Registration of Twine and Cordage Manufacturing Units in Nepal

Medha Law and Partners, a leading corporate and commercial law firm in Nepal, provides a detailed guide for registering twine and cordage manufacturing units. Twine and cordage manufacturing is part of Nepal’s industrial and manufacturing sector, supplying domestic markets and export demands. Proper registration ensures legal recognition, compliance with regulatory requirements, and eligibility for government incentives.

1. Legal Framework

Twine and cordage manufacturing units in Nepal are governed primarily by:

Industrial Enterprises Act 2076 B.S. – Governs industrial registration, licensing, and compliance for manufacturing enterprises.
Companies Act 2063 B.S. – Applicable if the business is structured as a company.
Partnership Act 2020 B.S. – Applicable for partnership businesses.
Income Tax Act 2058 B.S. – Tax obligations for profits and operations.
VAT Act 2052 B.S. – Tax obligations for domestic sales and turnover.
Labour Act 2074 B.S. – Labour compliance and employee safety regulations.

Businesses must comply with all relevant acts to legally operate and benefit from industrial incentives.

2. Legal Structure Options

Manufacturers can choose from:

Sole Proprietorship: Single-owner business with unlimited personal liability; simplest structure.
Partnership Firm: Two or more partners share ownership and liability; partnership agreement governs operations.
Private Limited Company: Offers limited liability, corporate recognition, and ease of financing.
Public Limited Company: Suitable for large-scale manufacturing with public shareholders.

Most industrial units prefer private limited companies for operational flexibility, credibility, and access to export benefits.

3. Industry Classification and Scope

Twine and cordage manufacturing is classified under the manufacturing and industrial sector:

Cottage Industry: Hand-twisted ropes using traditional tools; small-scale, minimal energy consumption.
Small Industry: Mechanized production with limited workforce and moderate energy use.
Medium/Large Industry: Industrial-scale production with mechanized machinery, skilled workforce, and high output for domestic and export markets.

Scope includes fibre sourcing, twisting, braiding, finishing, quality testing, and packaging. Proper classification ensures correct industrial registration and eligibility for government support.

4. Eligibility Criteria

To register a twine or cordage manufacturing unit:

Promoters must be Nepali citizens or registered foreign investors.
Factory must be in an industrially zoned area or approved location.
Adequate machinery, raw material, and capital should be available.
Environmental compliance must be planned for energy-intensive or chemical processes.
Skilled labour should be available, and operational capacity must be documented.

Meeting these criteria ensures eligibility for registration and licensing.

5. Pre-Registration Requirements

Preparation steps include:

Business Name Reservation: Apply at the Office of the Company Registrar (OCR) or relevant authority.
Draft MoA and AoA: If structured as a company; for partnerships, draft a partnership agreement.
Factory Premises: Lease or ownership proof.
Technical Layout: Machinery placement, energy consumption, and production workflow.
Environmental Assessment: Submit IEE or EIA if required.
Feasibility Report: Detailing investment, manpower, and projected production.

Proper preparation prevents delays in registration and licensing.

6. Required Documents

Documents required for registration include:

Completed registration application form.
MoA and AoA or partnership agreement.
Citizenship certificates or passports for foreign investors.
Passport-size photographs of directors or partners.
Proof of factory premises (lease or ownership).
Machinery and equipment list.
Environmental compliance documents (IEE/EIA).
PAN and VAT registration forms.
Trade licence application (if required).
Labour registration and Social Security Fund registration (if employees hired).

7. Registration Process

Step-by-step procedure:

Name Approval: Submit proposed business name to OCR or local authority.
Company/Partnership Registration: File application with required documents.
Industrial Registration: Apply to DOI or Cottage and Small Industries Office.
Trade Licence: Obtain from local municipality or ward office.
PAN Registration: Apply to Inland Revenue Department.
VAT Registration: If turnover exceeds threshold.
Environmental Clearance: Submit IEE or EIA if required.
Labour Registration: Register employees with Labour Office and SSF.
Commencement of Production: Begin operations once all approvals are issued.

Registration typically takes 15–30 working days depending on document completeness.

8. Factory Licensing and Zoning

Requirements include:

Location in industrially zoned areas.
Factory building must meet municipal and safety regulations.
Machinery installation, energy supply, and waste disposal must comply with technical standards.
Chemical treatment processes require environmental clearance.
Inspections by authorities before production may occur.

9. Taxation and VAT Obligations

Tax compliance under the Income Tax Act 2058 B.S. and VAT Act 2052 B.S. includes:

Corporate Income Tax: 25% for manufacturing companies; rebates may apply for exports.
VAT: 13% for domestic sales; exports in foreign currency are zero-rated.
Withholding Tax: Applied on salaries, contracts, and rents.
Accurate accounting and timely filing are mandatory to avoid penalties.

10. Labour and Employment Compliance

Labour regulations under Labour Act 2074 B.S. include:

Written employment contracts.
Registration with Labour Office and Social Security Fund.
Safe working environment and protective measures.
Prohibition of child and forced labour.
Payment of wages, leave, and overtime as per law.
Maintenance of employee records and attendance logs.

11. Quality Standards and Certification

National Standards: Certification through Nepal Bureau of Standards and Metrology (NBSM).
Testing: Tensile strength, fibre quality, and durability checks.
Export Standards: Proper labelling, fibre origin marks, and quality assurance.
Social and Labour Compliance: Ethical production certifications for export markets.

12. Export Considerations and Incentives

Export-oriented units may access:

EXIM registration for export-import code.
Foreign currency payment for VAT zero-rating.
Government incentives including VAT refunds, duty drawbacks, and promotional support.
Trade financing and pre-shipment/post-shipment credit facilities.
Compliance with international standards for quality and labour.

13. Post-Registration Compliance

Ongoing compliance includes:

Annual audited financial statements.
Renewal of trade licence and factory licence.
Filing VAT and income tax returns.
Environmental monitoring and reporting.
Labour records and SSF contributions.
Documentation of exports for audits.

14. Challenges and Risk Mitigation

Common challenges:

Raw material supply consistency.
Compliance with environmental regulations.
Skilled labour availability.
Regulatory or licensing delays.
Export market volatility.

Mitigation involves professional legal support, training, documentation, and supply chain planning.

15. Advantages of Registration

Registered manufacturing units benefit from:

Legal recognition and credibility.
Access to financing and industrial loans.
Protection of business and partners’ interests.
Eligibility for export incentives and government support.
Compliance reduces penalties and operational risks.

Frequently Asked Questions (FAQs)

Q1. What business structure is preferred for twine and cordage manufacturing?
Private limited companies are preferred for limited liability, credibility, and export access.

Q2. Is industrial registration mandatory?
Yes, all manufacturing units must register under Industrial Enterprises Act 2076 B.S.

Q3. Are foreign investors allowed?
Yes, under Foreign Investment and Technology Transfer Act 2019, with necessary approvals.

Q4. Does VAT apply to exported units?
Exports in foreign currency are zero-rated; domestic sales are subject to 13% VAT.

Q5. How long does registration take?
Approximately 15–30 working days, depending on document completeness.

Q6. Are environmental clearances always required?
IEE or EIA is required if machinery or chemical processes are involved; small manual units may be exempt.

Q7. What labour compliances are needed?
Employee registration, Social Security Fund contributions, safe working conditions, and prohibition of child/forced labour.

Q8. Can registered units access government incentives?
Yes, including VAT refunds, duty drawbacks, and export promotional support.

Prepared by Medha Law and Partners
Corporate | Tax | Labour | Industrial Registration | Export Compliance

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