Table of Contents
The Industrial Enterprises Act 2076 (2020) is Nepal's principal legislation governing the establishment, registration, operation, and regulation of industrial enterprises. Enacted on 11 February 2020, this Act replaced the Industrial Enterprises Act 2073 (2016) to modernize Nepal's industrial framework, decentralize registration processes, and create an investment-friendly environment. This comprehensive guide explains the key provisions, registration procedures, incentives, and compliance requirements under the Act.
What is the Industrial Enterprises Act 2076?
The Industrial Enterprises Act 2076 (2020) is Nepal's foundational law for industrial development, designed to build a dynamic and robust economy through effective management of the industrial sector. The Act focuses on import substitution and export promotion through maximum mobilization of domestic resources to enhance production of industrial goods and services while creating employment opportunities.
No person, whether natural or legal, is permitted to operate a business without registering an industry under this Act. Even a company registered under the Companies Act at the Office of Company Registrar cannot operate business transactions without registering its industry under this Act.
Objectives of the Act
The key objectives outlined in the preamble include:
- Building a dynamic and robust economy through effective industrial management
- Making the industrial environment investment-friendly and competitive
- Focusing on import substitution and export promotion
- Maximizing mobilization of domestic resources
- Enhancing production of industrial goods and services
- Creating employment opportunities
- Establishing easy, predictable, and effective management systems
Classification of Industries
Section 17 of the Act classifies industries based on two criteria: capital investment and nature of goods/services produced.
Classification Based on Capital Investment
| Industry Type | Fixed Capital | Additional Criteria |
|---|---|---|
| Micro Industry | Not exceeding NPR 2 million (excluding house and land) | Entrepreneur involved in operation; max 9 workers; annual transaction less than NPR 10 million; energy consumption up to 20 KW |
| Cottage Industry | Based on traditional skills | Labour-oriented; based on local raw materials and technology; energy consumption up to 50 KW; industries in Schedule-2 |
| Small Industry | Not exceeding NPR 150 million | Other than micro and cottage industries |
| Medium Industry | Exceeding NPR 150 million but not exceeding NPR 500 million | - |
| Large Industry | Exceeding NPR 500 million | - |
Classification Based on Nature of Business
| Industry Type | Description | Schedule |
|---|---|---|
| Energy-Based Industry | Industries engaged in energy generation from water, wind, solar, coal, biomass, or other sources | Schedule-3 |
| Manufacturing Industry | Industries manufacturing goods using raw materials, subsidiary raw materials, or semi-processed raw materials | - |
| Agriculture and Forest Product-Based Industry | Industries manufacturing goods from agriculture or forest product-based raw materials | Schedule-4 |
| Mining Industry | Industries producing metal or mineral substances through excavation or processing | - |
| Infrastructure Industry | Industries building and operating physical infrastructures | Schedule-5 |
| Tourism Industry | Industries related to tourism services | Schedule-6 |
| Information Technology Industry | Industries providing IT, communication, or information dissemination services | Schedule-7 |
| Service Industry | Industries producing or providing services | Schedule-8 |
Industries Requiring Prior Permission
Under Section 8, certain industries listed in Schedule-1 require prior permission from the Industry and Investment Promotion Board before registration:
- Industries producing arms, ammunition, gunpowder, or explosives
- Security printing, bank notes, and coin industries
- Industries producing cigarettes, bidi, cigar, chewing tobacco, and electronic cigarettes
- Microbrewery, beer, alcohol, or alcoholic substances producing industries
- Stone, ballast, sand excavation and processing industries
- Industries producing radio communication equipment
- Excavation of precious minerals and petroleum products
- Liquefied Petroleum Gas (LPG) refilling industries
- All kinds of industries producing drone products or providing services through drones
- Other industries requiring permission under prevailing laws
Industries producing arms and ammunition (Serial No. 1) require approval from the Government of Nepal, Council of Ministers, prior to registration.
Industry Registration Process
The Act decentralizes the registration process between federal and provincial authorities.
Industries Registered at Department of Industry (DOI)
Section 4(1) specifies that the following industries must apply to the Department of Industry for registration:
- Industries mentioned in Schedule-1 requiring permission
- Industries established with foreign investment
- Industries related to matters in Schedule-5 of the Constitution of Nepal
- Industries falling under jurisdiction of two or more Provinces
- Industries related to academic consultancy services on diplomatic affairs
Industries Registered at Provincial Level
All other industries not falling under DOI jurisdiction are registered, renewed, and regulated by the concerned Provincial Government.
