Industrial Enterprises Act 2076 (2020) [Amended Full Act]

1. Introduction, Short title and Commencement

The act shall be called as “Industrial Enterprises Act, 2076”. It shall be commenced from 28th Magh 2076 (11^th February 2020). Industrial Enterprises Act, 2076 has been introduced repealing the Industrial Enterprises Act, 2073 (the "Previous Act").

No person (either natural or artificial) is permitted to operate its business without establishing industry under this Act. Company registered under the Companies Act at the Office of Company Registrar (the “OCR”) is not allowed to operate business transaction without registering its industry under the Act.

2. Objective of Industrial Enterprises Act

To create investment friendly industrial environment of the country.
To improve national productivity by optimum utilization of natural, physical & human resources for import substitution & export promotion.
To make stable & competitive production based economy by developing industrial sector.
To create maximum employment opportunities in industrial sector

3. Definition

3.1 Industry

“Industry” means industry registered under section 17 of the act.

3.2 Registering Authority (Body registering the industry)

“Registering authority” means the department of industry and this term also includes the department or office looking after industry in the province.

3.3 Transactions

“Transactions” means the production and distribution of goods and services in accordance with the objectives of the industry and this term also includes other transaction related to production and distribution.

3.4 Export Oriented Industry

“Export Promotion Industry” means any industry exporting at least 40% of its production but does not include energy based industries.

3.5 Intellectual Property

“Intellectual Property Rights (IPR)” means patents, designs, trademarks, service marks, geographical indication, trade secrets, copyrights etc.

3.6 Department

“Department” means the Department of Industries.

4. Authority for Registration of Industry

The Act provides different jurisdiction to following government authorities for registration of industry:

Department of Industry	Following industry shall be registered with department of Industry: a) Industry requiring permission before registration as mentioned in Annexure 1, b) Industry established with Foreign Investment, c) Industry based on subject matter stated in under schedule 5 subject of Constitution of Nepal, d) Industry with working place in two or more than two provinces, e) Industries providing educational consultancy services in relation to diplomatic affairs.
Provincial Government	The registration, renewal and regulation of all industries which do not fall under the jurisdiction of DOI, would fall under the jurisdiction of Provincial Government. However, industries subjected to obtain prior approval are not excluded from obtaining the required approval. However, the Department of Industries (“DOI”), shall continue to be responsible for registration, renewal and regulation until the provincial governments make necessary arrangement through introduction of provincial laws
Government of Nepal	The Act mandates certain industries *(such as industry based on atomic energy, industries producing radioactive material, atomic energy and uranium energy related industries)* which can be established and operated *only by the Government of Nepal.*
Local Authorities	After enactment of federal and provincial laws ‘micro entrepreneurship’ and ‘cottage and small scale industry’ having fixed capital as prescribed under the respective provincial law shall be regulated by the respective local authorities. Until formulation and enactment of separate local laws all industries shall be regulated by the DOI.

Also Read: Bonus Act 2030 & Rules 2039

5. Industry Registration in Nepal

5.1 Mode of submission of details & documents

All the details and documents to be submitted for registration of industry can be submitted through electronic medium. Further, the authentication of the submitted documents can also be made through digital signature.

5.2 Time period for submission of additional details & documents

Maximum 90 days shall be allowed to submit additional details and documents to the registration authority where the submitted details and documents are inadequate.

5.3 Reason and Time period to inform non-registration

Registering authority does not register an industry in following circumstances:

a) Applicant has not submitted additional details and documents,

b) Procedure prescribed under the rules has not followed

Information of non-registration of an industry shall be provided within 5 days of the decision by disclosing the reason for non-registration.

5.4 Complaint against non-registration

Applicant may file a complaint within 30 days of decision of refusal where the registering authority refuses to register the industry. Complaint shall be filed with following authority:

i) Ministry, where refusal is made by department of industry;

ii) Province ministry looking after industry, where refusal is made by registering authority of province.

Authority looking after the complaint shall make decision within 30 days of complaint after making necessary inquiries.

6. Issuance of Industry Registration Certificate

6.1 Time period for Industry Registration

Registration of the industry should be completed within 5 days of submission of application and all required documents and provide the “Industry Registration Certificate”.

6.2 Contents of Industry Registration Certificate

Following are the matters to be disclosed in the Industry Registration Certificate:

i) Date of issue of Industry Registration Certificate,

ii) Duration within which the industry need to commence its business transaction,

iii) Conditions to be fulfilled by the industry,

iv) Other conditions according to the nature of industry.

6.3 Special provision for micro and cottage industries

Every industry under this act needs to get registered before it starts its operation. However, Micro industries may get registered within 1 year from the date of its operation.

7. Approval and Permission Requirement

7.1 Industries requiring approval from the Board

Permission from the “Industrial and Investment Promotion Board” (“Board”) shall be obtained before registering the industries mentioned in schedule 1.

However, approval from council of minister, Nepal Government is required for industries producing explosives including arms and ammunitions and gun powder as mentioned in serial number 1 of schedule 1.

7.2 Prior approval (Permission) for Industry Registration

Application shall be made to the “Board” through “registering authority” along with prescribed details & documents for obtaining permission for registration of industry. Body registering the industry shall forward the application within 7 days to the “Board” for decision along with its opinion.

7.3 Time period for giving permission

Board shall make a decision whether or not to provide permission for registration of the industry within 30 days. Board may prescribe conditions and criteria while making decision to give permission. Department of industry shall provide the letter of permission to the applicant within 5 days of receipt of decision from the board.

