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HIGHLIGHTS ON INDUSTRIAL ENTERPRISES ACT, 2020 (2076)

March 12, 2020

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


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.

3. Regulating Authorities /Implementing Agencies

The Act moves towards regulating the industries in line with the existing three-tires of the federal

structure (Federal, Provincial and Local government) (the “Registering Authority”) and also

segregates powers and authorities of each of them. There are certain changes in terms of industry

registration process and registering authorities, in comparison to the Previous Act. The Act provides

different jurisdiction to following government authorities for registration of industry:

3.1. Department of Industry

Previously, the Department of Industry (“DOI”) was the primary government agency for registration

of industry. However, in current administrative set up DOI would be undertaking registration of

following industries:

a. Industries subject to obtain prior approval before registration as prescribed under Annexure 1

of the Act. (As detailed in ANNEX IV).

b. Industries based on Foreign Direct Investments (“FDI”)

c. Industries falling under Schedule 5 of the Constitution of Nepal. (As detailed in ANNEX V)

d. Industries which fall under the jurisdiction of two or more Provinces.

e. Industries providing academic consultancy services relating to diplomatic affairs.

3.2. 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. Provided, that DOI as a

central authority would be responsible to register, renewal and regulation of such industry until the

provincial laws are not formed.

3.3. 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 only be

established and operated by the Government of Nepal.

3.4. Local Authorities

After enactment of local, federal, and provincial laws micro entrepreneurship, 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.

3.5. Timeline of Industry Registration


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. Approval and Compliance Requirement

The Act mandates numerous approval requirements. Some major approval and compliance

requirements are highlighted as follows:

4.1. Prior Approval for Industry Registration

The Act requires prior approval to be obtained from Industrial and Investment Promotion Board

(“IIPB”) for industry registration. Section 8 of the Act provides specific list of industries which

require prior approval. The list has been attached in ANNEX IV.

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


(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.

4.4. Requirement to submit “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.

4.5. Submission of Progress report and other details

The Act requires industry to submit annual progress report, plans and activities in relation to industry

in compliance with corporate social responsibility requirement within the end of 6 months of every

financial year to the Registering Authority.

4.6. Submission of details as prescribed at the time of industry registration

Each industry is required to notify certain details as prescribed in the registration certificate to the

Regulating Authorities within the end of 6 months of every financial year to the Registering

Authority.

4.7. Prior approval for transfer of Location of Industry

The Act requires approval from province or local level if the industry is being transferred within the

province. However, if industry is being transferred from one province to another province, approval

from DOI must be obtained.

4.8. Notification in relation to closure of industry

Industry shall notify Registering Authority about the closure of industry within 30 days from the

date of closer of commercial production or transaction.

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.

6. Incentives and Facilities to the Industries


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. Corporate Social Responsibility (CSR)

8.1. The Act provides explicit provision to allocate at least 1% of the annual net profit (which was unclear

in the Previous Act) to be utilized towards Corporate Social Responsibility (the “CSR Requirement”).

The CSR Requirement is applicable to all (i) medium industries and large industries and (ii) cottage

industries and small industries having annual turnover more than NPR 150,000,000.

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


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.

10. Offences and Sanctions

10.1. In comparison to the Previous Act, the Act provides more comprehensive offenses and punishment

for various non-compliances. The offences under the Act includes; (a) operation of industry without

registration, (b) performance of activities against objectives of an industry, (c) failure of notifying

about industry operation, commercial production or commencement of transaction of an industry

within given time period as provided by the Act, (d) transfer of an industry without obtaining prior

approval, (e) increment of capital, enhancement of capacity, addition or alteration of objectives

without obtaining prior approval, (f) failure to comply with the reporting/filing requirement as set out

under the Act, (g) misuse of incentives, exemptions, facilities and concessions as made available

under the Act, (h) non-fulfillment of the CSR Requirement in compliance with the Act, (i) non-

compliance conditions provided under the Act as well as breach of conditions or any directives issued

by the Ministry of Industry (“Ministry”) and (j) any other non-compliances as stated in the Act and

Regulation formulated under the Act.


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.

S.N. Offences Scale of

Industry

Punishment (Amount in NPR.)