Industries Operated by Government of Nepal Only
Industries generating atomic energy, radioactive materials, and uranium-based energy can only be established and operated by the Government of Nepal.
Step-by-Step Registration Process
| Step | Description | Timeline |
|---|---|---|
| Step 1: Application Submission | Submit application with prescribed documents to DOI or Provincial authority | - |
| Step 2: Document Review | Authority reviews application; if incomplete, applicant notified to submit within 90 days | Immediate notification |
| Step 3: Permission (if required) | For Schedule-1 industries, matter forwarded to Board for decision | 7 days to Board; Board decides within 30 days |
| Step 4: Certificate Issuance | If complete, registration certificate issued | Within 5 days |
| Step 5: Permit Issuance (if permission required) | DOI issues permit with Board decision notice | Within 5 days of Board decision |
Registration Certificate Contents
The registration certificate includes:
- Date of issue of the certificate
- Period for commencement of commercial production or transaction
- Terms to be complied with by the industry
- Other terms as specified by the registration body
Industry and Investment Promotion Board
Section 20 establishes the Industry and Investment Promotion Board with the following composition:
| Position | Role |
|---|---|
| Minister or Minister of State for Industry, Commerce and Supplies | Chairperson |
| Member, National Planning Commission (industry sector) | Member |
| Governor, Nepal Rastra Bank | Member |
| Secretary, Ministry (industries) | Member |
| Secretary, Ministry of Finance | Member |
| Secretary, Ministry of Labour, Employment and Social Security | Member |
| Secretary, Ministry of Land Management, Cooperatives and Poverty Alleviation | Member |
| Secretary, Ministry of Forest and Environment | Member |
| Chief Executive Officer, Investment Board of Nepal | Member |
| Joint Secretary, Industry and Investment Promotion Division | Member |
| Chairperson, FNCCI | Member |
| Chairperson, CNI | Member |
| Chairperson, Federation of Nepal Cottage and Small Industries | Member |
| Chairperson, Women Entrepreneurs Federation | Member |
| Two experts (including one woman entrepreneur) | Member |
| Director General, Department of Industry | Member Secretary |
Functions of the Board
The Board's functions under Section 21 include:
- Making policy recommendations for industrial promotion and investment protection
- Appraising policy, legal, and procedural frameworks for industrialization
- Making recommendations on foreign investment and technology transfer
- Making recommendations on industrial pollution control policies
- Evaluating industrial development and recommending necessary steps
- Hearing grievances of entrepreneurs and resolving problems
- Conducting studies and research on domestic and foreign investment
- Facilitating One Stop Service Centre operations
Tax Incentives and Exemptions
Section 24 provides comprehensive income tax exemptions, facilities, and concessions:
Manufacturing Industry Incentives
| Industry Type | Incentive |
|---|---|
| All Manufacturing Industries | 20% exemption on income tax rate; additional 5% for export of products |
| Tea, Dairy, and Textile Industries | 50% exemption on income tax on sales income |
| Manufacturing with NPR 1 billion+ investment and 500+ employees | 100% income tax exemption for first 5 years; 50% for next 3 years |
Regional Incentives
Manufacturing industries (except fruit-based brandy, cider, wine) established in different regions receive:
| Region | Income Tax Exemption | Duration |
|---|---|---|
| Least Developed Areas (23 districts) | 90% | Up to 10 years from commercial production |
| Underdeveloped Areas (18 districts) | 80% | Up to 10 years from commercial production |
| Under Developed Areas (20 districts) | 70% | Up to 10 years from commercial production |
Energy Industry Incentives
Hydropower, solar, wind, and bio-substance energy projects commencing commercial generation by Chaitra 2080 (mid-April 2024) are entitled to:
- 100% income tax exemption for first 10 years
- 50% income tax exemption for next 5 years
Mining Industry Incentives
Persons exploring and excavating mines (except limestone), petroleum, natural gas, and fuel commencing by Chaitra 2080 are entitled to:
- 100% income tax exemption for first 7 years
- 50% income tax exemption for next 3 years
Tourism Industry Incentives
