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Highlights On Industrial Enterprises Act 2020 2076
Highlights On Industrial Enterprises Act 2020 2076
Industrial Enterprises Act, 2020 (2076 BS) (the "Act") has been introduced repealing the
Industrial Enterprises Act, 2016 (2073 BS) (the "Previous Act"). The Act has been
authenticated by the President on February 11, 2020 (2076/10/28). The Act is in effect since
the date of authentication.
The Act is a principal legislation for registration, establishment and pre/post operational
compliances of industry. No person (either natural or legal) 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.
Some of the key provisions of the Act has been set out below:
1. Industry Registration
1.1. Continuing the legacy of the Previous Act, the Act explicitly restricts to establish or operate industry
without registering an industry undergoing through the procedure as provided in the Act. The Act
tries to shift the concept of branch industries and emphasizes on the conversion of branch industries
into unit industry. The Act requires the existing branch industries to either; (a) register itself as a
separate industry within a year from the date of enactment of the Act or (b) establish it as a unit of
the main industry. Further, such unit are required to keep a separate record of the production and
transactions. Such record has to be circulated to the main office of the industry.
2. Classification of Industry
2.1. The Act continues the general classification of industries the based on; (a) size of investment on the
fixed assets, and (b) nature/sector of business. However, there have been changes in terms of
threshold of fixed assets which have been detailed in ANNEX- I. Similarly, there are some changes
in relation to nature and sector of business, which have been detailed in ANNEX- II.
2.2. In the Previous Act, industries provided in the Schedule 1 requiring approval were excluded from the
category of ‘Micro Industry’ the exclusion of which has been removed by the new Act.
2.3. The present Act has replaced the term ‘Construction Industry’ with the term ‘Infrastructure Industry’
and has covered wider areas of infrastructure industries including industries related to construction,
arrangement and operation of installation of pipelines for fuel and gas supply, energy house and
energy transmission line. Further, the Act has broadened the scope of Information, Broadcasting and
Communication Technology based industry to also cover the ‘Information Technology’ based
industry, which includes knowledge process outsourcing, data centers, internet service provider,
industry related to web portal, web design service, web hosting to name a few. The scope of service
industry have been broadened to cover among other the e-commerce, industry business providing
services to the general people using the electronic medium (online or software or apps or other similar
nature of medium), likewise, food court, catering and street food stalls services. Similarly to the
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previous Act, the Act has not classified “investment business” as any industry within the list.
Excluding such business under the list would create question on the permissibility of foreign
investment in investment business, unless the same is notified by the Government.
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The timeline of the industry registration is stated as 5 days in the Act. Previously, the time line of
registration was 15 (fifteen) days. In past instances, some cases of industry registration has taken
more than 15 days. In this context, 5 days’ timeline for registration of industry seems attractive to the
investors; however, it may take longer period of time in case to case basis.
4.2. Notification Requirement for Industry Operation and Extension of Industry Operation
The industry registration authority provides specific timeline for each industry to commence its
Operation, Commercial Production or Transaction (the “Operation”). The Act requires industries to
inform the industry Registration Authority about the Operation within 30 days from the date of such
Operation. In case industries fail to operate within the given timeline, it shall obtain industry operation
extension 30 days before the expiry of the given timeline for industry operation.
Previously, failure of filing an application for industry operation extension would have resulted in
immediate cancellation of industry. There was no provision of delay payment and extension of
industry operation after expiry of the given timeline. However, the Act has currently provided
additional 6 months period to obtain industry operation extension and provides provision in relation
to delay fee submission for delay application for industry operation extension. 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 IIPB is required to be obtained in case industry operation extension
is required for more than 3 times.
As per the previous Act, failure of obtaining timely extension of industry operation would result in
cancellations of industry registration but under the new Act instead of industry cancellation it would
be automatically be inactive.
Principally, obtaining extension of industry operation is merely a technical matter; default in
obtaining industry registration extension would not cancel the entire business vehicle as such. In this
context, the current Act provides more flexible approach to obtain industry operation extension. For
instance a business vehicle undertaking hydropower project cannot be technically cancelled from its
real existence only because of failure of industry operation extension.
