Project Proposal Change/Amendment for Industry in Nepal

The Department of Industries (DOI) in Nepal oversees industrial registration, operation, and regulation under the Industrial Enterprises Act, 2076 (2020). When investors need to modify their approved project proposals, they must follow specific procedures established by the DOI. This article outlines the legal framework, processes, documentation requirements, and timelines for amending project proposals in Nepal.

Legal Framework for Project Amendments

The Industrial Enterprises Act, 2076 (2020) and the Foreign Investment and Technology Transfer Act, 2075 (2019) provide the primary legal foundation for project amendments in Nepal. Section 15 of the Industrial Enterprises Act specifically addresses the procedures for making changes to registered industrial enterprises, including capacity expansion, product diversification, and ownership changes. Additionally, the Industrial Enterprise Regulation, 2076 (2020) details the implementation procedures for these amendments.

For foreign investors, the Foreign Investment and Technology Transfer Rules, 2077 (2021) further specify the requirements for amending investment proposals. These legal instruments collectively establish a structured framework that ensures transparency while protecting both investor interests and national economic priorities.

Types of Project Proposal Amendments

Capacity Expansion Amendments

Capacity expansion involves increasing the production capacity of an existing industrial enterprise. According to Section 15(1)(a) of the Industrial Enterprises Act, 2076, enterprises seeking to expand their production capacity must submit an amendment application to the DOI. This type of amendment requires technical feasibility studies, environmental impact assessments for certain industries, and proof of additional capital investment. The DOI evaluates whether the proposed expansion aligns with national industrial policies and environmental regulations before approval.

Product Diversification Amendments

When an enterprise wishes to add new products to its manufacturing line or services portfolio, it must apply for a product diversification amendment. Section 15(1)(b) of the Industrial Enterprises Act governs this process. The amendment application must include detailed specifications of the new products, production methodologies, market analysis, and additional resource requirements. The DOI assesses whether the diversification complements the existing business and whether the enterprise possesses the necessary technical capabilities.

Ownership Transfer Amendments

Ownership transfers, including partial or complete changes in shareholding patterns, require DOI approval under Section 15(1)(c) of the Industrial Enterprises Act. This amendment type is particularly scrutinized for foreign investment projects. The Foreign Investment and Technology Transfer Act, 2075 mandates that any change in foreign ownership percentages must receive prior approval. The amendment application must include background information on new shareholders, source of investment funds, and updated company registration documents.

Technology Upgrade Amendments

Technology upgrades that significantly alter production processes or service delivery mechanisms require formal amendments. Section 15(1)(d) of the Industrial Enterprises Act addresses these changes. Applications must detail the new technology specifications, implementation plan, and expected improvements in productivity or quality. For technology transfer from foreign sources, additional documentation under the Foreign Investment and Technology Transfer Act is required, including technology transfer agreements and royalty payment structures.

Amendment Application Process

Preliminary Assessment and Consultation

Before formally submitting an amendment application, investors should conduct a preliminary assessment of their proposed changes. This includes evaluating the technical feasibility, financial implications, and regulatory compliance aspects of the amendment. The DOI offers pre-application consultations where investors can discuss their proposed changes with department officials. This informal step helps identify potential issues early and streamlines the formal application process. According to DOI guidelines, scheduling a consultation at least two weeks before intended application submission is recommended.

Documentation Preparation

The amendment application requires comprehensive documentation that varies based on the type of amendment sought. Common requirements include:

• Application form (Form IE-3) as prescribed by the Industrial Enterprise Regulation, 2076
• Board resolution authorizing the proposed changes
• Detailed project report reflecting the amendments
• Environmental impact assessment or initial environmental examination (if applicable)
• Technical specifications and feasibility studies
• Financial statements and projections incorporating the proposed changes
• Tax clearance certificates
• Updated business plan

For foreign investment projects, additional documents may include:

• Updated joint venture agreement
• Technology transfer agreement (if applicable)
• Foreign investment approval from Nepal Rastra Bank

Formal Submission and Registration

Once documentation is complete, the formal submission process begins with filing the application at the DOI. According to Section 16 of the Industrial Enterprises Act, the application must be accompanied by the prescribed fee, which varies based on the industry category and amendment type. Current fee structures range from NPR 5,000 to NPR 25,000 depending on the enterprise classification and amendment complexity.