Tourism industries established with NPR 2 billion+ investment are entitled to:
- 100% income tax exemption for first 5 years
- 50% income tax exemption for next 3 years
Employment-Based Incentives
| Employment Level | Tax Exemption |
|---|---|
| 300+ Nepali citizens (manufacturing/IT) | 15% of tax leviable on annual income |
| 1,200+ Nepali citizens (manufacturing/IT) | 25% of tax leviable on annual income |
| 50%+ women, Dalit, or persons with disabilities | Additional 15% of tax leviable |
Micro and Small Industry Exemptions
- Micro Industries: 100% income tax exemption for industries in operation at Act commencement
- Cottage and Small Industries: 50% income tax exemption for industries with fixed capital less than NPR 10 million
Customs Duty Exemptions
Section 25 provides customs duty exemptions:
- Duty Drawback: Ministry of Finance determines rate for export industries without bonded warehouse; refund through One Stop Service Centre
- Raw Materials: Customs duty on raw materials is generally one level less than on finished goods
- Machinery: Minimum customs duty on machinery, generators, and industrial equipment with 10+ KW capacity
- Research Equipment: Minimum customs duty on laboratory testing and research machinery
- Intermediate Goods: Refund of customs duty based on export quantity for intermediate goods
Additional Facilities for Female Entrepreneurs
Section 27 provides special provisions for female entrepreneurs:
- Registration Fee: 35% exemption on registration fee for sole ownership by female entrepreneur
- Industrial Property Registration: 20% exemption on fee for registering industrial property
- Industrial Zone Priority: Priority in allocation of space in industrial zones and villages
- Export Loans: Access to export loans through Female Entrepreneurs Fund
One Stop Service Centre
Section 37 establishes the One Stop Service Centre for delivering industry administration services from permission to registration, expansion, and liquidation. The Centre's functions under Section 38 include:
- Industry and business administration including registration, permission, licensing, renewal
- Approval of foreign investment
- Labour permit and work approval
- Visa facility coordination
- Environmental examination and impact assessment
- Infrastructure services coordination (electricity, water, communication, land, roads)
- Implementation of incentives, exemptions, and facilities
- Foreign currency exchange approval
- Permanent Account Number provision
- Export-import code and bonded warehouse facilitation
- Investment portal operation
Corporate Social Responsibility
Section 54 mandates Corporate Social Responsibility (CSR) requirements:
Applicability
- Medium and large industries
- Cottage and small industries with annual turnover exceeding NPR 150 million
CSR Allocation
- Minimum Allocation: At least 1% of annual net profits
- Tax Treatment: CSR expenses are deductible for income tax purposes
- Reporting: Submit details to registration body within 6 months after fiscal year end
CSR Expenditure Areas
Under Industrial Enterprises Regulation 2076, CSR funds must be spent in specific sectors including:
- Natural calamity relief
- Community health centers
- Preservation of Nepalese architecture and culture
- Socially backward communities support
- Community schools
- Pollution control and waste management
- Reforestation and water resource preservation
- Alternative energy and environment protection
- Rural drinking water, roads, and physical infrastructure
Sick Industries
Chapter 7 (Sections 39-42) provides for identification and rehabilitation of sick industries:
Criteria for Sick Industry
An industry may be declared sick if:
- In operation for minimum 5 years after commercial production
- Operating at 30% or less of installed capacity for last 3 consecutive years
- Operating in loss for 3 consecutive years
- Situation is beyond control and not due to intentional default or managerial weakness
Sick Industry Classification
- Fully sick industries
- Sick industries
- Industries oriented to be sick
Facilities for Sick Industries
The Government may grant full or partial exemption on duty, fee, or tax on machinery, tools, or equipment imported for expansion, restructuring, or diversification of sick industries.
Land Provisions
Land on Lease (Section 31)
Industries of national priority may apply for government land on lease. If the industry fails to operate, the lease agreement becomes void and land returns to the Government.