4.3. Approval for changes in capital structure, capacity and objective of industry
The Act mandates prior approval to be taken from the Registering Authority by the industry
which is intending to increase the existing capital, capacity, adding additional objectives, and
changing the existing objectives. However, such approval is not required to be obtained by
the micro industry or cottage and small scale industry with fixed capital of NPR. 10,000,000
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(Ten Million) which are not required to obtain prior approval for industry registration. The
Act envisages that increase in production rate by merely enhancing the capacity without
altering installed machinery, equipment shall not be considered as increase in capacity.
5. Environment Compliance
5.1. Pursuant to the Act, industry should commence activity related to establishment and operation only
after completion of applicable environment studies such as Initial Environmental Examination (IEE)
and Environmental Impact Assessment (EIA). The Act further mandates 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.
5.2. The industry which does not require IEE and EIA should, during registration, 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.
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6.1. There have been some major changes in the Act in terms of incentives and facilities to the industries.
A significant change to note in the new Act is the removal of exemption of the Value Added Tax
(“VAT”) on production cost of the exported goods on the basis of export quantity.
6.2. The other remarkable changes include 100% income tax exemption to the Micro Industries being in
operation at the time of commencement of this Act; 50% income tax exemption to the Cottage and
Small Scale Industries with at least 10 Million (Nepalese Rupees Ten Million) being in operation by
the time of commencement of this Act and coming into operation pursuant to this Act; 50%
exemption on the rate of the income tax levied on the income from the sale of production by Local
tea producing and processing industries, dairy industries and clothes producing industries.
6.3. The new Act has brought changes in exemption, facilities and concession on income tax, custom duty
and various other charges on various nature of production. The major changes brought about in the
new Act have been detailed in ANNEX-III.
6.4. The Act provides statutory protection for changes in law regarding benefits and exemption provided
under the Act and other applicable laws. The stabilization provision states that no provisions shall be
made limiting the benefits and exemptions prescribed under the Act and other applicable laws. The
difference with the Act and the Previous Act is that the current law only guarantees non-limitation of
the incentives, concessions, facilities or subsidies guaranteed under the current Act, whereas the
previous IEA had the same provision extending to the scope of concessions, facilities or subsidies
provided by, both, the then IEA and the then prevailing laws.
7. Land Ceiling
7.1. The industry which requires a land area more than the land ceiling prescribed as per the prevailing
laws of Nepal should submit an application to the Registering Authority for the exemption on land.
The industry should use the exempted land as obtained only for the purpose for which the land is
taken. The Act provides restrictive regime in use of land obtained beyond ceiling. 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. This provision is a hindrance to projects that operate
with loan investment because the land acquired by industries beyond ceiling cannot be mortgaged.
8.2. The fund allocated for CSR shall be utilized in the specific sector as provided under Rule 37 of the
Industrial Enterprise Regulation, 2019 (2076) (the "Regulation") by formulating annual plan and
program. The Rule 37 of the Regulation provides number of sectors/areas or/and activities where the
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amount allocated for CSR shall be spent in specific sectors including (a) Natural Calamities, (b)
Community Health Centers, (c) Preservation of Nepalese Architect, (d) Culture Socially Backward
Communities,(e) Community Schools, (f) pollution Control, (g) Waste Management, Reforestation,
(h) Preservation of Water Resource, (i) Promotion of Alternative Energy & Environment Protection,
(j) Campaign for the preparation & Broadcasting of Documentary against Smoking, Alcohol use. (k)
Rural Drinking Water, road, sewage & corresponding physical infrastructure for the social benefit.
8.3. The Act further provides that the amount spent under CSR requirement can be deducted for the
purpose of income tax. The plans and programs related to CSR shall be submitted within the end of
6 months of every financial year to the DOI. The plans formulated plans and programs for CSR shall
be implemented in co-ordination with local authorities.
9. Contract Manufacturing
9.1. The content of the contract manufacturing has been updated in the Act in line with the Foreign
Investment and Technology Transfer Act, 2019. Previously contract manufacturing arrangement was
permissible for production of goods and services by the domestic industry. The Act there explicitly
restricts production of main goods of the industry through contract manufacturing. However, the Act
permits contract manufacturing arrangement in case of production of auxiliary products. The concept
also extends to supply of services but has not prescribed in detail.
