Introduction
The carpet export business is one of Nepal’s long-established export-oriented industries. Nepalese handmade woolen carpets have sustained international demand in markets such as Germany, the United States, the United Kingdom, and Scandinavian countries. The Government of Nepal regulates carpet manufacturing and export through industrial, trade, customs, labor, tax, and foreign exchange laws. Any individual or entity intending to start a carpet export business must complete legal registration, licensing, and compliance procedures before production or export. Starting a Carpet Export Business in Nepal: Registration Guide.
This article explains the legal, regulatory, and procedural framework for starting a carpet export business in Nepal. It focuses on registration requirements, competent authorities, documentation, export licensing, tax compliance, labor obligations, quality standards, and foreign trade regulations. The discussion relies on applicable Nepalese laws, including the Industrial Enterprises Act, 2020, Export Import Control Act, 2013, and related regulations. Medha Law and Partners is a leading law firm in Nepal.
Legal Framework Governing Carpet Export Businesses in Nepal
Carpet export businesses operate under multiple statutory regimes. The principal law governing manufacturing and export-oriented industries is the Industrial Enterprises Act, 2020 (2076). Carpet manufacturing qualifies as a manufacturing industry under Section 2 of the Act. Export activities are regulated by the Export Import Control Act, 2013 (1957) and associated rules.
Other relevant laws include:
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Customs Act, 2007 (2064)
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Income Tax Act, 2002 (2058)
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Value Added Tax Act, 1996 (2052)
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Labor Act, 2017 (2074)
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Environment Protection Act, 2019 (2076)
Compliance with all applicable laws is mandatory.
Industry Classification of Carpet Manufacturing
Under Schedule 1 of the Industrial Enterprises Act, 2020, carpet manufacturing is classified as a manufacturing industry. Depending on capital investment, machinery use, and employment size, carpet businesses may fall under cottage, small, or medium industry categories.
Traditional hand-knotted carpet weaving using local skills may qualify as a cottage industry. Mechanized carpet production units with higher capital investment are classified as small or medium industries. Industry classification determines the registration authority, tax incentives, environmental compliance requirements, and reporting obligations.
Competent Authorities for Carpet Export Registration
Different authorities regulate different stages of the carpet export business:
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Office of the Company Registrar (OCR) for company incorporation
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Office of Cottage and Small Industries (OCSI) or Department of Industry (DOI) for industrial registration
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Department of Customs for export code registration
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Trade and Export Promotion Centre (TEPC) for export facilitation
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Inland Revenue Office (IRO) for tax registration
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Local Government Offices for business operation permits
Each authority exercises statutory powers under specific laws.
Choice of Legal Entity for Carpet Export Business
Promoters must first decide the legal structure of the business. Common options include:
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Private Limited Company under the Company Act, 2006
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Partnership Firm under the Partnership Act, 2020
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Sole Proprietorship under the Private Firm Registration Act, 2014
Private limited companies are widely used for carpet export businesses due to limited liability, credibility with foreign buyers, and ease of regulatory compliance. Foreign investors must incorporate companies in accordance with foreign investment laws.
Company Registration Process
Company registration is governed by Sections 3 to 12 of the Company Act, 2006. Carpet export businesses choosing the company structure must complete incorporation before industrial registration.
The process includes:
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Name reservation through OCR system
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Drafting Memorandum of Association and Articles of Association
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Filing incorporation application
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Payment of prescribed fees
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Issuance of Certificate of Incorporation
Only incorporated entities can apply for industrial and export registration.
Industrial Registration for Carpet Manufacturing
Section 16 of the Industrial Enterprises Act, 2020 requires all manufacturing industries to register before operation. Carpet manufacturing units must apply to OCSI or DOI depending on size.
The application must specify production process, raw materials, machinery, employment details, land arrangements, and capital investment. Upon approval, the authority issues an Industry Registration Certificate, which is essential for tax registration, customs clearance, and export licensing.
Documents Required for Industrial Registration
Common documents include:
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Prescribed application form
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Certificate of incorporation or firm registration
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Memorandum and Articles of Association
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Citizenship certificates of promoters
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Land ownership certificate or lease deed
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Project profile or business plan
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Environmental screening form
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Local government recommendation letter
Authorities may request additional documents based on scale and location.
