Nepal's IT and Software Export Sector: Size, Model and Constraints

Nepal’s ICT service exports were US$133.8 million in 2024. That is the balance-of-payments figure, and it is smaller than almost everything written about the sector. Total service exports that year were US$1.90 billion, so information and communications technology accounted for about seven per cent of what Nepal sells to the world in services. The series peaked in 2019 at US$185.2 million, fell to US$119.1 million by 2022, and has since recovered only part of the ground.

That figure is a measurement, and measurements have boundaries. The balance of payments counts an ICT service export as a payment received by a Nepali resident from a non-resident, reported by the receiving bank under a service-export purpose code. A payment for the same work that arrives through a remittance channel, or into an individual’s account described as a personal transfer, never appears in the line. Anyone setting the US$133.8 million against sector estimates several times larger is comparing two different things, and what separates them is mostly how money enters the country.

How individuals are taxed

Nepal’s own income tax law is the clearest official acknowledgement that a substantial part of this trade runs through individuals. Section 95A applies a 5% final rate to a resident natural person, not carrying on a business, who receives foreign currency for software or other electronic services supplied outside Nepal. A withholding rate written for that fact pattern exists because the fact pattern is common.

Two consequences follow. The individual channel is taxed lightly and simply, at a flat final rate with no requirement to maintain business accounts. The corporate channel carries the ordinary entity regime, with the export concession applied on top. A founder choosing between contracting personally and contracting through a registered company is choosing between two quite different tax and compliance positions, and the individual route is the easier one to administer. That shapes the sector, and it shapes the statistics.

What changed in FY 2083/84

The budget for FY 2083/84 (2026/27) was presented on 29 May 2026 and the Finance Act was gazetted in Ashadh 2083. For information technology it carried three measures worth separating.

Income from the export of IT services attracts a 50% income tax exemption. Whether this represents a reduction from a higher rate in earlier years is asserted in commentary but could not be confirmed here against the statutory text, and is flagged rather than stated.

A new section 8(3)(e) exempts from taxable income the amount equivalent to sweat-equity shares received as remuneration for employment in the information technology industry. Nepali income tax law has never before addressed equity compensation for a named sector. The change removes the tax charge on receipt that made employee share schemes difficult to operate. It leaves the company-law mechanics of running an option pool untouched, and those sit under the Companies Act 2063 as a separate problem.

A 2% digital service tax applies where a non-resident supplies digital services to a Nepali resident, with a threshold of NPR 3 million. That is an inbound measure. It reaches a Nepali software exporter on the cost side, since the cloud, tooling and platform services the firm buys are non-resident digital supplies.

The delivery model

Nepal’s IT export sector is built on contracted engineering capacity supplied to foreign principals. Three commercial forms dominate: the outsourced development firm working to a foreign client’s specification, the captive development centre owned by a foreign parent, and the individual contractor engaged directly. Each sits under a different legal regime. The first is a Nepali company selling a service. The second is foreign investment under FITTA 2075, carrying the transfer-pricing questions that intra-group service pricing raises. The third is the section 95A individual.

Which form an investor picks determines almost everything downstream: whether foreign investment approval is needed at all, whether earnings can be repatriated as dividends or must be received as service fees, whether the Nepali entity owns any intellectual property, and whether the arrangement survives a client’s vendor due-diligence questionnaire.

Delivery form	Governing regime	Where the foreign currency lands	What the buyer is contracting with
Nepali company selling services to a foreign client	Companies Act 2063; income tax entity regime with the IT export exemption	Company account with an authorised dealer bank	A Nepali counterparty, Nepali law, Nepali courts unless the contract says otherwise
Captive development centre owned by a foreign parent	FITTA 2075 approval and Nepal Rastra Bank recording; intra-group pricing exposure	Company account; profits returned as dividend or intra-group fee	Its own subsidiary, with transfer pricing as the live tax question
Individual contractor	Section 95A final withholding at 5% for a resident natural person not in business	Personal account, frequently through remittance channels	A person, with no entity to sue and no institutional continuity

The third row holds most of the measurement problem. It also holds the buyer’s risk, because an engagement with an individual carries no entity-level warranty, no insurance and no assignable contract. Firms that have grown past the individual model usually did so because a client demanded a company on the other side of the paper. The tax position had little to do with it.