9.2. The Act does not provide specific criteria to distinguish between main products and auxiliary
products. This provision provides much needed regulatory clarity on the regulation of contract
manufacturing arrangement. The Act does not mandate prior approval from the DOI to enter into a
contract manufacturing arrangement. The Act also entails provision of exemptions and benefits for
industry based on the contract manufacturing. Government is yet to issue notification relating to such
benefits and exemptions.
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10.2. The Act provides offence specific punishment based on the nature and scale of the industry in more
extensive manner which is categorically presented as follows. Additional 50% fine in addition to the
fines stated below is applicable for industries which are subject to obtain approval from IIPB prior
registration.
Large 100,000/-
Large Up to 500,000/-
3. Failure to notify about industry Micro industry 2,000/- for each 6 months period
operation, commercial
Small and 10,000/- for each 6 months period
production or commencement
Cottage
of transaction of an industry
Medium and 25,000/- for each 6 months period
within given time period as
Large
provided by the Act.
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Transfer of an industry without Small and 25,000/- to 50,000/-
obtaining prior approval and Cottage (Notes: Additional 100% fine for
increment of capital, industry which are subject to
enhancement of capacity, add receive approval for industry
or alter objectives without registration)
obtaining prior approval.
Medium and 100,000/- to 300,000/-
Large (Notes: Additional 100% fine for
industries which are subject to
receive prior approval for industry
registration)
Large 25,000/-
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8. Non-compliance of any Micro industry 5,000/-
conditions or directives
Small and 50,000/- to 100,000/-
provided by the Ministry.
Cottage
Medium 150,000/- to 300,000/-
ANNEX- I
Industry Fixed Capital (Nrs.)
Medium-scale From more than 100,000,000 (One From 150,000,000 (One Fifty Million) to
Hundred Million) to 250,000,000 (Two 500,000,000 (Five Hundred Million)
Fifty Million)
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Large-scale More than 250,000,000 (Two Fifty More than 500,000,000 (Five Hundred
Million) Million)
ANNEX- II
Schedule New sectors introduced by the Act Remarks
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4. Agriculture • Related to production and storage of food
and Forest products
Product • Related to Challa Kadne business
based • Related to milk production and processing of
Industries dairy products
• Related to protection of botanical garden
• Related to operation and management of
agriculture market and Sheet Bhandar
• Related to establishment and management of
agriculture forest
• Related to seed conservation of cash crops
• Related to production of natural Reshajanya
products
• Related to wood industry including shaw-mill
and furniture
• Related to wood industry like parqueting,
seasoning, treatment plant, ply wood,
composite, board.
• Related to non-wood forest products including
paper, resin
• Related to the production of mushroom, tissue
culture, agroforest
• Related to cotton farming, production and
processing of cotton and cotton seeds.
5. Infrastructur • Related to polluted water purification • The current Act has
e Industry • Related to private warehouse replaced
• Related to infrastructure construction, ‘Construction
arrangement and operation of installation of Industry’ with
pipelines for fuel and gas supply ‘Infrastructure
• Related to infrastructure construction, Industry’.
arrangement and operation of energy house and • The following
energy transmission line industries have
been removed from
the Schedule 5.
a) Related to
assembly and
convention centers
b) Related to
sewage and sewage
passage
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6. Tourism • Related to bar The Act has
Industry • Related to trekking, jip flyer, ultra-light, sky removed industries
walking, sky diving and other similar types of related to operation
excursion activities of mountain flight
• Related to construction and operation of cable from Schedule 6
cars
• Related to agriculture tourism
• Related to water park
7. Information Part (A)
technology, • Related to Knowledge Process Outsourcing
Communicati • Related to data centers
on • Digital signature certifying agency
technology • Related to web portal, web design service, web
and hosting
information
disseminatio Part (B)
n based
• Internet Service Provider In relation to VSAT,
Industry
• Related to satellite phone operator service the Previous Act
• Related to VSAT Service had not included the
• Related to social networking, online message, VSAT as service,
video call, conference but merely provided
‘VSAT’. This Act
has covered VSAT
Services.