7.4 Application for registration after obtaining permission

Applicant shall submit the application for registration of the industry, within the time period as mentioned in the letter of permission. Letter of permission shall ipso facto be void, if the application does not file for registration of the industry within the time limit mentioned in the letter of permission.

7.5 No sale or change in ownership before operation

Applicant obtaining permission for registration of the industry as mentioned in schedule 1, cannot sale or change ownership or otherwise transfer the title before operation of industry, commercial production or starting business.

However, if the applicant dies before operation of industry, commercial production or starting business, then legal heir of the applicant will carry remaining work.

8. Notification of Operation and Extension of Industry

8.1 Time period for notification

Every industry registered under this act shall carry on commercial production or transaction within the time period mentioned in Industry Registration Certificate (generally within 1 year from the date of registration) and notify the registering authority within 30 days from the date of such operation, commercial production or transaction.

8.2 Extension of Time period

In case industries fails to commence the operation within the specified timeline, the industry is required to apply for the extension by submitting an application 30 days before the expiry of the specified time period (without delay fees).

Note: Previously, failure of filing an application resulted in immediate closure of industry.

Further, upon the payment of fine for delay, the industry may submit an application to the authority within 6 months of expiry of time limit, stating the reasons for inability to submit the same within stipulated time.

8.3 Approval for extension of Time period

The industry operation extension can be provided based on the progress of construction work on the site and nature of the industry. However, approval from “Board” is required to be obtained in case industry operation extension is required for more than 3 times.

8.4 When does Industry Registration becomes inactive

Failure of obtain the timely extension of industry operation will make the industry registration certificate automatically inactive. Non extension of time period does not result in cancellation of industry registration certificate.

9. Approval for changes in capital structure, capacity and objective of industry

9.1 Requirement of prior approval

Prior approval shall be obtained from the Registering Authority by the industry which is intending to increase the existing capital, capacity, adding additional objectives, and changing the existing objectives.

9.2 Time period for obtaining approval

Approval for changes in capital structure, capacity and objectives shall be provided with 90 days of filing application after reviewing the submitted details and documents. If the changes results in change in classification then the applicant industry shall ask to specify it in industry registration certificate and record the matter thereto.

9.3 Where is prior approval not required

However, prior approval is not required to be obtained by the ‘micro industry’ or ‘cottage and small scale industry not falling under schedule 1’ with fixed capital of NPR. 10,000,000 (ten million). However, environmental compliance report (IEE or EIA) needs to be approved in accordance with prevailing law.

9.4 What is not increase in capacity

Increase in production rate by merely enhancing the capacity without altering installed machinery, equipment shall not be considered as increase in capacity.

10. Submission of details

10.1 Time period for submission

Each industry is required to notify certain details as prescribed in the registration certificate to the ‘registering authority’ within 6 months of every financial year.

10.2 Submission of “Zero” details

The industry should forward zero details (Shuunya Biwaran) of production and business transaction of the industry to the Registering Authority if the industry is closed for more than a year or has no production or transaction throughout the year.

10.3 Mode of submission of details

Details to be submitted under this section are required to be submitted through electronic medium.

10.4 When does submission of details not required

Details are not required to be submitted for the period for which industry is closed, if the industry has informed about the industry closure to the registering authority.

11. Prior approval for relocation of industry

11.1 Submission of Application

Application along with reason for relocation shall be submitted where an industry desires to relocate into another area. If industry is being transferred from one province to another province, approval from DOI must be obtained.

11.2 Approval & Information of relocation

Registering authority may grant approval for relocation after obtaining recommendation of related local level where the industry is to be transferred. The information of approval for relocation shall also be provided to province ministry looking after industry and local level as well.

12. Notification of closure of industry

Industry shall notify Registering Authority about the closure of industry within 30 days from the date of closure of commercial production or transaction.

13. Environmental Compliance (IEE & EIA) in Nepal

Industry registered under this act should commence its activity related to establishment, operation and transactions only after completion environment studies such as “Initial Environmental Examination” (IEE) and “Environmental Impact Assessment” (EIA) if applicable.
The Act further dictates to carry out such environment studies in the events where the industry increases capital, enhances capacity, adds or changes objective or shifts or changes location of the industry if applicable as per prevailing law.
Controlling the adverse effect or possible adverse effect on environment while operating the industry is that of industry itself.
The industry which does not require carrying on IEE and EIA should, during registration, are required to disclose grounds and reasons for the same along with the self-declaration that the industry will take appropriate measures to mitigate adverse impact on the environment.

14. Provision relating to Unit Industry and Branch Industry

Industrial Enterprises Act, 2076, has introduced a new concept of unit industry, eliminating the concept, use and practice of branch industry. Any industry desirous of operating an industry or production at a different location from that of the main industry shall do so by registering a unit of the industry. The act further requires every industry to register their existing branch as separate industries within a year of commencement of this act.
Registration of a unit industry shall follow the same process for registration of a new industry and the record of production, transaction and accounts shall be maintained in a unified form.

15. Corporate Social Responsibility

15.1 Applicability

Corporate Social Responsibility measure is applicable to following industries:-

a) Medium and Large industries; or

b) Cottage or Small industries having annual turnover of more than 15 crores.

15.2 Amount to be allocated

Applicable industries shall allocate at least 1% of the annual net profit (previously 1% of annual profit) to be utilized for corporate social responsibility (“CSR Requirement”).

15.3 Time period for submission of progress report

The Act requires industry to submit annual progress report, plans and activities in relation to industry in compliance with corporate social responsibility requirement within 6 months of every financial year to the Registering Authority.