Land Ceiling Exemption (Section 32)
Industries requiring land exceeding legal ceiling may apply for exemption. Important restrictions:
- Exempted land can only be used for approved purpose
- Cannot be sold, distributed, or transferred
- Cannot be used as collateral for bank loans
- Non-compliance may result in withdrawal of exempted land
Punishments and Penalties
Section 43 provides detailed penalties for non-compliance:
| Violation | Micro | Cottage/Small | Medium | Large |
|---|---|---|---|---|
| Operating without registration | NPR 5,000 | NPR 25,000 | NPR 50,000 | NPR 100,000 |
| Acting contrary to objectives | Up to NPR 2,000 | Up to NPR 50,000 | Up to NPR 100,000 | Up to NPR 500,000 |
| Failure to notify operation commencement | NPR 2,000/6 months | NPR 10,000/6 months | NPR 25,000/6 months | NPR 25,000/6 months |
| Unauthorized location shift or capital/capacity change | Up to NPR 5,000 | NPR 25,000-50,000 | NPR 100,000-300,000 | NPR 100,000-300,000 |
| Failure to submit annual details | NPR 1,000 | NPR 5,000 | NPR 10,000 | NPR 25,000 |
| Non-compliance with directions | Up to NPR 5,000 | NPR 50,000-150,000 | NPR 150,000-300,000 | NPR 250,000-300,000 |
Additional Penalties
- Industries requiring permission: Additional 50% fine on top of regular penalties
- CSR non-compliance: Fine of 1.5% of yearly net profits; additional 0.5% for each year of continued non-compliance
- Misuse of incentives: Withholding of incentives, recovery of equivalent amount, or fine equal to incentive amount
National Priority Industries
Schedule-9 lists industries of national priority entitled to additional benefits:
- Cottage industries
- Energy-based industries
- Agriculture and forest product-based industries
- Infrastructure industries
- Export industries
- Certain tourism industries (adventurous, rural, ecological, religious, cultural)
- Mine and mineral industries, petroleum and natural gas exploration
- Specific manufacturing (cement, paper, sugar, chemical fertilizer, textiles, dairy)
- Health and educational institutions outside Kathmandu Valley
- Information technology industries
- Industries in private sector industrial areas and special economic zones
- Motion picture production
Foreign Investment Provisions
The Act provides clear provisions for foreign investment:
- Industries with foreign investment must register at Department of Industry
- 100% foreign ownership allowed in most sectors
- Repatriation of profits ensured under law
- Must comply with Foreign Investment and Technology Transfer Act (FITTA)
- Foreign technicians may repatriate 70% of remuneration in foreign currency
Compliance Requirements
Ongoing Compliance Obligations
- Operation Notification: Inform registration body within 30 days of commencing operation
- Annual Details: Submit prescribed details within 6 months after each fiscal year end
- Zero Details: Submit null details if industry closed or no production for more than one year
- Closure Notification: Inform registration body within 30 days of closure or suspension
- Environmental Compliance: Complete IEE/EIA before establishment and operation
- CSR Reporting: Submit CSR program details within 6 months after fiscal year end
Approvals Required
- Location Change: Approval required; DOI approval for inter-provincial transfer
- Capital/Capacity Increase: Prior approval from registration body
- Objective Change: Prior approval from registration body
- Operation Extension: Apply 30 days before expiry; additional 6 months with delay fee
Key Differences from Previous Act (IEA 2073)
| Feature | IEA 2073 (Previous) | IEA 2076 (Current) |
|---|---|---|
| Micro Industry Capital | Up to NPR 500,000 | Up to NPR 2,000,000 |
| Small Industry Capital | Up to NPR 100 million | Up to NPR 150 million |
| Medium Industry Capital | NPR 100-250 million | NPR 150-500 million |
| Large Industry Capital | NPR 150-500 million | Above NPR 500 million |
| Registration Timeline | 15 days | 5 days |
| One-Window Policy | Weak implementation | Institutionalized and enforced |
| Licensing | Mandatory for most | Self-registration in selected sectors |
| Operation Extension after Expiry | Not available; automatic cancellation | Additional 6 months with delay fee |
Protection Guarantees
Stabilization Clause (Section 33)
No provision shall be made lessening the incentives, exemptions, facilities, or concessions provided under the Act. Industries in operation at Act commencement are entitled to benefits under the previous Act for specified periods.
Protection Against Nationalization (Section 34)
- No industry registered under the Act may be nationalized
- Expropriation only for public purpose with due process under prevailing law
Industrial Security (Section 35)
The Government shall provide industrial security as required to industries established under prevailing law.