1. Operation of industry without

registration

Micro industry 5,000/-

Small and

Cottage

25,000/-

Medium 50,000/-

Large 100,000/-

Immediate closure of an industry along with above

mention fine.

2. Performance of activities

against objectives of the

industry.

Micro industry Up to 2000/-

Small and

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 industry 2,000/- for each 6 months period

Small and

Cottage

10,000/- for each 6 months period

Medium and

Large

25,000/- for each 6 months period

4. Micro industry 5,000/-


Transfer of an industry without

obtaining prior approval and

increment of capital,

enhancement of capacity, add

or alter objectives without

obtaining prior approval.

Small and

Cottage

25,000/- to 50,000/-

(Notes: Additional 100% fine for

industry which are subject to

receive approval for industry

registration)

Medium and

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

timeframe as provided by the

Act.


Small and

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 CSR

responsibility.

For all types of

industries

Fine equivalent to 0.5% of gross

profit.


8. Non-compliance of any

conditions or directives

provided by the Ministry.


Small and

Cottage

50,000/- to 100,000/-

Medium 150,000/- to 300,000/-

Large 250,000/- to 300,000/-

9. Any other non-compliances

provided under the Act and

Regulation framed pursuant to

the Act.

Micro industry Up to 15000/-

Small and

Cottage

Up to 15000/- to 30,000/-

Medium Up to 30,000/- to 50,000/-

Large Up to 50,000/- to 100,000/-

ANNEX- I

Industry Fixed Capital (Nrs.)

Previous Act

Act

Micro Up to 500,000 (Five Hundred Thousand) Up to 2,000,000 (Two Million)

[annual transaction increased to less than

10,000,000 (Ten Million) from less than

5,000,000 (Five Million)]

Cottage

There has been no Change.

Small-scale Up to 100,000,000 (One Hundred

Million)

Up to 150,000,000 (One Fifty Million)

Medium-scale From more than 100,000,000 (One

Hundred Million) to 250,000,000 (Two

Fifty Million)

From 150,000,000 (One Fifty Million) to

500,000,000 (Five Hundred Million)


Large-scale More than 250,000,000 (Two Fifty

Million)

More than 500,000,000 (Five Hundred

Million)

ANNEX- II

Schedule

New sectors introduced by the Act Remarks

1. Approval

requiring

Industries

• Related to Microbrewery

• Related to LPG Refilling

• Related to manufacturing drone or providing

services through drones

2. Cottage

Industries

There has been no change.

3. Energy-

oriented

Industries

• Related to biogas energy

• Related to electricity energy to be produced as a

co-production of sugar industry

• Related to energy potentiality study


4. Agriculture

and Forest

Product

based

Industries

• Related to production and storage of food

products

• Related to Challa Kadne business

• Related to milk production and processing of

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

e Industry • Related to polluted water purification

• Related to private warehouse

• Related to infrastructure construction,

arrangement and operation of installation of

pipelines for fuel and gas supply

• Related to infrastructure construction,

arrangement and operation of energy house and

energy transmission line

• The current Act has

replaced

‘Construction

Industry’ with

‘Infrastructure

Industry’.

• The following

industries have

been removed from

the Schedule 5.

a) Related to

assembly and

convention centers

b) Related to

sewage and sewage

passage


6. Tourism

Industry • Related to bar

• Related to trekking, jip flyer, ultra-light, sky

walking, sky diving and other similar types of

excursion activities

• Related to construction and operation of cable

cars

• Related to agriculture tourism

• Related to water park

The Act has

removed industries

related to operation

of mountain flight

from Schedule 6

7. Information

technology,

Communicati

on

technology

and

information

disseminatio

n based

Industry

Part (A)

• Related to Knowledge Process Outsourcing

• Related to data centers

• Digital signature certifying agency

• Related to web portal, web design service, web

hosting

Part (B)

• Internet Service Provider

• Related to satellite phone operator service

• Related to VSAT Service

• Related to social networking, online message,

video call, conference

In relation to VSAT,

the Previous Act

had not included the

VSAT as service,

but merely provided

‘VSAT’. This Act

has covered VSAT

Services.

Part (C)

• Related to Digital Television Network

• Related to the production of ‘BrittaChittra’

8. Service-

oriented

Industry

• Related to clinic, polyclinic, operation of

rehabilitation centre, physiotherapy clinic,

aayurved or other alternative hospitals.