15.4 Other Provisions

The fund allocated for CSR shall be utilized by making annual plans and programs in the areas as may be prescribed. The plans formulated plans and programs for CSR shall be implemented in co-ordination with local authorities.
Amount spent under CSR requirement can be deducted for the purpose of income tax.

16. Contract Manufacturing

Main Goods of the industry cannot be produced through contract manufacturing. Whereas, the act permits the production of auxiliary goods through contract manufacturing. Contract and Sub-contract manufacturing is also applicable to services.
The Act does not provide specific criteria to distinguish between main products and auxiliary products.
Prior approval of DOI is not required to enter into contract manufacturing.
Export oriented industry can also enter into contract manufacturing fulfilling certain conditions and such industry will also be eligible to receive rebate, facilities and concession as prescribed.

17. Industrial Human Resource

17.1 Provision relating to Foreign National Manpower

Human Resource required for industry shall be from Nepalese citizens.
Industry can employ foreign citizen as manpower, if a Nepalese citizen could not be available even after publishing an advertisement in national level public newspapers for any specific skilled post or for high level management post.
Department of Labour may provide approval to employ foreign citizen on the recommendation of Department of Industry to work for maximum period of 5 years.
Following are the matters to be inquired before giving approval to employ foreign citizen:-

a) Industry had attempted to appoint manpower from Nepali citizen or not;

b) Such skilled manpower is available in Nepal or not;

c) Such skilled manpower is required or not;

Foreign citizen with specialized skilled technical post can be re-appointed for additional 2 years by obtaining approval from department of labour.
Foreign Citizen manpower may repatriate his remuneration in convertible foreign currency in an amount not exceeding 70% of such remuneration.

17.2 Other Provision

The human resource employed in the industry shall not be involved in strikes to disturb regular operation and production. However, legible demands of workers shall be put on before the management in accordance with the procedure prescribed by labour act in peaceful manner and enter into mutual agreements.
Personal and Collective dispute of the workers and industry shall be resolved in accordance with prevailing labour act.
Where an industry is closed due to obstacles or blockade in production and operation by the workers, then industry is not required to pay for the period of closure to those workers involved in such blockade and the workers who do not work.

18. Provision relating to Land and Land Ceiling

18.1 Facilitation for purchasing land

The land required for the industry should be purchased by the industrialist itself.
However, if land required for the industry could not be purchased then in such a case body registering the industry shall provide necessary facilitation.

18.2 Providing land on Lease

If the National Priority Industries requires any land owned by Government of Nepal, then the body registering the industries shall proceed to the Ministry for required action to help such industries to obtain the land on lease.
Government of Nepal may lease the required land to such industry in accordance with prevailing law.
Amount to be paid under lease and other conditions of the lease shall be dealt in accordance with lease agreement.
Nepal Government may cancel the lease agreement without any condition in case the industries could not operate due to any reasons.
Other provision to provide land on lease to industries shall be in accordance with the rules.

18.3 Relief on Land Ceiling

The industry which requires a land area more than the land ceiling prescribed as per the prevailing laws of Nepal [Land ceiling limit for a person or family is 10 bigha in the Tarai, 25 ropani in Kathmandu valley and 70 ropani in hilly regions as per Section 7 of the Land (Eighth Amendment) Act, 2020] shall submit an application to the body registering the industry for the exemption on land.
Body registering the industry shall submit a report with their views to ministry after having required inspection of submitted documents for exemption on land.
The industry should use the exempted land as obtained only for the purpose for which the land is taken.
Body registering the industry may inspect to identify whether the exempted land has been used in accordance with approved objectives and provide necessary directions. Exempted land shall be returned to the Nepal Government in accordance with prevailing law, if the direction given by the body registering the industry is not followed.
The Act explicitly restricts exempted land from being sold, transferred or used as collateral in consideration of obtaining loan from the banks or financial institutions.

Also Read: Bonus Act 2030 & Rules 2039

19. Classification of Industry

The act has provided the general classification of industries on the basis of

a) size of fixed assets investment

b) nature/sector of business

19.1 Classification of Industry on the basis of Fixed Assets Investment

Micro Industries	Following are the conditions to be fulfilled to become micro industries:- i) Fixed assets worth not more than Rs.20 lakh (except for land & building), ii) Owner is involved in operation and management of industry, iii) Workforce of up to 9 people including the owner, iv) Annual turnover less than Rs.1 crore; and v) If such industry has used engines, equipment’s or machines then energy consumed by such devices in the form of electricity or diesel or petrol or other crude oils is upto *20 Kilo watt. Note: Industries specified in schedule-I (Industries Requiring Permission)* of Industrial Enterprises Act shall not be micro industries.
Cottage Industry	Conditions to be fulfilled to become a cottage industry: i) Based on traditional skills and technology ii) Labor intensive & specific skill or based on local raw materials & local technology, art & culture iii) If engines, equipment’s or machines are used, then the power usage is upto *50 Kilo watt.* iv) As stated in Schedule-2 of Industrial Enterprises Act.
Small Industries	Except those industry classified as Micro and Cottage industries, Industries with fixed assets upto Rs.15 crores.
Medium Industries	Industry with fixed assets ranging between Rs.15 crores to Rs.50 crores.
Large Industries	Industry with fixed assets more than Rs.50 crores.

