Registration of Jute and Fiber-Based Manufacturing Units in Nepal

Medha Law and Partners, a leading corporate and commercial law firm in Nepal, provides a comprehensive guide for registering jute and fiber-based manufacturing units. These units are a critical part of Nepal’s industrial sector, supplying domestic and export markets. Proper registration ensures legal recognition, regulatory compliance, and access to industrial incentives.

1. Legal Framework

Jute and fiber-based manufacturing units in Nepal operate under the following legal frameworks:

• Industrial Enterprises Act 2076 B.S. – Industrial registration, licensing, and compliance for manufacturing units.

• Companies Act 2063 B.S. – Applicable if registered as a company.

• Partnership Act 2020 B.S. – Applicable for partnership-based units.

• Income Tax Act 2058 B.S. – Tax obligations on profits.

• VAT Act 2052 B.S. – VAT obligations for domestic turnover.

• Labour Act 2074 B.S. – Employee welfare, working conditions, and labour compliance.

Adherence to these acts ensures legal conformity and eligibility for government programs.

2. Legal Structure Options

Manufacturers can choose the following structures:

• Sole Proprietorship: Simple structure, full personal liability.

• Partnership Firm: Two or more partners sharing ownership and liability.

• Private Limited Company: Limited liability, corporate recognition, and access to financing.

• Public Limited Company: Suitable for large-scale production with public shareholders.

Private limited companies are most common for fiber-based manufacturing due to operational flexibility, financing options, and export access.

3. Industry Classification and Scope

Jute and fiber-based manufacturing is categorized under the manufacturing/industrial sector:

• Cottage Industry: Small-scale, manual production with minimal energy use.

• Small Industry: Mechanized production employing up to 50 workers.

• Medium/Large Industry: Industrial-scale mechanized production for domestic and export markets.

Production includes raw fiber procurement, spinning, weaving, finishing, packaging, and quality control. Correct classification ensures proper industrial licensing and regulatory compliance.

4. Eligibility Criteria

To register a jute or fiber-based manufacturing unit:

• Promoters must be Nepali citizens or registered foreign investors.

• The factory must be located in an industrially approved zone.

• Adequate machinery, capital, and raw materials should be available.

• Environmental compliance measures must be planned for chemical treatment or energy-intensive operations.

• Skilled workforce should be accessible.

5. Pre-Registration Requirements

Preparation steps include:

• Business Name Reservation: Approval from OCR or local authority.

• Draft MoA and AoA (for companies) or partnership agreement.

• Factory Premises: Proof of ownership or lease.

• Technical Layout: Machinery, energy, and production workflow.

• Environmental Assessment: IEE or EIA as required.

• Feasibility Report: Documenting investment, workforce, and projected production.

6. Required Documents

Documents required for registration include:

• Completed registration application form.

• MoA and AoA or partnership agreement.

• Citizenship or passport copies of promoters.

• Passport-size photographs of directors or partners.

• Proof of factory premises.

• List of machinery and equipment.

• Environmental compliance documents (IEE/EIA).

• PAN and VAT registration forms.

• Trade licence application.

• Labour registration and Social Security Fund registration for employees.

7. Registration Process

Step-by-step registration process:

1. Name Approval: Submit business name to OCR/local authority.

2. Company/Partnership Registration: File documents with OCR or relevant authority.

3. Industrial Registration: Apply at DOI or Cottage and Small Industries Office.

4. Trade Licence: Obtain from municipality/ward office.

5. PAN Registration: Apply at Inland Revenue Department.

6. VAT Registration: If turnover exceeds threshold.

7. Environmental Clearance: Submit IEE/EIA if required.

8. Labour Registration: Register employees with Labour Office and SSF.

9. Commencement of Production: Operations begin after all approvals.

8. Factory Licensing and Zoning

• Location must comply with industrial zoning regulations.

• Buildings must meet safety and municipal standards.

• Machinery installation, power supply, and waste management must comply with technical regulations.

• Chemical processing requires environmental clearance.

• Authorities may conduct inspections before issuing licences.

9. Taxation and VAT Obligations

• Corporate Income Tax: 25% for manufacturing units; export units may receive rebates.

• VAT: 13% domestic sales; exports in foreign currency are zero-rated.

• Withholding Tax: Applied on contracts, salaries, and rent.

• Proper accounting and timely filings prevent penalties.

10. Labour and Employment Compliance

Under the Labour Act 2074 B.S.:

• Written employment contracts.

• Registration with Labour Office and Social Security Fund.

• Safe working environment and protective equipment.

• Child and forced labour strictly prohibited.

• Compliance with wage, leave, and overtime requirements.

• Record-keeping of attendance, payroll, and inspections.

11. Quality Standards and Certification

• Certification through Nepal Bureau of Standards and Metrology (NBSM).

• Fibre and product testing: tensile strength, durability, and quality.

• Export standards: labelling, origin marks, and quality assurance.

• Labour and social compliance certifications enhance export credibility.

12. Export Considerations and Incentives

• EXIM registration for export-import code.

• Foreign currency payment for VAT zero-rating.

• Government incentives: duty drawback, VAT refund, and trade promotion support.

• Access to pre-shipment and post-shipment financing.

• Compliance with international quality and labour standards.

13. Post-Registration Compliance

• Annual audited financial statements.

• Renewal of trade and factory licences.

• VAT and income tax return filings.

• Environmental monitoring and reporting.

• Labour records and SSF contributions.

• Export documentation for audit purposes.

14. Challenges and Risk Mitigation

• Raw material supply fluctuations.

• Environmental compliance for chemical/energy-intensive processes.

• Skilled labour shortages.

• Licensing or regulatory delays.

• Export market volatility.

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

15. Advantages of Registration

• Legal recognition and credibility.

• Access to industrial financing and loans.

• Protection of business and promoter interests.

• Eligibility for export incentives and government support.

• Compliance reduces penalties and operational risks.

Frequently Asked Questions (FAQs)

Q1. What business structure is recommended?
Private limited companies are recommended for limited liability, credibility, and export facilitation.

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

Q3. Can foreign investors participate?
Yes, with approval under the Foreign Investment and Technology Transfer Act 2019.

Q4. Is VAT applicable to exported products?
Exports in foreign currency are zero-rated; domestic sales incur 13% VAT.

Q5. How long does registration take?
Typically 15–30 working days depending on documentation.

Q6. Are environmental clearances always required?
Yes, if machinery or chemical processes are used; small manual units may be exempt.

Q7. What labour compliances are necessary?
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 promotional support for exports.

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