Technology Transfer in Nepal: Technology Transfer Act in Nepal

Technology transfer in Nepal can play an important role to economic development and modernization efforts. The legal and regulatory framework governing technology transfer aims to facilitate the inflow of valuable technologies while protecting national interests. Understanding the key aspects of technology transfer regulation is essential for both foreign technology providers and Nepali recipients.

Meaning of Technology Transfer in Nepal

“Technology transfer” means any transfer of technology to be made under an agreement between an industry and a foreign investor on the following matters:

1. Patent, design, trademark, goodwill, technological specificity, formula, process,
2. User’s license, technological know-how sharing or use of technological knowledge (franchise),
3. Provision of foreign technical adviser, management and marketing service or other technological skill or knowledge.
4. Legal Framework for Technology Transfer in Nepal
5. Foreign Investment and Technology Transfer Act (FITTA) 2019
6. Foreign Investment and Technology Transfer Regulation, 2077
7. Industrial Enterprises Act 2020
8. Industrial Enterprise Regulation, 2078
9. Foreign Exchange Regulation Act 1962
10. Income Tax Act 2058 (2002)
11. Nepal Rastra Bank Foreign Investment and Loan Management by Laws 2078
12. Public Private Partnership and Investment Act, 2019

These laws collectively establish the procedures, restrictions, and incentives related to technology transfer agreements in Nepal.

Restrictions on Technology Transfer Agreements

While Nepal generally encourages technology transfer, some restrictions apply:

1. The technology must not be harmful to public health or the environment
2. Obsolete technologies are discouraged
3. The technology should contribute to increasing productivity or product quality
4. Transfer agreements should not contain unfair or restrictive business practices

The Department of Industry (DOI) reviews technology transfer agreements to ensure compliance with these principles.

Government Approval Process

Government approval is required for most technology transfer agreements in Nepal. The key steps in the approval process are:

1. Submission of application: The Nepali party applies the DOI along with the draft technology transfer agreement and supporting documents.
2. Initial screening: The DOI reviews the application for completeness and basic eligibility.
3. Detailed evaluation: The DOI assesses the terms of the agreement, the nature of the technology, and its potential impact on the Nepali economy.
4. Approval or rejection: Based on the evaluation, the DOI either approves the agreement, requests modifications or rejects the application.
5. Registration: Approved agreements are registered with the DOI.

The approval process typically takes 30-45 days, though complex cases may require additional time.

Ceiling on the Royalty Amount and Other

a). Ceiling of Royalty amount or other fees for all types of Technology Transfer for Industry

1. Royalty
2. Local Sales
3. Exports sales
4. Total amount or total sales amount
5. up to 5 % of total sales excluding Tax
6. up to 10% of total sales excluding Tax
7. If the royalty is based on net profits
8. up to 15 % of net profits
9. up to 20% of net profits

b). Ceiling of the Royalty amount or other fees for use by trademark

1. Local Sales
2. Exports Sales

• In the case of the alcohol and tobacco industries, up to two percent of the total transaction value excluding tax
• In the case of the alcohol and tobacco industries, up to five percent of the total transaction value excluding tax
• In case of other industries, up to three percent of the total transaction value excluding tax
• In case of other industries, up to six percent of the total transaction value excluding tax

Registration of Technology Transfer Agreements

Approved technology transfer agreements must be registered with the DOI. The registration process involves:

1. Submission of the final executed agreement
2. Payment of registration fees
3. Issuance of a registration certificate by the DOI
4. Registration provides official recognition of the agreement and is necessary for:

Remittance of royalties and fees

1. Obtaining tax clearances
2. Enforcing the agreement in Nepali courts
3. Unregistered agreements may not be legally enforceable in Nepal.

Treatment of Improvements to Transferred Technology

The rights to improvements made to transferred technology are an important consideration:

1. Improvements made by the Nepali recipient: These generally belong to the recipient, but the agreement may require sharing with the technology provider.
2. Improvements made by the technology provider: The agreement should specify whether these are automatically included in the license or require separate negotiation.
3. Joint improvements: Ownership and licensing rights for jointly developed improvements should be clearly defined.