19.2 Classification of Industries based on Output or Nature

Classification based on Output	Industries shall be classified on the basis of output into following types:- a) Energy-based industries (including generation and distribution of power) b) Manufacturing industries c) Agro-forestry industries d) Mining industries e) Construction industries f) Tourism industries g) Telecommunication and Broadcasting industries h) Service industries
Energy based Industries	Industries generating energy as mentioned in Schedule 3.
Manufacturing Industries	Industries which produce goods by utilizing raw materials, semi-processed raw materials or un-used products.
Agro-forestry Industries	The businesses of production or processing from raw materials based on agriculture and forests product as referred in Schedule 4.
Mining Industries	The industry extracting and processing the metallic and non-metallic material.
Construction Industries	The enterprise that constructs and operated physical infrastructure as mentioned in Schedule 5.
Tourism Industries	Tourism Industry as mentioned in Schedule 6.
Information technology, Communication technology and information dissemination based Industry	Industrial enterprise relating to information, knowledge and communication having used technology for information collection, processing and transmission as referred to in Schedule 7.
Service Industries	Industrial enterprises as mentioned in Schedule 8.

20. Other Provision relating to classification of Industry

Industries registered under this act shall be deemed to be reclassified under this act due to increase in capital, capacity increase, addition of objectives.
Notwithstanding anything contained in this section, on the recommendation of the Board, Nepal government may include any industry in the classification of industry by publishing in Nepal Gazette.
Cooperatives established under prevailing laws are allowed to register industry in its ownership.
Industries being classified under previous industrial enterprises act may apply to re-classify in accordance with this act by submitting an application to the registering authority.
Government of Nepal may change the classification as required by publishing it in Nepal Gazette.

21. Fixed Assets of Industry

The valuation of fixed asset in an industry shall consist of the following assets:-

(a) Land, physical infrastructure constructed in space, under-ground, water or under water,

(b) Physical infrastructures above land (such as: sewerage, internal road, water distribution system, drinking water infrastructure),

(d) Residential buildings constructed for employee or workers,

(e) Electricity distribution and equipment’s related with such distribution,

(f) Machinery, equipment, tools and reserved fittings,

(g) Means of transportation,

(h) Electrical equipment and office equipment,

(i) Furniture, fixture,

(j) Communication system and related system & equipments.

In addition to the assets referred above, following pre-operative expenses and expenses incurred during different stages of construction shall be capitalized as fixed assets:

a) Capitalized technical consultancy and supervision expenses;

b) Pre-investment and pre-operation costs;

c) Capitalized interest cost during the construction period.

22. Provision relating to Industrial and Investment Promotion Board

22.1 Formation of the Board

Following are the members of Industrial & Investment Promotion Board:

(a) The Minister or State Minister for Industries, Chairman

(b) Member (looking after industries), National Planning commission

(d) The Secretary, Ministry looking after Industry

(e) The Secretary, Ministry of Finance

(f) The Secretary, Ministry of Labour, employment and social security

(g) The Secretary, Ministry of Land management, co-operatives & poverty alleviation

(h) The Secretary, Ministry of Forests and Environment

(i) The Chief Executive Officer, Nepal Investment Board

(j) The Joint Secretary, Industrial & Investment Promotion Division, Ministry of Industry

(k) President, Federation of Nepal Chamber of Commerce and Industry

(l) President, Confederation of Nepalese Industries

(m) President, Federation of Cottage & Small Industries of Nepal

(n) President, Federation of Woman Entrepreneurs

(o) Two persons nominated by Government of Nepal, from among the experts in industrial sector (at least one person be female entrepreneur)

(p) The Director General, Department of Industries, Member Secretary

22.2 Procedure of the meeting of the Board

Where the both minister and state minister are appointed, state minister shall be the member of the board, notwithstanding anything contained in clause (a) of section 20(1).
The Board may, if it deems necessary, invite any expert of related subject, secretary or officer employee of Nepal Government or Province Government.
Board meeting shall be held at least once in two month and can be held anytime on requirement basis.
Matters to be discussed in the board meeting shall be fixed by secretary of the board in consultation with the chairman.
Notice of board meeting shall be provided to all members at least 24 hours before the holding of meeting.
Members having personal interest in the matters to be discussed in the board meeting shall not be allowed to take part in the meeting.
Decision of the board shall be authenticated by the secretary of the board.
The office of the board shall be located at department of industry.

22.3 Function, duties and powers of the Board

The office of the board (DG Office) shall submit annual report to the ministry regarding the work done by the board. Ministry shall publish such report in its website.
The function, duties and powers of the Industry and Investment promotion board shall be as follows:-

(a) To recommend Nepal Government to take policy decision on industrial promotion, investment security, enhancement and industrialization;

(b) To recommend Nepal Government to render necessary cooperation in formulating and implementing policies, laws and regulations are pertaining to the industrialization of the country.

(d) To recommend Nepal Government to make policy decision for controlling the environmental pollution,

(e) To provide recommendation to Government of Nepal for overall industrial development of the country and to take required action;

(f) To give direction to the concerned body after making enquiries into the complaints submitted by any industrialist and to solve it,

(g) To make recommendation to Government of Nepal for any change in level, classification and nature of industries,

(h) To carry out study, research and inspection on measures to increase domestic and foreign investment in industrial sector,

(i) To carry out necessary activities to create a competitive, harmonious and coordinated industrial environment in public, private and cooperative sectors.

(j) To establish coordination between local and provincial level to enable industrial business development and expansion,

(k) To coordinate for solving problems in implementation or doubt in the prevailing law relating to industries;

(l) To coordinate for operation of one-point service center,

(m) Other functions, duties and power of the board shall be as prescribed.