Related Legal Framework
The Industrial Enterprises Act operates alongside other related legislation:
- Companies Act 2063 - Company incorporation and governance
- Foreign Investment and Technology Transfer Act (FITTA) - Foreign investment procedures
- Labour Act 2074 - Employment and worker rights
- Environment Protection Act - Environmental compliance
- Investment Company Guidelines - Investment company registration
- Special Economic Zone Act - SEZ operations
Need Legal Assistance?
If you require assistance with industry registration, obtaining incentives and exemptions, compliance matters, or any industrial enterprise-related legal issues in Nepal, our lawyers can provide expert guidance. Contact us for professional legal assistance with industrial enterprise matters.
Frequently Asked Questions
The Industrial Enterprises Act 2076 (2020) is Nepal's principal legislation governing the establishment, registration, operation, and regulation of industrial enterprises. Enacted on 11 February 2020, this Act replaced the Industrial Enterprises Act 2073 (2016) to modernize Nepal's industrial framework. The Act aims to build a dynamic and robust economy through effective industrial sector management, focusing on import substitution and export promotion while maximizing domestic resource mobilization. No person or entity can operate a business without registering an industry under this Act, even if they have a company registered under the Companies Act.
Industries are classified based on two criteria. By capital investment: Micro Industry (fixed capital up to NPR 2 million, excluding house and land, max 9 workers), Cottage Industry (traditional skill-based, energy up to 50 KW), Small Industry (fixed capital up to NPR 150 million), Medium Industry (NPR 150-500 million), and Large Industry (above NPR 500 million). By nature of business: Energy-Based, Manufacturing, Agriculture and Forest Product-Based, Mining, Infrastructure, Tourism, Information Technology, and Service Industries. Each category has specific schedules in the Act detailing included industries.
Under Section 8 and Schedule-1, the following industries require prior permission from the Industry and Investment Promotion Board:
(1) Arms, ammunition, gunpowder, or explosives production;
(2) Security printing, bank notes, and coins;
(3) Tobacco products including electronic cigarettes;
(4) Microbrewery, beer, and alcoholic substances;
(5) Stone, ballast, and sand excavation;
(6) Radio communication equipment;
(7) Precious minerals and petroleum excavation;
(8) LPG refilling;
(9) Drone products and services;
(10) Other industries requiring permission under prevailing laws.
Arms and ammunition industries (Serial No. 1) require Council of Ministers approval.
Industries must register at the Department of Industry (DOI) if they:
(1) require prior permission under Schedule-1;
(2) are established with foreign investment;
(3) relate to matters in Constitution Schedule-5;
(4) fall under jurisdiction of two or more Provinces;
(5) provide academic consultancy on diplomatic affairs.
All other industries are registered at the Provincial Government level. Industries based on atomic energy, radioactive materials, and uranium energy can only be established by the Government of Nepal. Local authorities may register micro, cottage, and small industries as specified in Provincial law.
Manufacturing industries receive:
(1) 20% exemption on income tax rate, with additional 5% for exports;
(2) Tea, dairy, and textile industries get 50% exemption on sales income;
(3) Industries with NPR 1 billion+ investment and 500+ employees get 100% exemption for first 5 years and 50% for next 3 years;
(4) Regional incentives: 90% exemption in least developed areas, 80% in underdeveloped areas, 70% in under-developed areas for up to 10 years.
Tobacco and liquor industries (except fruit-based brandy, cider, wine) are excluded from these exemptions.
The registration process involves:
(1) Submit application with prescribed documents to DOI or Provincial authority;
(2) If incomplete, applicant notified to submit within 90 days;
(3) For Schedule-1 industries, matter forwarded to Board within 7 days, Board decides within 30 days;
(4) Registration certificate issued within 5 days of complete application;
(5) For permission-required industries, permit issued within 5 days of Board decision.
The registration timeline has been reduced from 15 days (previous Act) to 5 days. Applications and documents can be submitted electronically with digital signatures.
Section 54 mandates CSR for:
(1) All medium and large industries;
(2) Cottage and small industries with annual turnover exceeding NPR 150 million.