The DOI encourages agreements that allow Nepali entities to benefit from and build upon transferred technologies.

Prohibited Terms in Technology Transfer Agreements

Certain terms are prohibited or discouraged in technology transfer agreements:

1. Export restrictions: Blanket prohibitions on exports by the Nepali recipient are generally not allowed.
2. Tie-in clauses: Mandatory purchase of unrelated goods or services from the information technology providers is restricted.
3. Quality control: While quality standards can be specified, the recipient should have flexibility in sourcing inputs.
4. Grant-back clauses: Exclusive rights to improvements made by the recipient are discouraged.
5. Excessive non-compete provisions: Post-termination restrictions should be reasonable in scope and duration.

The DOI may require removal or modification of problematic clauses as a condition of approval.

Sector-Specific Rules for Technology Transfer

While most technology transfer regulations apply across sectors, some industries have additional considerations:

1. Defense and security: Transfers of dual-use technologies may require additional scrutiny and approvals.
2. Telecommunications: Technology transfers in this sector may need approval from the Nepal Telecommunications Authority.
3. Pharmaceuticals: Transfer of drug manufacturing technologies must comply with regulations from the Department of Drug Administration.
4. Agriculture: Transfer of seed or biotech technologies may be subject to biosafety regulations.

Companies should consult sector-specific regulations and relevant government agencies when structuring agreements in these areas.

Dispute Resolution in Technology Transfers

Technology transfer agreements should include clear dispute resolution provisions:

• Choice of law: Nepali law typically governs agreements implemented in Nepal.
• Arbitration: International arbitration is generally recognized for disputes with foreign parties.
• Local courts: Disputes may also be resolved through Nepali courts, though this can be time-consuming.
• Mediation: Some agreements include mandatory mediation attempts before formal dispute resolution.

The DOI encourages parties to include fair and efficient dispute resolution mechanisms in their agreements.

Termination of Technology Transfer Agreements

Termination provisions in technology transfer agreements should address:

1. Grounds for termination: Including breach of contract, insolvency, or force majeure events.
2. Notice periods: Reasonable notice should be given before termination.
3. Post-termination rights: Including the right to sell existing inventory and wind down operations.
4. Continuing obligations: Such as confidentiality and payment of accrued royalties.
5. Return or destruction of proprietary information: Procedures for handling sensitive data upon termination.

The DOI reviews termination clauses to ensure they are fair and do not unduly disadvantage the Nepali party.

Reporting Requirements for Technology Transfers

Ongoing reporting requirements for registered technology transfer agreements include:

1. Annual returns: Detailing royalties paid, production volumes, and other key metrics.
2. Notification of material changes: Including amendments to the agreement or changes in ownership.
3. Performance reports: Some agreements may require periodic reports on technology implementation and outcomes.
4. Foreign exchange transactions: Reporting of royalty remittances to Nepal Rastra Bank (central bank).

Failure to comply with reporting requirements can result in penalties and complications in renewing or registering future agreements.

In conclusion, while Nepal’s regulatory framework for technology transfer seeks to balance the interests of technology providers and recipients, navigating the approval and compliance processes requires careful attention to legal requirements and policy objectives. As Nepal continues to modernize its economy, the technology transfer regime is likely to evolve, potentially streamlining processes while maintaining safeguards for national interests. Companies engaging in technology transfer in Nepal should stay informed about regulatory developments and consider seeking local legal expertise to ensure compliance and maximize the benefits of their agreements

FAQs

1. What is technology transfer in Nepal?

Technology transfer in Nepal involves sharing technical knowledge, skills, and processes between organizations.

2. How is technology transfer regulated in Nepal?

Technology transfer in Nepal is regulated by the Technology Transfer Act and Department of Industry.

3. Can foreign companies engage in technology transfer in Nepal?

Yes, foreign companies can engage in technology transfer in Nepal with government approval.

4. What are the benefits of technology transfer for Nepal?

Technology transfer benefits Nepal by improving industrial capabilities, productivity, and economic development.

5. Are there tax incentives for technology transfer in Nepal?

Nepal offers some tax incentives for approved technology transfer agreements with foreign companies.