23. Industrial and Industrial Promotion Fund

23.1 Sources of the Fund

Government of Nepal may establish a fund for the promotion and protection of Industry:

a) Amount received from the Government of Nepal,

b) Amounts received from any native organizations, institutions or persons,

c) Micro, small and cottage development fund, Micro, small and cottage debt relief fund, Technology development fund, Women entrepreneurship development fund, Risk capital (venture capital) fund, Sick industries revival fund, Reconstruction and management fund, Industrial investment protection and promotion fund prevailing at the time of commencement of this act,

d) Amounts obtained as grants or assistance from any foreign government or international organizations after having prior approval of Ministry of Finance, Government of Nepal.

Provided however that, approval from Ministry of finance is required to receive grants from any foreign government, foreign institutions.

23.2 Use of the Fund

a) Development of Micro, Cottage and Small Industries,

b) Development of Technology,

c) Promotion of Industries,

d) Revival, restructuring and management of sick industries,

e) Development of women entrepreneurship

23.3 Other Provisions

Funds should be utilized in accordance with the approved annual programs.
Other provision relating to the fund shall be in accordance with rules.

24. One Stop Service Centre

24.1 General Provisions

One-Stop Service Centre (OSSC) is a single entity that will provide services, exemption, benefits, concession, and incentives or motivation to industries or investors in an easy and convenient manner.
It will serve as a single unit representing various government units and will provide all industrial administration related services ranging from registration to expansion to exit of businesses.
Until the formation of One Stop Service Centre the services will be provided through One Stop Service Centre Board by publishing it in Nepal Gazette.
Concerned body having representation in OSSC shall deploy the required number of staffs. While deploying the staff at OSSC, required rights shall also be provided by respective bodies.
For the time being, the OSSC will remain in the premises of the Department of Industry with all the relevant units stationed within the center.

24.2 Function, Duties & Powers of One Stop Service Centre

a) To carry out tasks related to the administration of registration, approval, renewal, transaction approval, capacity enhancement and cancellation of a company (except insolvency),

b) To Perform activities related to approval of foreign investment as per existing law,

c) To Perform activities related to labor approval and work agreement as per existing law,

d) To Perform activities related to visa as per existing law,

e) To evaluate IEE and EIA under existing legislation,

f) To act as a focal point for basic essentials for the operation of an industry,

g) To perform activities related to approval of foreign currency exchange in accordance with prevailing law,

h) To provide permanent accounting number (PAN) as per prevailing legislation,

i) To ease the operation of bonded warehouse,

j) To perform various activities in order to ease the industrial business,

k) To perform delegated functions, rights and duties of Board,

l) To coordinate activities to provide approval for excavation and related activities for industries if required,

m) To accept the required documents for industry registration via electronic medium and develop an electronic system to monitor works between the authorities,

n) To provide necessary coordination and providing land above the ceiling required for industries,

o) To provide approval on import or refer so to the concerned authority if required.

p) To establish and operate the investment portal and provide investment related notifications and information via same,

q) To implement the directives and decisions issued by the Ministry and Board.

r) To provide such other activities as notified by Government of Nepal in Nepal Gazette.

25. Provision relating to Sick Industries

25.1 Condition to become Sick Industry

Government of Nepal making prescribed rules may categorize industries fulfilling following conditions as sick industries:

a) Industry is in operation for at least 5 years from the date of its commercial production or transaction;

b) Not closed due to intention or mis-management but from event beyond its control);

c) Capacity utilization of 30% or less for last 3 consecutive years;

d) Operating in continuous loss since last 3 consecutive years

25.2 Revival of Sick Industry

GON may revive and restructure sick industries, if the revival of sick industries is possible by providing facilities to such industries on the basis of job creation, import substitution, export promotion industries helping to earn foreign currency.
Cooperatives interested in running the sick industry declare sick by Government of Nepal can operate such sick industry with the consent of industry.

25.3 Classification of Sick Industry

Sick Industries shall be classified into following three categories on the basis of certain criteria to provide necessary provision:

a) Fully Sick

b) Sick

c) Likely Sick

25.4 Institutional provision relating to Sick Industry

Government of Nepal may form a committee to identify, classify, revival, reconstruction and management of sick industries. The committee shall be composed of expert in related field.

26. Exemption, Facilities and Concession

· No provision shall be made to provide the exemption, facilities and concession lower than it is provided under this act. Industries can obtain the higher benefit in case benefits are provided by two or more than two acts.

