology transfer agreement with an industry in Nepal to be approved, and caps the royalty repatriated under it at the prescribed ceiling. Two features separate this from an equity approval.
There is no minimum investment. The threshold in section 3(3) attaches to foreign investment in an industry, and a technology transfer agreement is a separate limb. A licensor who cannot justify NPR 20 million of equity is not shut out of Nepal.
Nor does it create a shareholding. The foreign party gets a contractual right to be paid, subject to a ceiling, to withholding tax and to central bank release. It has no vote, no dividend and no capital gain. It carries the credit risk of the Nepali counterparty without the information rights a shareholder would have.
A named practitioner account also reports two things about departmental practice: that agreements have been approved in activities where the FITTA Schedule bars equity investment, and that approvals typically run for about five years, with renewal proving harder than the first grant. Both are reported practice rather than published rule. A licensor planning a long-dated brand arrangement should test the term question before committing to a build-out.
Royalty ceilings
Rule 5 of the Foreign Investment and Technology Transfer Regulation 2077 (2021) caps what may be repatriated as royalty. Two independent professional summaries give the same figures.
| Basis | Domestic sales | Export sales |
|---|---|---|
| Technology transfer — share of total sales, excluding VAT | up to 5% | up to 10% |
| Technology transfer — share of net profit | up to 15% | up to 20% |
| Trademark use — general industries | up to 3% of sales | up to 6% of sales |
| Trademark use — alcohol and tobacco | up to 2% of sales | up to 5% of sales |
Three things follow that are easy to miss.
The ceiling binds repatriation rather than the contract. Parties may agree a higher royalty, and the excess simply cannot leave Nepal. It becomes an intercompany payable of indefinite duration. Price at or below the ceiling rather than booking a receivable the foreign exchange regime will not honour.
The sales basis and the profit basis are alternatives, and the choice is a real one. A high-gross-margin licence into a business with heavy local overheads yields more on the sales basis. A business with thin margins and high turnover may find the profit basis produces almost nothing. The election is made when the agreement is drafted, because the ceiling is applied to the approved agreement.
The export ceilings are roughly double the domestic ones. Where a licensor supports a Nepali manufacturer selling into India or third markets, the split between domestic and export sales does more than reporting work, and the agreement should require it to be tracked.
Filing the agreement
Technology transfer agreements go through the same online system at the Department of Industry as equity applications. The Department’s 2024 investor guidance lists them alongside share purchase and lease agreements. What gets filed is the executed or near-final agreement, so the negotiation is over before the regulator sees it, and any change the Department requires reopens a document the parties thought was closed.
The provisions that attract attention are predictable: the royalty formula and its basis, the term and renewal mechanism, the definition of the sales figure the royalty runs on, and the description of what is actually being transferred. Agreements drafted for a jurisdiction with no ceiling tend to state a percentage and leave the base to accounting convention. That is the drafting most likely to be queried. State the base explicitly, and state it in the terms the ceiling uses — total sales excluding value added tax, or net profit. It removes an argument at approval and another at every repatriation afterwards.
Withholding tax
Royalty and service fees sourced in Nepal are withheld under section 88 of the Income Tax Act 2058 (2002). The general rate is 15% on interest, rent, royalty, service charge, commission and similar payments. A separate 1.5% rate applies to service payments to VAT-registered resident service providers, which is not the cross-border case. Dividends withhold at 5%.
The interaction with the royalty ceiling is where deals go wrong. A licensor who negotiates “5% of sales” and expects to receive 5% of sales will receive 4.25%. Grossing up so the net equals the ceiling produces a gross figure above the ceiling, which is exactly what the regulation will not let leave the country. The ceiling and a fully grossed-up net cannot both be had. The licensor accepts the reduced net or reprices the arrangement on another basis.
Treaty relief may cut the rate. Nepal’s double taxation agreement with India is published on the government’s own investment portal, and the network extends beyond it. Relief is claimed rather than automatic, and it depends on residence certification and on the treaty’s own royalty article.
What has not changed
Three constraints survive the 2025 amendment and should be planned for.
Payment still needs central bank release. The approved agreement is the gateway, and Nepal Rastra Bank remains the party that lets the currency move. What that step is like in practice is dealt with in the repatriation article.
Transfer pricing scrutiny follows the money. An intercompany services fee that is now approvable is also now visible, and a fee set at the regulatory ceiling rather than at an arm’s length price invites a different argument with a different authority.
The ceiling applies per agreement rather than per group. Splitting one commercial arrangement into a trademark licence, a management services agreement and a technical support agreement to stack ceilings is a structure the Department can see, because all three are filed with it.
So the amendment does less than its headline suggests. Nepal is now a country where a services arrangement with an affiliate can be documented, approved and paid. The pricing of that arrangement is still not a matter for the parties alone.
Sources
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Foreign Investment and Technology Transfer Act, 2075 (2019)
Government of Nepal (text published by the Department of Industry) · Authenticated 2019 — in force, as amended · Tier 1 — Primary legal instrument
Supports: Section 2(f) definition of technology transfer; section 7 approval requirement and the rule that royalty repatriation shall not exceed the prescribed ceiling; section 20 repatriation of royalty.
Accessed 26 August 2026
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Pradhan & Associates · 6 April 2025 · Tier 6 — Professional or news source
Supports: The widened technology transfer definition covering management and technical services, IT, marketing and market research, finance, engineering, outsourcing and digital data processing, and the new permission to invest technology transfer earnings abroad with Nepal Rastra Bank approval.
Accessed 26 August 2026
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Foreign Investment and Technology Transfer Regulations 2077 (2021) — summary
PKF T R Upadhya & Co. · January 2021 · Tier 6 — Professional or news source
Supports: Rule 5 royalty ceilings for technology transfer and for trademark use, domestic and export, including the alcohol and tobacco rates.
Accessed 26 August 2026
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Technology Transfer Regime in Nepal
Business 360 (Nepal) · 31 December 2023 · Tier 6 — Professional or news source
Supports: The same royalty ceiling figures independently stated; reported approval timelines of about three months; reported five-year agreement terms; and reported approval of technology transfer in sectors closed to equity investment.
Accessed 26 August 2026
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Income Tax Act, 2058 (2002), section 88 [unofficial reproduction, nepallaws.com]
Government of Nepal · 2002 — in force, as amended · Tier 6 — Professional or news source
Supports: The 15% withholding rate on interest, rent, royalty, service charge and similar payments sourced in Nepal, the 1.5% rate for VAT-registered resident service providers and the 5% rate on dividends.
Accessed 26 August 2026
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Treaties and Agreements — Avoidance of Double Taxation, Nepal–India
InvestNepal portal, Government of Nepal · Agreement of 2011 · Tier 2 — Official publication
Supports: That the Nepal–India double taxation avoidance agreement is published on the government's investment portal.
Accessed 26 August 2026
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