- Nepal introduces legislation to end a 60-year ban on outward investment, allowing domestic firms to invest abroad under a regulated framework.
- The bill permits IT companies to reinvest foreign earnings and allows service providers to accept equity or stock options as remuneration.
- Returning citizens and NRNs can maintain offshore investments if registered, provided they ensure lawful fund sources and formal profit repatriation.
- New regulations modernize digital financial instruments and impose strict penalties, including imprisonment, for currency misuse and trade misinvoicing.
Kathmandu, Nepal: The Government of Nepal has initiated a major reform of the country’s foreign exchange regime by introducing legislation to allow domestic individuals and businesses to invest abroad under a regulated framework—replacing a blanket prohibition that has been in place for over six decades.
The Ministry of Finance has released the Bill to Amend and Consolidate the Laws Relating to Foreign Exchange, 2082 (2025/26) for public consultation. The proposed legislation seeks to repeal and replace the Foreign Exchange (Regulation) Act, 1962 (2019 B.S.) and the Act Restricting Investment Abroad, 1964 (2021 B.S.), which have long governed the nation's currency system.
If enacted, the bill will mark one of Nepal's most significant policy shifts since outward investment restrictions were first imposed. Rather than maintaining a total ban, the draft framework permits outbound capital flows into sectors and under conditions approved by the government.
Under the proposed law, companies incorporated in Nepal will be eligible for overseas investment after fulfilling prescribed procedures. Eligible sectors and institutional criteria will be formally notified through the Nepal Gazette.
According to the Ministry of Finance, the reform aims to help local firms expand internationally, establish foreign subsidiaries, acquire equity stakes, and strengthen the global presence of Nepalese capital, technology, and expertise.
Sectoral Impacts & Equity Compensation
The bill includes targeted provisions for Nepal’s growing information technology (IT) and service-export industries:
Corporate Outward Investment: Companies registered as IT industries under existing laws will be allowed to invest overseas.
Foreign Earnings Reinvestment: Firms generating foreign exchange via technology transfer can reinvest those earnings abroad with prior approval from Nepal Rastra Bank (NRB).
Equity-Based Remuneration: In a notable departure from current practice, Nepalese professionals providing technical or consultancy services to foreign entities may accept equity or stock options in lieu of cash payments—aligning national law with international startup standards.
Provisions for Returning Nepalis and NRNs
The legislation also addresses capital held abroad by citizens and non-residents:
Returning Citizens: Nepalese citizens may retain overseas investments acquired using income legally earned while residing abroad, provided they register these assets with the NRB upon return (eliminating the need for separate prior approval).
Non-Resident Nepalis (NRNs): NRNs will be permitted to register offshore investments, provided they prove the lawful source of their funds and repatriate dividends and profits to Nepal through formal banking channels.
Digital Assets and Financial Modernization
The bill updates the legal definition of foreign exchange transactions to encompass modern electronic banking technologies, including credit and debit cards, electronic fund transfers, online payment gateways, and digital financial instruments. It also formally recognizes derivatives—such as forward contracts, swaps, options, and hedging arrangements—enabling businesses to mitigate exchange-rate risks.
While digital and intangible assets are integrated into the statutory framework, the bill does not automatically legalize cryptocurrencies or virtual assets. Instead, it creates a foundational legal basis to regulate or oversee such assets through future legislation.
Alignment with Foreign Investment Frameworks
To align with the Foreign Investment and Technology Transfer Act, 2019, the bill broadens the definition of foreign investment to include:
Reinvested earnings, lease financing, venture capital, and private equity funds.
Capital equipment, machinery, and investments in publicly listed securities.
Similarly, the scope of technology transfer has been expanded to cover patents, trademarks, industrial designs, goodwill, franchises, proprietary formulas, manufacturing processes, software, reverse engineering, and digital data-processing systems.
Anti-Abuse Measures and Penalties
For the first time, the draft law establishes a comprehensive definition of foreign exchange abuse. Unlawful transactions, submission of false documentation, currency misuse, and trade misinvoicing (specifically over-invoicing imports and under-invoicing exports to disguise capital flight) will constitute criminal offences.
Penalization scales with the severity of the infraction:
Under NPR 100,000: A fine equal to the amount involved, plus an additional NPR 10,000.
Exceeding NPR 100 million: Fines up to twice the amount involved and imprisonment for up to three years.
Licensing and Regulatory Oversight
All entities operating in foreign exchange must obtain a license from Nepal Rastra Bank, pay annual fees, and maintain prescribed security deposits or guarantees. Additionally, the bill streamlines cross-border payment procedures for software, intellectual property, and digital services—making it easier for freelancers and tech exporters to receive international payments through official channels.
The Ministry of Finance expects the legislation to modernize Nepal's financial regime, curb illicit hundi (informal money transfer) operations, attract foreign capital, and facilitate global integration while protecting macroeconomic stability.
Following public and stakeholder consultation, the bill will be finalized, submitted to the Council of Ministers, and tabled in Parliament for debate.
