Department of Industry (DOI) Approval in Nepal

The Department of Industry (DOI) serves as the primary regulatory body for industrial registration and approval in Nepal. Established under the Ministry of Industry, Commerce and Supplies, the DOI plays a crucial role in facilitating both domestic and foreign investments in various industrial sectors. This department is responsible for implementing the Industrial Enterprises Act 2076 (2020) and Foreign Investment and Technology Transfer Act 2075 (2019), which govern industrial operations in Nepal.

Types of Industries Requiring DOI Approval

The Department of Industry approval is mandatory for several categories of industrial ventures in Nepal. Understanding which industries fall under DOI jurisdiction is essential for entrepreneurs and investors planning to establish operations in the country.

Foreign Direct Investment (FDI) Projects

Any business with foreign investment requires DOI approval as per the Foreign Investment and Technology Transfer Act 2075 (2019). The Act defines foreign investment as investment made by a foreign investor in any industry in Nepal, which may include equity investment, reinvestment of earnings, or investment through technology transfer. The minimum threshold for foreign investment is NPR 50 million, except in certain sectors where specific provisions apply.

Large-Scale Industries

According to the Industrial Enterprises Act 2076 (2020), industries with fixed capital exceeding NPR 500 million are classified as large-scale industries and must obtain DOI approval. These industries typically have significant economic impact and employment generation potential, requiring closer regulatory oversight.

Brewery, Distillery, and Winery Operations

Alcoholic beverage production facilities including breweries, distilleries, and wineries fall under special regulatory categories requiring DOI approval regardless of investment size. These industries are subject to additional licensing requirements due to excise considerations and public health implications as stipulated in the Excise Act 2058 (2002).

Crusher and Sand Processing Units

Mineral-based operations such as stone crushers and sand processing units require DOI approval due to their environmental impact. These industries must comply with the Environmental Protection Act 2076 (2019) and related regulations, often necessitating Environmental Impact Assessments (EIA) before final approval.

Sugar Mills and Processing Plants

Sugar production facilities require DOI approval due to their strategic importance in the agricultural sector and significant environmental footprint. These industries must adhere to specific regulations regarding raw material sourcing, waste management, and production standards.

Branch Offices of Nepali Companies Abroad

Nepali companies seeking to establish branches in foreign countries must obtain DOI approval as per the Foreign Investment and Technology Transfer Act 2075 (2019). This ensures proper monitoring of outbound investments and compliance with Nepal’s foreign exchange regulations.

Other Strategic Industries

Certain industries considered strategically important for national development, including cement production, hydropower above certain capacities, and telecommunications infrastructure, require DOI approval regardless of investment size.

Legal Framework Governing DOI Approval

The DOI operates within a comprehensive legal framework that guides industrial registration and operation in Nepal. Understanding these laws is essential for successful navigation of the approval process.

Industrial Enterprises Act 2076 (2020)

This Act serves as the primary legislation governing industrial enterprises in Nepal. It classifies industries into different categories based on nature, size, and investment, specifying which categories require DOI approval. The Act also outlines various incentives, concessions, and facilities available to industries based on their classification and location.

Foreign Investment and Technology Transfer Act 2075 (2019)

For foreign investors, this Act is particularly relevant as it governs all aspects of foreign investment in Nepal. It specifies sectors open for foreign investment, approval procedures, repatriation rights, and dispute settlement mechanisms. The Act mandates DOI approval for all foreign investments and outlines the process for obtaining such approval.

Environmental Protection Act 2076 (2019)

This legislation requires certain industries to conduct environmental impact assessments before obtaining final approval. Industries with significant environmental footprints, such as crusher units, breweries, and large manufacturing facilities, must comply with environmental standards and obtain clearance as part of the DOI approval process.

Company Act 2063 (2006)

While initial company registration occurs at the Office of Company Registrar (OCR), the Company Act interfaces with industrial registration requirements. Companies must be properly registered under this Act before seeking DOI approval for industrial operations.

DOI Approval Process

The process of obtaining DOI approval involves multiple steps and interactions with various government agencies. Following the correct sequence is crucial for avoiding delays and complications.

