In Nepal, a foreign investor can invest in any industry through technology transfer also. There is no restriction on the category of industry to undergo technology transfer. The regime of technology transfer is regulated by Foreign Investment and Technology Transfer Act 2019 (the “FITTA”), whereby transfer of technology in following matters has been defined as technology transfer which has made the payment of royalty in technology transfer agreement more lucidness.
- Patent, design, trademark, goodwill, technological specialization, formula or process;
- User’s license, know-how sharing or franchise;
- Providing foreign technical consultancy, management and marketing services, or other technical skill or knowledge.
The terms of the technology transferred is determined by the agreement between the local industry and foreign investor. This agreement needs to be approved by Department of Industries, approving authority for foreign investment.
The newly enacted Foreign Investment and Technology Transfer Rule 2077 (the “Rule”) has brought clarity on the payment of royalty in technology transfer agreement. The Rule has prescribed limitation on royalty payment based on the net profit or sale value.
The key limitation has been included in the table below:
|In case of sale within Nepal
|In case of export outside Nepal
|Royalty payment on all kind of technology transfer in industry
|Agreed as a lump sum amount or on the basis of total sales value
|5 percent of the total sale amount excluding tax
|10 percent of the total sale amount excluding tax
|Agreed on the basis of net profit
|Upto 15 percent of net profit
|Upto 20 percent of net profit
|Royalty for the use of trademark
|For tobacco and alcoholic beverage based industry
|Upto 2 percent of the total sale amount excluding tax
|Upto 5 percent of the total sale amount excluding tax
|Upto 3 percent of the total transaction amount excluding tax
|Upto 6 percent of the total transaction amount excluding tax
Payment of Royalty in Technology Transfer Agreement
Even if an industry signs more than one technology transfer agreement with the foreign investor, the total royalty repatriated in a fiscal year cannot exceed the limit prescribed in S.N 1 of the table above(i.e. royalty limitation prescribed for payment on all kind of technology transfer in industry).