Environmental Compliance for Carpet Manufacturing
Carpet manufacturing may involve dyeing, washing, chemical treatment, and wastewater discharge. Environmental compliance is regulated by the Environment Protection Act, 2019 and Environment Protection Rules, 2020.
Depending on production scale:
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Initial Environmental Examination (IEE) may be required
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Environmental Impact Assessment (EIA) may be required
Environmental approval must be obtained before full-scale operation.
Local Level Business Operation Permit
Local governments regulate business operations under the Local Government Operation Act, 2017. Carpet export businesses must obtain a local business operation permit after industrial registration.
This permit confirms compliance with local tax rules, zoning regulations, sanitation standards, and safety requirements. Without local approval, business operations may be suspended.
PAN and VAT Registration Requirements
All carpet export businesses must register with the Inland Revenue Office under the Income Tax Act, 2002.
Mandatory registrations include:
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Value Added Tax (VAT), if turnover exceeds statutory threshold
Exporters must file regular tax returns and maintain proper accounting records.
Export Code Registration and Licensing
Export activities require registration with the Department of Customs under the Export Import Control Act, 2013.
Exporters must obtain:
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Export code
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Registration with Trade and Export Promotion Centre
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Letter of credit compliance documents
Export without proper registration constitutes a legal violation.
Customs Clearance and Export Procedures
Carpet exports are subject to customs clearance under the Customs Act, 2007. Exporters must submit export declarations, invoices, packing lists, certificate of origin, and transport documents.
Proper classification and valuation are required. Customs authorities may inspect goods before clearance. Compliance ensures smooth export processing.
Foreign Exchange and Repatriation Rules
Export proceeds must be repatriated to Nepal in accordance with Foreign Exchange Regulation Act, 1962 and Nepal Rastra Bank directives.
Exporters must ensure foreign currency earnings are received through authorized banking channels within prescribed timelines. Non-compliance attracts penalties.
Labor Law Compliance in Carpet Industry
The carpet industry employs skilled and semi-skilled labor. Employment is regulated by the Labor Act, 2017.
Employers must ensure:
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Written employment contracts
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Minimum wage compliance
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Social Security Fund registration
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Workplace safety standards
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Prohibition of child labor
Labor inspections are common in carpet manufacturing units.
Occupational Health and Safety Standards
Carpet factories must comply with occupational health and safety obligations under labor laws. Adequate lighting, ventilation, fire safety equipment, and safe machinery operation are mandatory.
Failure to maintain safety standards may result in fines or operational suspension.
Quality Standards and Certification for Export
Export carpets must meet quality standards required by importing countries. Certification from Nepal Bureau of Standards and Metrology may be required.
Many buyers require compliance with social compliance standards and labeling requirements. Quality assurance enhances export acceptance.
Renewal and Amendment of Registrations
Industrial registration, local permits, and export registrations must be renewed periodically. Changes in ownership, production capacity, or business location require amendment approval from relevant authorities.
Non-renewal may result in cancellation of registration.
Incentives for Carpet Export Businesses
The Industrial Enterprises Act, 2020 provides incentives such as:
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Income tax concessions
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Customs duty exemptions
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Export incentives
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Support for traditional industries
Eligibility depends on compliance and export volume.
Cancellation and Suspension of Export Registration
Authorities may suspend or cancel registration for false information, tax evasion, labor violations, or non-operation. Due process includes notice and opportunity to respond.
Role of Legal Advisors in Carpet Export Business
Legal advisors assist with incorporation, licensing, export compliance, labor documentation, tax planning, and dispute resolution. Professional guidance reduces regulatory risk.
FAQs
Is industrial registration mandatory for carpet export businesses in Nepal?
Yes. Carpet manufacturing qualifies as a manufacturing industry under the Industrial Enterprises Act, 2020. Industrial registration is mandatory before production or export activities can legally commence.
Can a sole proprietor export carpets from Nepal?
Yes. Sole proprietors registered under the Private Firm Registration Act, 2014 can export carpets, subject to industrial registration, export code registration, tax compliance, and customs clearance requirements.
How long does export registration take in Nepal?
Export registration timelines vary. Export code registration usually takes several working days if documents are complete and compliant with customs and trade regulations.