• Related to physical training, operation of Yog-

Dhyan or training scentre

• Related to swimming pool

• Related to operation of Sheet Bhandar

• Related to transport and cargo business or

service

• Related to Custom Agent (Bhansar Agent)

service

• Related to news dissemination service

• Related to water purification service

• Related to Cinema Hall (including multiplex)

• Related theatre (including multiplex)

• The current Act

tries to cover

operation of all

kinds of Sheet

Bhandar removing

the previous

limitation of only

the non-agriculture

Sheet Bhandar.

• The Previous Act

had covered only

the ‘cargo

businesses’. The

cargo as a service

and transport


• Related to 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).

• Related to services providing machinery

equipment in lease

• Related to service businesses such as

purification or processing cut to length sheet,

photo film slitting, photo, paper slitting, tissue

paper slitting, ball wiring assembly and

importing finished goods in bulk and repacking

having uncountable processing and procedure

• Business related to clothing and Yarn dying,

Yarn sizing and printing on clothes (except for

weaving industry doing such for its own

purpose)

• Related to Veterinary services

• Related to service apartment

• Related to food court, catering and street food

stalls

• Related to equipment repair and installation,

ready mix concrete, export house, technology

and innovation center and service of providing

facilitated work space

business or service

has also been

covered under this

Act.

• The industry related

to mass

communication

service has been

removed from the

Schedule 8.

• The Previous Act

only covered the

‘water transport and

distribution

service’. The new

Act added ‘water

purification’ also

under the scope of

Schedule 8.

• The Act has

covered ‘Cinema

Hall’ along with

‘multiplex’, which

was previously not

covered. Similarly,

the present Act has

also covered all

kinds of theatre

including multiplex

theatre.


9. Industries

with National

Priority

• Infrastructure industry

• Shoes sandals manufacturing industry, thread

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

A. Income Tax Concession

Manufacturing industries

producing fruit based cider,

brandy or wine established

in any Undeveloped Region

Not Provided 25% exemption on the rate of income tax

for up to 10 years from the date of

commencement of business

Local tea producing and

processing industries, dairy

industries and clothes

producing industries

Not Provided. 50% exemption on the rate of the income

tax levied on the income from the sale of

such products

Manufacturing Industries

set up with the investment

of at least 1 billion rupees

and providing direct

employment to more than

100% income tax

exemption for first

five years from the

date of

100% income tax exemption for

first five years from the date of

commencement of business.


500 individuals throughout

the year

commencement of

business.

50% exemption on the

income tax for next 3

years.

Industries already in

operation are entitled to

the above stated

exemption in case such

industries enhance their

installed capacity by at

least 25%, increase

investment to 1 bn.

(Nepalese Rupees One

Billion) and provide

direct employment to 500

(five hundred)

individuals throughout

the year.

50% exemption on the income tax for

next 3 years.

Industries already in operation are

entitled to the above stated exemption in

case such industries enhance their

installed capacity by at least 25%,

increase investment to 2 bn. (Nepalese

Rupees Two Billion) and provide direct

employment to 300 (thee hundred)

individuals throughout the year.

Industries conducting

research and excavation of

minerals (except white rock

(Chundhunga)) petroleum,

natural gas and fuel.

100% Income tax

exemption for first

7 years from the

date of

commencement of

transaction;

50% exemption on the

income tax for next 3

years.

Previously the white rock

was not covered.

Further, the timeline of

commencement of

commercial transaction

was mid-April 2019 A.D.

(Chaitra 2075 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 3 years.

The timeline of commencement of

commercial transaction has been

extended up to mid-April 2024 A.D.

(Chaitra 2080 B.S.)


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

Industries related to the

operation of zoological,

geological park was not

covered by the Previous

Act.

50% exemption on tax imposed on

income of such industries

Manufacturing industry

having interns equivalent to

at least 10% of the total

human resource

Not Provided. 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.