Part (C)
• Related to Digital Television Network
• Related to the production of ‘BrittaChittra’
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9. Industries • Infrastructure industry
with National • Shoes sandals manufacturing industry, thread
Priority manufacturing industry, livestock farming, fish
farming, chicken farming, bee farming,
horticulture, preliminary processing of rubber
based on local raw materials and manufacturing
of rubber products, industry preparing
medicines battling snakebite, artificial eye lens
manufacturing industry
• Information technology industry
• Industries established inside the Industrial Area,
Special Economic Zone and Industry Gram
built and operated by the private sector
• Goods production industry with high price low
weight/volume as identified and prescribed by
the Government of Nepal publishing the notice
in the Gazette after making required standards.
• Goods and Services production industry
specified by Nepal Trade Integration Strategy
as approved by the Government of Nepal
• Related to making movie
ANNEX-III
Industry Previous Act Act
Manufacturing industries Not Provided 25% exemption on the rate of income tax
producing fruit based cider, for up to 10 years from the date of
brandy or wine established commencement of business
in any Undeveloped Region
Local tea producing and Not Provided. 50% exemption on the rate of the income
processing industries, dairy tax levied on the income from the sale of
industries and clothes such products
producing industries
Manufacturing Industries 100% income tax 100% income tax exemption for
set up with the investment exemption for first first five years from the date of
of at least 1 billion rupees five years from the commencement of business.
and providing direct date of
employment to more than
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500 individuals throughout commencement of 50% exemption on the income tax for
the year business. next 3 years.
Industries conducting 100% Income tax 100% Income tax exemption for
research and excavation of exemption for first first 7 years from the date of
minerals (except white rock 7 years from the commencement of transaction;
(Chundhunga)) petroleum, date of
natural gas and fuel. commencement of 50% exemption on the income tax for
transaction; next 3 years.
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Industries related to the 50% exemption on tax 50% exemption on tax imposed on
operation of zoological, imposed on income of income of such industries
geological and bio-tech such industries
park, and software
development, data Industries related to the
processing, cyber café and operation of zoological,
digital mapping established geological park was not
inside the technology park covered by the Previous
and information technology Act.
park specified by Nepal
Government by publishing
notice in Nepal Gazette.
Manufacturing industry Not Provided. Such industries are entitled to deduct for
having interns equivalent to the purpose of income tax any such cost
at least 10% of the total incurred in providing subsistence
human resource expenses, internship expenses and
expenses incurred in enhancing the
production capacity of human resource
working in the industry.
Industry registering the Reimbursement of cost Such industries are entitled to deduct
intellectual property in was available from the such cost for the purpose of income tax
foreign country for its Government of Nepal
protection
Industries, other than Not Provided. 100% exemption on dividend tax levied
tobacco and liquor as a dividend distribution on such
industries and Casinos, capitalization
utilizing the accrued
proceeds in capitalization in
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
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Cottage and Small Scale Not provided. 50% exemption on the income tax as
Industries with at least 10 applicable
Million (Nepalese Rupees
Ten Million) which are
already in operation by the
time of commencement of
this Act and coming into
operation pursuant to this
Act
B. VAT Exemption
The arrangement of VAT refund has been removed by the new Act. Previously, there
was the arrangement of providing refund of the VAT to the industries exporting
goods manufactured in Nepal.
For all industries Custom duty is levied at Custom duty is levied at the minimum
the minimum rate on rate on import of machinery, generators
import of machinery, or industrial equipment with 10 Kilowatt
transformers, generators capacity imported by an industry for
having a capacity of 10 commercial purpose.
Kilowatt and other
industrial devices [Import of Transformer has been
imported by an industry removed from this category.]
for commercial purpose.
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the industrial goods being
imported
D. Duty Exemption
Micro Industries already under operation at the time of commencement of 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.
There has been no significant change in relation to the benefits available to the industries registered
under the ownership of female entrepreneurs. In terms of availing export finance, such can be made
through banking channel from the Financing Female Entrepreneurs Fund. Previously, there was no
clarity as to the means and source of financing.
The new Act has also covered female entrepreneurs and industries operating inside the
industrial zone to become entitled of the additional exemptions and benefits. In addition
to the previously available exemptions and benefits, following benefits have been added
by the new Act:
1. 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.
2. 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.
3. 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.
4. The Government of Nepal may provide incentives, exemptions, benefits or concessions to the
industries established in the under developed, undeveloped and least developed regions.
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6. Industries producing radio communication equipment,
7. Industries like mining of precious minerals and petroleum products ,
8. Liquefied petroleum gas (L.P.G) refiling 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.)
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