The Government of Nepal recently issued an ordinance for the amendment of the Industrial Enterprise Act of 2076 (hereinafter “IEA“) on the 29th of Poush, 2081(hereinafter “Ordinance“), which has brought drastic changes in various aspects of industries and foreign investment, foreign loans in Nepal and ultimately business promotion in Nepal.
The key changes of the IEA are:
- Opportunities for Unregistered Existing Industries: Industries operating in Nepal must be registered in accordance with Section 3 of the IEA the new clause, Section 3(1A), has been incorporated in the ordinance. According to it, an industry already operating but not registered can be registered within one year on payment of penalty as specified in Section 43, subject to the scale of the industry.
- Industry Registration:. Section 4 of the (IEA) lays down the documents required and regulatory authorities for the registration of an industry. The new ordinance inserts Section 4(9), which states that if the regulatory authority does not request additional documents within 15 days, the industry cannot be prevented from opening and operating. This clause is not applicable to industries that handle atomic energy, radioactive materials, and uranium-based energy.
- Changes to Environmental Assessment Requirements for Industry Registration: The Environmental Impact Assessment (EIA) is essential for industry registration. The original act required an EIA or Initial Environmental Examination (IEE) for industries seeking to increase capital, change objectives, relocate, or transfer operations. However, the recent ordinance has removed the EIA requirement for increasing share capital. Industries that previously only needed to submit a self-declaration instead of an EIA or PER are now required to submit an Environmental Management Plan as per the amended ordinance.
- Amendments to Approval and Registration Requirements for Industries of Schedule I: Approval is mandatory for industries manufacturing arms, ammunition, cigarettes, and other specified products as per Schedule 1 of the (IEA). The recent ordinance has amended Section 8(7) by removing the provision that rendered permits void if registration applications were not submitted by the deadline. Now, industries can extend the application period by filing a valid reason for the delay, as provided in the new Section 8(7A). Extensions to the registration period are further provided by Section 8(7B).
- Revised Approval Process for Industry Location Changes: Previously, Industries wishing to change their location must still obtain approval from the regulatory body. The recent ordinance has eliminated the requirement for approval from the Department of Industry (DOI) for location changes between provinces. The concerned local authority must now conduct an Environmental Impact Assessment (EIA) before it makes recommendations to the regulatory authorities for the change of location.
- New Provisions for Ownership Transfer in Industries: A new section, Section 12A, has been added regarding the transfer or change of ownership of an industry. The section provides that in case of need to transfer or change ownership, an application is to be submitted to the registering authority along with the documents as prescribed. Upon reviewing the submitted documents, if the registering authority deems it appropriate to grant approval, it will do so within thirty days from the date the application is received.
- Enhanced Facilities and Exemptions for Industries Under Section 29: It has granted additional facilities, exemptions, and promotional incentives to industries. It says that foreign loans can be obtained by way of project loans or project financing after an agreement is done. Similarly, software development companies, business process outsourcing (BPO) firms, and knowledge process outsourcing (KPO) companies engaging in transactions exceeding 5 crore Nepalese Rupees are eligible for specific facilities and concessions, aimed at fostering growth in these sectors.
- Expanded Leasing Provisions for Large and Nationally Prioritized Industries: Previously, industries of national priority could apply to lease government-owned land by specifying their needs. The recent ordinance amendment has changed subsection (1) of Section 31, replacing “nationally prioritized industry” with “large industry and nationally prioritized industry.
- Amendment on Land Ceiling: New Loan Provisions for Excess Land: The recent amendment to land ceiling regulations permits industries with excess land to secure loans by mortgaging up to fifty percent of that land, contingent upon an approved Detailed Project Report (DPR). This includes conditions such as project financing agreements with the government and eventual project transfer after a specified period. For implemented projects, loan security remains unaffected, and the loan liability stays with the industry. “Capacity enhancement” refers to investments aimed at expanding infrastructure or acquiring machinery to boost production and productivity.
- Removal of Provisions for Sick and Closed Industries: Previously, the provision allowed the Government of Nepal to offer exemptions, facilities, or concessions to industries in a state of closure due to sickness, based on a submitted project proposal and a study by the Ministry. The recent amendment has removed the phrase “in a state of being sick and closed” from subsection (2) of section 39.
- Power to the authority: Previously, the industry registration body could close unregistered industries and impose fines, such as five thousand rupees for micro-industries. The recent amendments in Section 43 have also strengthened the authority by replacing words like “on the recommendation of the authority, the ministry shall” with “the authority shall.” The phrase “of small enterprises” has been replaced with “small enterprises and cottage industries” and the same trend has been followed in subsections (2), (3), (4), (6), (7), and (9) which have enhanced the decision-making authority.
- Agricultural Technology and Mechanization has been added as the Industries Based on Agriculture and Forest Products in schedule 4
- Service industry as stated in Schedule 8 amended as Packaging Refilling Service, Natural Gas (LNG, CNG) Refilling (including LPG gas refilling and stations for refilling vehicle gas) or distribution. Similarly, Fund Management, Asset Management has been added as service industry.
- Wildlife reserves, tiered hotels, eco-tourism resorts, water travel (cruise), and water sports (water entertainment) has been added as industries of national priority.
Disclaimer: This note is not a legal opinion but for general understanding. It is advised to consult a lawyer for legal advice before initiating foreign investment in Nepal. Please note that the copyright for this note vests on Vidhi Legal Concern.
Contributor: Akriti Bista, Associate, Vidhi Legal Concern