Industry registering the

intellectual property in

foreign country for its

protection

Reimbursement of cost

was available from the

Government of Nepal

Such industries are entitled to deduct

such cost for the purpose of income tax

Industries, other than

tobacco and liquor

industries and Casinos,

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

Not Provided. 100% exemption on dividend tax levied

as a dividend distribution on such

capitalization


Cottage and Small Scale

Industries with at least 10

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

Not provided. 50% exemption on the income tax as

applicable

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.

C. Custom Duty Exemption

Industries not having

Bonded Warehouse or

Passbook facility

The Government of

Nepal may refund the

amount of Duty Draw

Back in export of goods

after determining the

aggregate of costs

incurred in import

(Samadar) as prescribed

in Nepal Gazette.

The Government of Nepal Ministry of

Finance shall determine the rate of Duty

Draw Back in export of goods by such

industries and then, through the One Stop

Service Centre, shall refund the amount

of Duty Draw Back as per the determined

rate.

For all industries Custom duty is levied at

the minimum rate on

import of machinery,

transformers, generators

having a capacity of 10

Kilowatt and other

industrial devices

imported by an industry

for commercial purpose.

Custom duty is levied at the minimum

rate on import of machinery, generators

or industrial equipment with 10 Kilowatt

capacity imported by an industry for

commercial purpose.

[Import of Transformer has been

removed from this category.]

Industries producing

intermediate goods used in

Not provided. Such industries are entitled to refund of

the custom duty on the produced goods

based on the quantity of export.


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.

E. Additional benefits for Female Entrepreneurs

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.

F. Additional Exemptions and benefits

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.

ANNEX IV: List of Industry Requiring Prior Approval before Registration 1. Industries producing explosives including arms and ammunition and gunpowder,

2. Security printing, bank notes and coin industries,

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,

4. Microbrewery, Alcohol, beer producing industries,

5. Stone, ballast, sand excavation processing industry,


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.)

ANNEX V: Industries falling under Schedule 5 of the Constitution of Nepal

S.

No.

MATTERS

1. Relating to defense and military

(a) Protection of national unity and territorial integrity

(b) Relating to national security

2 War and defense

3 Arms and ammunitions factories and production thereof

4 Central Police, Armed Police Force, national intelligence and investigation,

peace, security

5 Central planning, central bank, finance policies, monetary and banking, monetary

policies, foreign grants, aid and loans

6 Foreign and diplomatic affairs, international relations and United Nations related

matters

7 International treaties or agreements, extradition, mutual legal assistance and

international borders, international boundary rivers

8 Telecommunications, allocation of radio frequency, radio, television and postal

matters

9 Customs, excise-duty, value-added tax, corporate income tax, individual income

tax, remuneration tax, passport fee, visa fee, tourism fee, service charge and fee,

penalty

10 Federal civil service, judicial service and other government services

11 Policies relating to conservation and multiple uses of water resources

12 Inland and inter-State electricity transmission lines

13 Central statistics (national and international standards and quality)

14 Central level large electricity, irrigation and other projects

15 Central universities, central level academies, universities standards and

regulation, central libraries

16 Health policies, health services, health standards, quality and monitoring, national

or specialized service providing hospitals, traditional treatment services and

communicable disease control

17 Federal Parliament, Federal Executive, Local level related affairs, special

structure

18 International trade, exchange, port, quarantine

19 Civil aviation, international airports

20 National transportation policies, management of railways and national highways

21 Laws relating to the Supreme Court, High Courts, District Courts and

administration of justice


22 Citizenship, passport, visa, immigration

23 Atomic energy, air space and astronomy

24 Intellectual property (including patents, designs, trademarks and copyrights)

25 Measurement

26 Mines excavation

27 National and international environment management, national parks, wildlife

reserves and wetlands, national forest policies, carbon services

28 Insurance policies, securities, cooperatives regulation

29 Land use policies, human settlement development policies, tourism policies,

environment adaptation

30 Criminal and civil laws making

31 Security printing

32 Social security and poverty alleviation

32 Constitutional Bodies, commissions of national importance

34 Sites of archaeological importance and ancient monuments

35 Any matter not enumerated in the Lists of Federal Powers, State Powers and Local

level Powers or in the Concurrent List and any matter not specified in this

Constitution and in the Federal law

**DISCLAIMER: This document is prepared for general understanding and should not be taken for any legal purpose without consulting legal professionals. ** The copyright of the document is vested with PLA. **

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