26.1 Income Tax Concession

Manufacturing Industries	20% exemption on the rate of tax imposed on the income earned from such industries; and Additional 5% exemption is provided on the income earned from export.
Industries investing in construction of roads, bridge, tunnel, ropeway, railway, tram, trolleybus, airport, industrial structure and infrastructural complex and bringing such constructions into operation	40% exemption on the rate of tax imposed on the income earned from operation of such infrastructures.
Manufacturing industries except those producing fruits based cider, brandy or wine established in Under developed, Undeveloped and Least Developed Region as specified in Schedule 10	90%, 80% and 70% exemption respectively on rate of the income tax for up to 10 years from the date of commencement of commercial production or transaction
Manufacturing industries producing fruit based cider, brandy or wine established in Under Developed and Undeveloped Region	25% exemption on the income tax for up to 10 years from the date of commencement of business
Industries producing and processing Local tea products, dairy industries and clothes producing industries	50% exemption on the rate of the income tax levied on the income from the sale of such products
Manufacturing or service industries set up with the investment of more than 1 billion rupees and providing direct employment to more than 500 individuals throughout the year	100% income tax exemption for first five years from the date of commencement of business. 50% income tax exemption for next 3 years. Industries already in operation are entitled to the above stated exemption (100% income tax exemption for first five years 50% income tax exemption for next 3 years from the date of commencement of business) in case such industries enhance their installed capacity by at least 25% and increase the investment to 2 billion rupees and provide direct employment to 300 individuals throughout the year. Note: In author view it should be 300 additional direct employments.
Person or entities obtaining approval to commercially generate, transmit or distribute hydroelectricity by chaitra 2080 B.S. or generation of electricity from solar, wind and bio mass energy as well.	100% income tax exemption for first 10 years 50% income tax exemption for next 5 years. In case of industries that have already begun commercial production at the time of commencement of this Act, the exemptions applicable at the time of receiving approval would be applicable.
Person conducting research and excavation of minerals (other than limestone), petroleum matters, natural gas and fuel if commence the commercial transaction by chaitra 2080 B.S.	100% income tax exemption for first 7 years from the date of commencement of transaction; 50% exemption on the income tax for next 3years.
Industries relating to Tourism Sector established with the investment of more than 2 billion rupees	100% Income tax exemption for the first 5 years from the date of commencement of commercial transaction 50% exemption on rate of Income Tax for next 3 years
Industries related to the operation of zoological, geological and bio-tech park, and software development, data processing, cyber café and digital mapping established inside the technology park and information technology park specified by Nepal Government by publishing notice in Nepal Gazette	50% exemption on tax imposed on income of such industries
Exemption to manufacturing and information technology based industries on the basis of employment generation	a) 15% exemption on rate of income tax for providing direct employment to 300 or more than 300 individuals throughout the year; b) 50% exemption on rate of income tax for providing direct employment to 1200 or more than 1200 individuals throughout the year; c) Additional 15% exemption on income tax on that year in case the industry has 50% of its employees from among Women, Scheduled Caste and Disabled person.
Manufacturing industry having interns equivalent to at least 10% of the total human resource	Such industries are entitled to deduct for the purpose of income tax any such cost incurred in providing subsistence expenses, internship expenses and expenses incurred in enhancing the production capacity of human resource working in the industry.
Industries other than tobacco, liquor and Casinos, utilizing the reserve and surplus in capitalization in shares (issuance of bonus shares) for expansion of the capacity of the same or for other production or energy oriented industries or for the industries relating to agriculture and forest products	100% exemption on dividend tax levied as a dividend distribution on such capitalization
Cottage and Small Scale Industries with fixed assets investment up to 1 crore (Nepalese Rupees one crore) which are already in operation by the time of commencement of this Act and coming into operation pursuant to this Act	50% exemption on the applicable income tax rate
All Industries	25% exemption on the rate of income tax on royalty income from export of intellectual property. 50% exemption on the rate of income tax on income earned from transfer or sale of intellectual property. Expenses made by industries for long term welfare and benefit of employees or workers such as: life insurance, health facility, contribution based social welfare, education and training, child care centre, sports etc. can be deducted for purpose of income tax. Expenses made for equipment & technology used to reduce or control the pollution or re-processing or reuse of wastages can be deducted up to 50% of the adjusted taxable income of the same fiscal year and where the expenses cannot be deducted in full, the remaining amount is allowed to capitalize and charge the depreciation and may be claimed in the subsequent fiscal year. Expenses incurred for the machine or equipment used for reducing power consumption can be deducted fully for the purpose income tax. (100% depreciation can be charged in the year of purchase) Expenses incurred for increasing entrepreneurship, research and development and creation of new technology for enhancing the productivity of the industry can be deducted while calculating taxable income for an income year from business provided that such deduction does not exceed 50% of the adjusted taxable income from all business operated by the person and where the expenses cannot be deducted in full, the remaining amount is allowed to capitalize the charge the depreciation in the subsequent fiscal year. Expenses incurred in market promotion, survey and advertisement relating to the business can be deducted for the purpose of income tax. Expenses incurred for the security of the physical assets as prescribed and actual premium paid for insurance can be deducted for the purpose of income tax. Expenses incurred for the protection of intellectual property registered in Nepal can be deducted for the purpose of income tax. Registration fee paid to register the industry owned intellectual property to register in foreign country for its protection can be deducted for the purpose of income tax. Gifts or donations given to tax exempted organization can be deducted up to Rs.100,000 or 5% of adjusted taxable income of the industry, whichever is less can be deducted for the purpose of income tax. The Government of Nepal may also provide full or partial exemptions on gifts or expenses made on certain specified circumstances by publishing a notice in Nepal Gazette.

Note:

a) Industries based on tobacco and liquor are not entitled to any of the exemptions or facilities listed above except, manufacturing industries producing fruit based cider, brandy or wine established in Under Developed and Undeveloped Region.

However, such industries may deduct actual expenses incurred in business promotion activities including long-term welfare and benefit of employees or workers, in reducing or controlling pollution, re-processing of waste materials, in technologies and devices used reducing environment effects, in machine or equipment used for reducing power consumption, research and development expenses.

b) In case an industry qualifies for more than one exemption in respect to similar income from among those listed above, the industry is only entitled to one exemption. Such industry may select the exemption which is more beneficial.

26.2 VAT Exemption

The arrangement of VAT refund has been removed by the Industrial Enterprises Act 2076. Previously, there was the arrangement of providing refund of the VAT to the industries exporting goods manufactured in Nepal.

