For nearly six decades, Nepal has prohibited its citizens from investing abroad. The restriction, in place since the enactment of the Foreign Investment Prohibition Act in 1964, has remained a legal obstacle, despite significant political and economic developments in the country. But now, for the first time in decades, the country appears poised to embrace a new economic vision—one that opens the door to outward foreign direct investment (FDI) by Nepalis.

At the heart of this possible transformation is a report submitted by a High-Level Economic Reform Advisory Commission, chaired by former finance secretary Rameshore Khanal. The commission has recommended sweeping reforms that include repealing the outdated law that prohibits outward investment and introducing a modern regulatory framework in its place. The new legislation, the Foreign Investment Regulation Act, proposed by the commission seeks to define which sectors are open for investment, establish limits on how much can be invested, and set in place transparent approval and monitoring mechanisms.

The Khanal commission's recommendations arrive at a time when the urgency for such a reform is becoming harder to ignore. As global economic dynamics evolve and Nepali businesses begin to compete in international markets, the ban on outward investment has increasingly appeared out of sync with reality. Many Nepalis have already found informal or indirect ways to invest out of the country. The commission’s report not only acknowledges this unofficial activity—it proposes to bring it into the legal fold, ensuring transparency and broader economic benefit.

The report complements provisions already outlined in the Ordinance to Amend Some Nepal Acts Related to Improvement of Economic and Business Environment and Promotion of Investment, 2025, and recommends a comprehensive set of reforms for outward FDI.

Nepal’s long-standing restriction on outward foreign direct investment (FDI) has persisted even as its regional peers—India, Bangladesh and Pakistan—have moved ahead in opening investment channels for their citizens and businesses. The commission has argued in its report that Nepal should no longer be the exception, recommending that it follow the example of these countries, which have permitted outward investment to expand exports, access new technologies, develop industrial capacity and secure strategic resources. Allowing Nepalis to invest abroad can also help build international networks that benefit domestic industries and raise the global profile of Nepali brands and services, according to the commission.

The urgency for reform is growing. An increasing number of Nepalis working abroad are investing their earnings overseas rather than remitting them back home. Meanwhile, thriving local enterprises, especially in fintech and information technology, are pushing for a legal framework to enable their international expansion.

The conversation around outward FDI is not new. It first gained traction in 2009, during Dr Baburam Bhattarai’s tenure as finance minister, when the issue was raised in a cabinet sub-committee. However, before any decision could be taken, a balance of payments (BoP) crisis forced the government to shelve the proposal. Nevertheless, the discussion highlighted a growing appetite for global investment opportunities.

In the absence of legal pathways, Nepalis have invested abroad through informal or indirect means. From restaurant chains in Europe to construction ventures in foreign markets, and from IT service exports to technical expertise in adventure tourism, Nepali businesses are already making their mark in the international market.

Economists and business leaders say that Nepal must now formalize this momentum. They argue that Nepal can support the global ambitions of its citizens and businesses while promoting transparency and maximizing economic benefits by paving the legal way for outward investment.

Phased and Conditional Approach

With a clearer understanding of the benefits and risks, the Khanal commission has proposed a phased and conditional approach. It has suggested repealing the Foreign Investment Restriction Act, 2021 and replacing it with the Foreign Investment Regulation Act, clarifying the areas where foreign investment can be made, investment limits, approval and regulation methods.

As per the commission’s suggestions, foreign investments can be encouraged to support the growth of businesses operating in Nepal by leveraging international networks, laying the groundwork for export expansion, introducing new technologies to boost industrial capacity, securing reliable sources of essential raw materials or machinery, and promoting commercial activities that utilize Nepali skilled manpower. The commission has recommended allowing firms to invest up to 25% of their average annual export income from the past three fiscal years to either establish a sales branch abroad or to set up a factory that exports semi-processed materials for final processing and sale in the destination country. Additionally, it has proposed allowing companies in the hotel, restaurant and tourism sectors to invest up to 50% of their paid-up capital abroad after evaluating their investment proposal.

It has also been recommended that the government provide bid bonds required for construction entrepreneurs to participate in foreign construction contracts, and offer performance bonds and bank guarantees if the contract is awarded, facilitating their expansion outside the country.

The commission has recommended that the government sign double taxation avoidance agreements and bilateral investment agreements with countries where Nepali citizens, firms, or companies have been approved to make foreign investments. Likewise, it has suggested developing the Office of the Investment Board Nepal (OIBN) as the secretariat responsible for granting approvals for foreign investments, and entrust it with the responsibility of monitoring the investments made by approved firms and companies.

Additionally, the commission has recommended forming a committee under the leadership of the Nepal Rastra Bank (NRB) Governor, and comprising representatives from relevant agencies, to approve the amount and method of investment to be made abroad.

It has been suggested that firms, approved to invest abroad, have to submit their transactions, financial status and other details related to their investments abroad to the OIBN in a prescribed format every six months.

However, foreign investment shall not be permitted in tax-havens or in countries that do not allow the easy repatriation of investments, proceeds from property sales or returns on investment.

The commission has also recommended making arrangements for Nepali citizens, who have established companies or firms abroad or invested in the share capital of foreign companies using various sources, to declare themselves and to list such investments with the OIBN. “Nepali citizens should be allowed to receive sweat shares without any foreign currency payment for providing technology or specific knowledge or any other service to a foreign company while residing in Nepal,” the report states.

According to the report, Nepali citizens, firms or companies that have been approved to invest abroad have to mandatorily repatriate 50% of the returns earned from such investments every year. “Likewise, 100% of the consulting fees, royalties and technical fees received while investing abroad should be repatriated to Nepal,” the commission has said in its report.

If the government adopts the reforms suggested by the Khanal-led commission, it could mark an important turning point in Nepal’s economic policy, transitioning the nation from a closed financial system to one that encourages global integration. It offers the promise of scale, competitiveness and access to global markets for Nepali investors. Likewise, for the government, it presents an opportunity to modernize economic governance and better leverage the skills and resources of its diaspora and private sector.

The success of these reforms will depend on strong legislation, efficient administration and unwavering political commitment, experts said.

(This article was originally published in  May 2025  issue of New Business Age Magazine.)