Nepali IT Companies Now Allowed to Invest Abroad

January 12, 2025
Nepali IT Companies Now Allowed to Invest Abroad

The government of Nepal has addressed the long-standing demand of entrepreneurs active in the information technology (IT) sector to establish branch offices or invest abroad. A cabinet meeting held on January 10 approved an ordinance allowing IT companies to set up branch offices overseas, invest in foreign markets, and repatriate their earnings back to Nepal.

The government stated that the decision was made to make Nepali IT companies competitive in the international market. Prime Minister KP Sharma Oli mentioned in a social media post on Saturday that the initiative aims to resolve some of the legal obstacles faced by IT professionals in Nepal.

“This is good news for those working in the IT sector,” Prime Minister Oli said. “Nepali IT companies can now invest abroad, set up branch offices, earn money, and legally bring it back to Nepal. The Cabinet has recommended an ordinance to facilitate the repatriation of income earned in IT to the President.”

Abhay Poudel, co-founder of Gokyo Labs and treasurer of the Nepal Association for Software and IT Services Companies (NAS-IT), termed the decision as significant and positive for Nepal’s IT sector. “This will greatly support the future of the technology industry. The government and we, the entrepreneurs, are jointly working to improve this sector,” he said. “Last year, we managed to remove the two-crore investment threshold for foreign investments in IT. Declaring the IT Decade through the budget was also an important step.”

The Cabinet meeting approved amendments to several Nepal Acts through an ordinance, allowing IT companies to establish a presence in foreign markets. By amending the Foreign Exchange (Regulation) Act, 1962, the government aims to enable Nepali IT companies to invest abroad, compete globally, and repatriate earnings to Nepal.

This decision will help Nepali IT companies expand their presence globally, increase market reach, and enhance competitiveness, according to IT expert Hempal Shrestha. “Although delayed, it is a positive initiative,” he said. “There were efforts before the international investment summit, but implementation was weak. At the time, companies were allowed to invest abroad upon recommendation from a concerned agency, but there was a lack of clarity on who that agency was.”

According to the ordinance, IT-based companies can now obtain foreign exchange facilities from Nepal Rastra Bank upon recommendation from the Ministry of Communications and Information Technology. Companies need to apply to the ministry, which will review their business capacity before granting approval. Nepal Rastra Bank will then provide a one-time foreign exchange facility.

“We will now be able to compete for large international contracts, establish subsidiary companies in different countries, and bring those businesses to Nepal to create jobs,” said NAS-IT’s Poudel. “Even if companies open abroad, the backend offices will remain in Nepal. This will help us achieve our goal of bringing in $6 billion within ten years. A significant obstacle to IT sector growth has been removed.” However, he expressed concerns about the longevity of the ordinance-based provision.

The ordinance also includes provisions to promote the establishment of IT service industries within special economic zones, offering incentives such as tax exemptions to facilitate IT sector development.

A report published last year by the Institute for Integrated Development Studies highlighted the current state and challenges of Nepal’s IT sector. It noted that Nepal exported IT services worth approximately $515 million in 2022, with over 106 IT service export companies and 14,728 freelance professionals active in software development and technology.

According to the report, IT service exports contributed 1.4% to Nepal’s GDP and 5.5% to foreign currency reserves. Nepal Rastra Bank’s report in November also showed that IT service exports generated Rs. 3 billion in two months. In July and August, IT-related goods and services worth Rs. 3.07 billion were exported, according to the bank’s monthly report.

Prime Minister Oli stated that the ordinance recommending the law to facilitate the repatriation of IT earnings had been forwarded to President Ram Chandra Poudel. “We believe this will develop IT as a foreign currency-earning industry,” he said in his post. However, IT expert Vivek Rana emphasized the importance of examining the conditions attached to the law.

“It’s stated that companies can invest, but if conditions such as minimum earnings, a specific number of employees, or tax requirements are imposed, it won’t be effective,” he said. “The provision for allowing investments abroad also anticipates foreign investments coming into Nepal. However, the government should also facilitate the entry of skilled manpower alongside investment.”

Rana pointed out the challenges skilled IT professionals face with working visas. “It’s difficult to keep foreign professionals for more than three months,” he said. “Paying them is also a challenge. Alongside resource accessibility, we need to focus on facilitating skilled human resources.” Legal provisions related to information technology, cybersecurity, and data protection are also linked to enabling investment inflow and outflow, making it essential to expedite these laws, he added.

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