The main constraints

Receiving money. Foreign exchange rules govern how a Nepali resident may receive and hold foreign currency for services rendered abroad. Operators cite this more often than anything else, and it is treated separately in the article on foreign exchange for service exporters.

Intellectual property. Nepal is party to the Paris and Berne Conventions and bound by TRIPS through WTO membership. It has joined neither the Patent Cooperation Treaty, the Madrid system nor the Hague system. The governing industrial property statute is the Patent, Design and Trade Mark Act 2022 (1965). A client whose contract requires the vendor to hold registered rights, or to indemnify on an IP basis, is contracting against a sixty-year-old statute.

Data protection. Nepal has no comprehensive data protection act, and for a vendor selling to European or British clients that absence has a price. The contractual data-processing terms carry the entire compliance burden. There is no domestic statutory floor to point at and no adequacy mechanism to invoke.

Policy age. The only policy document listed in the Information Technology and Digital Governance Office’s own policy category is the Information and Communication Technology Policy 2072, published on 20 October 2015. The sector has no framework statute. Where other jurisdictions can point a client to an information technology act and a data protection authority, Nepal points to a 2015 policy and a 2006 electronic transactions statute.

What we do not claim

No headcount for the sector, no revenue figure for the industry as distinct from the balance-of-payments series, no count of registered IT companies. Estimates for all three circulate. None traced back to a statistical release or a departmental publication, and reproducing them would lend an unsourced figure the appearance of an official one.

What the state records is US$133.8 million a year, shrinking as a share of a rapidly growing service export account. The tax code, by writing a special rate for individuals receiving software payments from abroad, concedes that the recorded figure captures only part of the flow. Closing that gap is a banking and reporting problem before it is a policy problem.

Sources

1. ICT service exports (BoP, current US$) — Nepal

   World Bank, World Development Indicators · Series accessed 26 August 2026; latest observation 2024 · Tier 3 — Multilateral institution

   Supports: ICT service export values of US$133.8m (2024), US$121.0m (2023), US$119.1m (2022), US$124.2m (2021), US$139.9m (2020) and US$185.2m (2019).

   Accessed 26 August 2026

2. Service exports (BoP, current US$) — Nepal

   World Bank, World Development Indicators · Series accessed 26 August 2026; latest observation 2024 · Tier 3 — Multilateral institution

   Supports: Total service exports of US$1.897bn (2024) and US$1.657bn (2023), used to compute the ICT share.

   Accessed 26 August 2026

3. Nepal Budget 2083/84 (2026/27) — Key Highlights

   NBSM (chartered accountants, Kathmandu) · Budget presented 29 May 2026; report published 2026 · Tier 6 — Professional or news source

   Supports: The 50% exemption on income from export of IT services; new section 8(3)(e) on sweat equity in the IT industry; the section 95A 5% rate for resident natural persons receiving foreign currency for software or electronic services; the 2% digital service tax and its NPR 3 million threshold; total budget of NPR 2,124 billion.

   Accessed 26 August 2026

4. आर्थिक ऐन, २०८३ (Economic Act 2083) — gazette publication record

   Inland Revenue Department · Published in the Nepal Gazette, 30 Ashadh 2083 (July 2026) · Tier 1 — Primary legal instrument

   Supports: That the Finance Act for FY 2083/84 was enacted and gazetted; the Act is the instrument carrying the tax changes summarised here.

   Accessed 26 August 2026

5. सूचना तथा संचार प्रविधि नीति, २०७२ (Information and Communication Technology Policy, 2072)

   Government of Nepal; listed under Policies by the Information Technology and Digital Governance Office · Kartik 3, 2072 (20 October 2015) · Tier 2 — Official publication

   Supports: That the 2015 ICT Policy is the single policy document listed in the Office's policy category as at August 2026.

   Accessed 26 August 2026