These industries must set aside at least 1% of annual net profits for CSR activities in specified areas including natural calamity relief, community health centers, cultural preservation, community schools, pollution control, waste management, reforestation, and rural infrastructure. CSR expenses are deductible for income tax. Industries must submit CSR program details to the registration body within 6 months after fiscal year end. Non-compliance attracts fine of 1.5% of yearly net profits.
Section 43 prescribes penalties for operating without registration: Micro Industry - NPR 5,000; Cottage and Small Industry - NPR 25,000; Medium Industry - NPR 50,000; Large Industry - NPR 100,000. Additionally, the registration body may order immediate closure of the industry. Industries requiring prior permission face additional 50% fine on top of these amounts. The fine is recovered as government due under prevailing law. Other violations such as acting contrary to objectives, unauthorized changes, and failure to submit details attract separate penalties based on industry classification.
The One Stop Service Centre (Section 37-38) is established to provide industrial services from permission to liquidation through a single point. Its functions include: industry registration, permission, licensing, and renewal; foreign investment approval; labour permits and work approvals; visa facility coordination; environmental examination coordination; infrastructure services coordination; implementation of incentives and exemptions; foreign currency exchange approval; PAN provision; export-import code facilitation; investment portal operation. The Centre ensures timely delivery of services and coordination between various government bodies.
Chapter 7 (Sections 39-42) addresses sick industries. An industry may be declared sick if it has operated for minimum 5 years, been operating at 30% or less capacity for 3 consecutive years, and operating in loss for 3 consecutive years due to circumstances beyond control (not intentional default or managerial weakness). Sick industries are classified as fully sick, sick, or oriented to be sick. The Government may grant full or partial exemption on duty, fee, or tax on machinery imported for expansion, restructuring, or diversification. A committee including experts may be formed for rehabilitation recommendations.
The Act provides:
(1) Entrepreneurs purchase required land under prevailing law; registration body coordinates if unable to purchase;
(2) National priority industries may apply for government land on lease; if industry fails, land returns to Government;
(3) Industries needing land exceeding ceiling may apply for exemption.
However, exempted land: cannot be used for other purposes; cannot be sold, distributed, or transferred; cannot be used as loan collateral. Non-compliance may result in withdrawal of exempted land. The restriction on using exempted land as collateral creates challenges for project financing.
Section 24 provides employment-based incentives for manufacturing and IT industries:
(1) Industries providing direct employment to 300+ Nepali citizens throughout the year receive 15% of tax leviable on annual income;
(2) Industries with 1,200+ Nepali employees receive 25% of tax leviable;
(3) If at least 50% of employed citizens are women, Dalit, or persons with disabilities, additional 15% of tax leviable is exempted.
These incentives encourage job creation and inclusive employment practices. The benefits apply to manufacturing and information technology industries specifically.
Post-registration compliance includes:
(1) Notify registration body within 30 days of commencing operation;
(2) Submit prescribed annual details within 6 months after each fiscal year;
(3) Submit zero details if closed or no production for over one year;
(4) Notify closure within 30 days of suspension;
(5) Complete IEE/EIA before establishment;
(6) Submit CSR program details within 6 months after fiscal year.
Approvals required for: location change (DOI approval for inter-provincial); capital/capacity increase; objective change. Operation extension must be sought 30 days before expiry; additional 6 months available with delay fee.
Foreign investment industries must:
(1) Register at Department of Industry (not Provincial level);
(2) Comply with Foreign Investment and Technology Transfer Act (FITTA);
(3) Obtain approval from Industry and Investment Promotion Board for permission-required industries. Benefits include: 100% foreign ownership allowed in most sectors; repatriation of profits ensured; foreign technicians may repatriate 70% of remuneration in foreign currency (up to 5 years, extendable by 2 years for specialized skills). The One Stop Service Centre facilitates foreign investment approval, visa facilities, and foreign currency exchange.
The Act provides significant protections:
(1) Stabilization Clause (Section 33) - No provision shall lessen incentives, exemptions, or facilities provided under the Act; additional benefits may be added;
(2) Protection Against Nationalization (Section 34) - No registered industry may be nationalized; expropriation only for public purpose with due process;
(3) Industrial Security (Section 35) - Government shall provide industrial security as required;
(4) Industries in operation at Act commencement are entitled to benefits under previous Act for specified periods;
(5) Industries registered but not yet operating may choose between previous or current Act benefits, whichever is more favorable.