Initial Registration Requirements

Before approaching the DOI, prospective industries must complete several preliminary registrations:

• Company Registration at OCR: Register the company at the Office of Company Registrar
• PAN/VAT Registration: Obtain Permanent Account Number (PAN) or Value Added Tax (VAT) registration from the Inland Revenue Department
• Local Registration: Register with the local ward office or municipality
• Bank Account: Open a corporate bank account in a commercial bank in Nepal

Letter of Intent (LOI) Application

The first formal step in the DOI approval process involves submitting a Letter of Intent application to the department. This application includes:

• Completed LOI application form
• Company registration certificate
• Memorandum and Articles of Association
• PAN/VAT registration certificate
• Feasibility study of the proposed industry
• Project proposal with detailed information on investment, technology, employment, and production capacity
• For FDI projects, commitment letters from foreign investors

Environmental Assessment Requirements

Depending on the nature and scale of the industry, environmental assessments may be required:

Initial Environmental Examination (IEE)

For industries with moderate environmental impact, an IEE must be conducted and approved by the relevant ministry or provincial authority. The IEE process typically takes 2-3 months and involves:

1. Preparation of Terms of Reference (ToR)
2. Field study and data collection
3. Report preparation following government guidelines
4. Public consultation in the project area
5. Submission to relevant authority for approval

Environmental Impact Assessment (EIA)

For industries with potentially significant environmental impacts, a more comprehensive EIA is required, which must be approved by the Ministry of Forests and Environment. The EIA process typically takes 4-6 months and involves:

1. Scoping document preparation and approval
2. Detailed environmental study following approved scoping
3. Extensive public hearings and stakeholder consultations
4. Comprehensive report preparation
5. Review by technical committee
6. Final approval by the Ministry

Final Registration at DOI

After obtaining necessary environmental clearances and fulfilling other requirements, the final registration application must be submitted to the DOI with:

• Completed industrial registration application form
• Approved IEE/EIA report (if applicable)
• Detailed project report
• Land ownership documents or lease agreement
• Tax clearance certificates
• Proof of capital investment or financial commitment
• Technical specifications and plant layout
• For foreign investment, approval from Nepal Rastra Bank

Benefits and Incentives for DOI Registered Industries

Industries registered with the DOI are eligible for various benefits and incentives under Nepalese law, making the approval process worthwhile despite its complexity.

Tax Incentives

The Industrial Enterprises Act 2076 (2020) provides several tax benefits:

• Income tax exemptions ranging from 20-100% for industries established in underdeveloped regions
• Additional 15% income tax exemption for industries employing more than 100 Nepali citizens
• Customs duty exemptions on import of machinery and equipment
• VAT exemptions on certain raw materials and production inputs

Land Acquisition Facilitation

DOI-registered industries receive priority in land acquisition and can obtain government land on lease for industrial purposes. The Industrial Enterprises Act provides special provisions for land acquisition for large industries.

Foreign Exchange Facilities

Industries with foreign investment approved by DOI enjoy guaranteed repatriation rights for:

• Profits and dividends
• Proceeds from sale of shares
• Royalty payments for technology transfer
• Repayment of foreign loans

One-Window Service

The DOI provides one-window service for registered industries, facilitating interactions with other government agencies for various approvals and permits, significantly reducing bureaucratic hurdles.

FAQs About DOI Approval in Nepal

What is the minimum investment required for foreign investors seeking DOI approval?

The minimum threshold for foreign investment in Nepal is NPR 50 million as per the Foreign Investment and Technology Transfer Act 2075 (2019). However, certain sectors may have different thresholds as specified in the negative list and sector-specific regulations issued by the government.

How long does the entire DOI approval process typically take?

The timeline varies depending on the industry type and complexity. Simple projects without environmental assessment requirements may receive approval within 30-45 days. Projects requiring IEE typically take 3-4 months, while those requiring EIA may take 6-8 months for complete approval.

What are the fees associated with DOI registration?

Registration fees vary based on industry size and capital investment. Small industries pay NPR 15,000, medium industries pay NPR 25,000, and large industries pay NPR 35,000 as registration fees. Additional fees apply for environmental assessments and other specific approvals.

Can foreign investors own 100% equity in industries requiring DOI approval?

Yes, 100% foreign ownership is permitted in most sectors requiring DOI approval, except those in the negative list specified in the Foreign Investment and Technology Transfer Act 2075 (2019). Restricted sectors include primary agriculture, real estate, and certain service industries.

Is it mandatory to conduct an Environmental Impact Assessment for all industries?

No, not all industries require an EIA. The requirement depends on the nature and scale of the industry as specified in the Environmental Protection Rules. Some industries may only need an IEE, while others with minimal environmental impact may be exempt from both.

What happens if an industry operates without DOI approval when it’s required?

Operating an industry without required DOI approval is illegal under the Industrial Enterprises Act 2076 (2020). Penalties include fines up to NPR 500,000, closure of the industry, and potential criminal charges for the promoters. All benefits and protections under industrial laws would be forfeited.

Can the DOI approval be transferred if the industry is sold to new owners?

Yes, DOI approval can be transferred to new owners through a formal application process. The new owners must meet all eligibility criteria, including foreign investment restrictions if applicable, and submit ownership transfer documents along with updated business plans to the DOI for approval.