26.3 Custom Duty Exemption

Industries not having Bonded Warehouse or Passbook facility	The Government of Nepal, Ministry of Finance shall determine the rate of Duty Draw Back in export of goods by such industries and then refund the amount of Duty Draw Back as per the determined rate through the One Stop Service Centre.
Industries not having Bonded Warehouse approval exporting goods through existing Banking Channel or Letter of Credit or selling such goods in domestic market in convertible foreign currency	Raw materials or auxiliary raw materials as well as packaging materials that are not produced in Nepal can be imported by furnishing the required guarantees under prescribed conditions and procedures. However, in case of packaging materials not produced in Nepal, a recommendation is required from Department of Industry to enjoy the benefit.
Laboratories for Quality Assurance	Custom Duty shall be at the minimum rate on the import of machinery and scientific devices that are being imported to ensure quality as well as for research and development.
All Industries	Custom Duty levied in the import of such raw materials, auxiliary raw materials and packaging materials required for production shall be *one level below* the existing Custom Duty rate in import of finished goods using such materials. Custom duty is levied in the minimum rate on import of machinery or generators and other industrial equipment having a capacity of 10 Kilowatt or more imported by an industry for commercial purpose. [Import of Transformer has been removed from this category.]
Industries producing intermediate goods (semi-finished goods) by importing materials which is to be used in the finished goods to be exported	Such industries producing intermediate goods are entitled to claim the refund of the custom duty paid on the production materials imported based on the quantity of export of finished goods. However, application shall be filed within 1 year of export to claim duty drawback.

26.4 Additional Benefit to Micro Enterprises

· Notwithstanding anything contained in prevailing law, registration charges shall not be levied for the registration of micro enterprises.

· Micro Industries already under operation at the time of commencement of this Act and being registered pursuant to this Act are entitled to 100% income tax exemption.

Previously, the exemption was available only for up to 5 years from the date of commencement of business or transaction.

26.5 Additional Benefit for Female Entrepreneurs

Industries registered under the ownership of female entrepreneurs only are entitled to following additional benefits and concessions:

a) 35% exemption in existing industry registration fees.

b) 20% exemption in existing rate of registration of industrial property used inside the industries.

c) Female entrepreneur shall be given priority while allocating the areas inside industrial estate or industrial area.

d) In case such industries require loan for exporting produced goods, export finance will be provided to the industry depending upon the financial status of the transaction of the industry through banking channel from the “Financing Female Entrepreneurs Fund”.

26.6 Other Additional Exemption & Benefit

Following exemption, facilities and concession shall be provided in addition to the exemption, benefits and facilities stated above:

a) Industries based on forest products may be provided with possessory right pursuant to existing laws over forest in any specified region through lease or promissory guarantee with prescribed conditions.

b) No fees or royalty shall be charged in electricity produced by industry for its own consumption. Such industry willing to sell surplus electricity to any other industry, may sell so pursuant to prevailing laws in the rate agreed upon by both parties.

c) Government of Nepal may provide additional exemptions and facilities to “Export based industries and prescribed industries established inside Special Economic Zone or inside Government or Private industrial Estate” by publishing notice in Nepal Gazette.

d) Government of Nepal on the recommendation of Industries and Investment Promotion Board may provide additional exemptions and facilities by publishing a notice in Nepal Gazette to National Priority industries; or industry making optimum use of domestic raw materials, labour or skill; or industries established by inventing new technology or goods inside Nepal.

e) Government of Nepal may provide exemptions in demand charge added in electricity cost under prescribed conditions and procedures.

f) Government of Nepal may provide grants in the form of seed capital to cooperatives, micro industry, small and cottage industries to establish industries inside Under Developed Region under prescribed conditions.

g) Industries operating under foreign investment may be given approval to import goods produced by the head office located in foreign countries for production, market development and promotion of new goods for a prescribed time period under prescribed terms and conditions.

h) Except for tobacco and liquor industries, government of Nepal may provide incentives, exemptions, benefits or concessions to the production oriented industries, industries related to agriculture and forest products and minerals industry.

i) The exemption may be provided on the custom duty to be levied to the micro and cottage and small scale industries while importing novel technologies including machineries, tools and equipment as required for enhancing capacity of such industries.

j) The Government of Nepal may make special arrangement in relation to providing incentives, exemptions, benefits or concessions to the industries operating inside industrial zone, product specific zone and industrial cluster.

k) The Government of Nepal may provide incentives, exemptions, benefits or concessions to the industries established in the under developed, undeveloped and least developed regions.

27. Fine and Punishment to Industries in Nepal

The Act provides offences specific punishment based on the nature and scale of the industry in more extensive manner which is categorically presented as follows:

S.No.	Offence	Nature of Industry		Punishment
1.	Operation of industry without registration	Micro		5,000/-
		Small & Cottage		25,000/-
		Medium		50,000/-
		Large		100,000/-
		Immediate closure of industries along with fine
2.	Performance of activities against the objectives of the industry	Micro	Up to 2,000/-
		Small & Cottage	Up to 50,000/-
		Medium	Up to 100,000/-
		Large	Up to 500,000/-
3.	Failure to notify about industry operation, commercial production or commencement of transaction of an industry within given time period as provided by the act	Micro	2,000/- for each 6 months period
		Small & Cottage	10,000/- for each 6 months period
		Medium and Large	25,000/- for each 6 months period
4.	Transfer of an industry without obtaining prior approval and increment of capital, enhancement of capacity, add or alter objectives without obtaining prior approval	Micro	5,000/-
		Small & Cottage	25,000/- to 50,000/- (Notes: Additional 100% fine for industry which are subject to receive approval for industry registration)
		Medium & Large	100,000/- to 300,000/- (Notes: Additional 100% fine for industries which are subject to receive prior approval for industry registration)
5.	Failure of submission of annual detail within stipulated time frame as provided by the act	Micro	1,000/-
		Small & Cottage	5,000/-
		Medium	10,000/-
		Large	25,000/-
6.	Misuse of incentives, exemptions, facilities and concessions as made available under the Act	For all types of industries	Confiscation of available incentives, exemptions, facilities and concession (“Benefits”), recovery of amount equivalent to such benefits or levy fine equivalent to such Benefits
7.	Non-compliance of Corporate Social Responsibility (CSR)	For all types of industries	Fine equivalent to 1.5% of Net Profit every year. (Additional fine equivalent to 0.5% of Net Profit for entities failing to comply for more than 1 year.)
8.	Non-compliance of any conditions or directives provided by the Ministry	Micro	5,000/-
		Small & Cottage	50,000/- to 100,000/-
		Medium	150,000/- to 300,000/-
		Large	250,000/- to 300,000/-
9.	Any other non-compliance provided under the Act and Regulation framed pursuant to the act	Micro	Up to 15,000/-
		Small & Cottage	Up to 15,000/- to 30,000/-
		Medium	Up to 30,000/- to 50,000/-
		Large	Up to 50,000/- to 100,000/-

Note:

1) Additional 50% fine in addition to the fines stated below is applicable for industries which are subject to obtain approval from IIPB prior registration.

2) Notwithstanding anything contained elsewhere in this act, fine and punishment may be prescribed by respective provincial or local law for those industries being registered and regulated by province or local level.

28. Miscellaneous Provision

28.1 No Nationalization of Industries

No Industries shall be nationalized which has been registered under this act.
No acquisition of industries shall be made directly or indirectly other than public interest. Suitable process will be followed in accordance with prevailing law in order to acquire the industry for public interest.

28.2 Industrial Security

Government of Nepal shall provide required security to those industries which has been registered in accordance with this act.

28.3 No dual benefit

The act prohibits an industry from obtaining the benefits more than once. In order to ensure such, the Federal and the Provincial government are required to keep each other informed about the benefits provided to the industries under their authority.

28.4 Establishment of Nepal Business Platform

Nepal Business Platform, which may be formed in order to overlook effective implementation of policy and laws related to industrial business, and to affect coordination between private and public sector, among others.

Schedule-1

List of Industries requiring prior approval before registration

1. Industries producing explosives including arms and ammunitions and gun powder,

2. Security Printing, Currency & Coins manufacturer,

3. Cigarette, bidi, cigar, chewing tobacco and industries producing other goods of a similar nature utilizing tobacco as the basic raw material and industry producing electric cigarettes (vape),

4. Microbrewery, Alcohol, beer producing industries,

5. Stone, ballast, sand excavation processing industry,

6. Industries producing radio communication equipment,

7. Industries mining of precious minerals and petroleum products ,

8. Liquefied petroleum gas (L.P.G) refilling industries,

9. All kinds of industries that produce drone products or provide services through drone,

10. Other industries that need to take permission as prescribed by the prevalent laws.

Schedule-2

Cottage Industry

1. Hand looms, paddle looms, semi-automatic looms, fabric wrapping; dyeing, printing, sewing (except readymade garment) and weaving through traditional technology,

2. Hand woven Radi, pakhi, carpet, pashmina, and dress based on wool and silk, handmade paper and goods based on it,

3. Filigree and ornamental items based on traditional crafts,

4. Traditional sculpture,

5. Handmade utensils and handicrafts made of copper, brass, dhalot,kaash, and German silver,

6. Handmade utensils made of iron and items of home use such as knifes, chulesi, sickle and spade and so on,

7. Handmade ornaments made of gold and silver, utensils (including valuable, semi-valuable goods, utensils and normal stone fitted),

8. Stone-cutting industries (precious, semi-precious and ordinary stones available in the country),

9. Industries based on natural fiber including jute, sawai grass, bamboo fiber, grass, cotton threads, allo,

10. Stone-art (goods made from stone carving),

11. Pauva, thanka art and other traditional fine art,

12. Masks and dolls and toys demonstrating traditional culture,

13. Various handicraft items demonstrating traditional culture, musical instruments, and arts,

14. Decorative items made of wood, bone, horn, clay, stone and artistic goods made from minerals,

15. Ceramics and clay pots.

Schedule-3

Energy Oriented Industry

1. Industry generating energy from water resources, wind, solar, coal, natural oil, gas, bio-gas or any other sources and industry producing machines or equipment’s to be used by such industry;

2. Electricity transmission line;

3. Electricity distribution system;

4. Energy based on Bio Gas;

5. Related to electricity energy to be produced as a co-production of sugar industry;

6. Related to energy potentiality study

Schedule-4

Agriculture and Forest product based Industry

1. Related to production and storage of food products

2. Related to Challa Kadne business

3. Related to milk production and processing of dairy products

4. Related to protection of botanical garden

5. Related to operation and management of agriculture market and cold storage

6. Related to establishment and management of agriculture forest

7. Related to seed conservation of cash crops

8. Related to production of natural reshajanya products

9. Related to wood industry including shaw-mill and furniture

10. Related to wood industry like parqueting, seasoning, treatment plant, ply wood, composite, board.

11. Related to non-wood forest products including paper, resin

12. Related to the production of mushroom, tissue culture, agroforest

13. Related to cotton farming, production and processing of cotton and cotton seeds.

Also Read: Bonus Act 2030 & Rules 2039

Contact for any feedback:

Email: ca.hemantaramali@gmail.com

Facebook: https://www.facebook.com/hemanta.ramali

Disclaimer
This document meant purely for educational purpose and may be useful for students, professionals and businessman. It contains only writer understanding about the subject matter and intended for general information only. It shall not be treated as legal or other professional advice.

FirdiEye | Best blog for Financial and Corporate matters in Nepal

Main Menu

May 3, 2020