Upon submission, the DOI issues a registration number and acknowledgment receipt. This initiates the formal review process. The Industrial Enterprise Regulation, 2076 mandates that the DOI must register the application within seven days of submission, provided all documentation requirements are met.

Evaluation and Approval Process

The DOI conducts a multi-tiered evaluation of amendment applications. Technical officers first review the documentation for completeness and compliance with basic requirements. For complex amendments, the application may be forwarded to specialized committees for technical, environmental, or financial assessment.

Section 17 of the Industrial Enterprises Act stipulates that the DOI must make a decision within 30 days of application registration. However, if additional information or clarification is required, this timeline may be extended. The DOI may request supplementary documents or schedule meetings with the applicant during this period.

Final approval authority varies based on the investment size and industry category. For large-scale projects or those in priority sectors, approval may require endorsement from the Industrial Promotion Board or even the Ministry of Industry, Commerce and Supplies.

Post-Approval Requirements

Implementation Timeline Compliance

After receiving amendment approval, enterprises must implement the changes within the timeframe specified in the approval document. Section 19 of the Industrial Enterprises Act requires that implementation begin within six months of approval for most amendments. For major expansions or technology upgrades, the implementation period may extend up to two years.

If implementation cannot commence within the stipulated timeframe, the enterprise must apply for an extension at least 30 days before the deadline expires. The DOI may grant extensions of up to one year based on justified circumstances such as force majeure events, supply chain disruptions, or financing delays.

Progress Reporting Requirements

Approved amendments are subject to progress monitoring by the DOI. Section 20 of the Industrial Enterprises Act mandates quarterly progress reports during the implementation phase. These reports must detail:

• Physical progress against the implementation timeline
• Financial expenditures related to the amendment
• Challenges encountered and mitigation measures
• Updated completion forecasts

The DOI may conduct site inspections to verify the reported progress. Failure to submit timely progress reports may result in penalties or, in extreme cases, revocation of the amendment approval.

Final Verification and Certification

Upon completion of the amendment implementation, the enterprise must notify the DOI and request final verification. A DOI inspection team conducts an on-site assessment to confirm that the implemented changes align with the approved amendment. This verification typically occurs within 15 working days of the request submission.

Following successful verification, the DOI issues an Amendment Implementation Certificate, which officially recognizes the modified project parameters. This certificate becomes part of the enterprise’s permanent registration record and serves as the reference document for future regulatory interactions.

Tax and Incentive Implications

Amendments may have significant tax and incentive implications. Section 25 of the Industrial Enterprises Act provides various incentives for capacity expansions and technology upgrades, including additional tax holidays, customs duty exemptions, and depreciation allowances. However, these benefits must be specifically applied for following amendment implementation.

The enterprise must update its permanent account number (PAN) registration with the Inland Revenue Department to reflect the amended business parameters. Failure to update tax registrations may result in compliance issues during future tax assessments.

Common Challenges and Solutions

Regulatory Coordination Challenges

Navigating Multi-Agency Approvals

Major project amendments often require approvals from multiple government agencies beyond the DOI. For example, environmental clearances from the Ministry of Forests and Environment, foreign exchange approvals from Nepal Rastra Bank, or land use permissions from local governments. This regulatory fragmentation can cause delays and coordination challenges.

To address this issue, the DOI has established a One Window Committee under Section 32 of the Industrial Enterprises Act. This committee coordinates with relevant agencies to streamline the approval process. Investors should proactively identify all required approvals early in the planning stage and consider utilizing the One Window Committee’s facilitation services.

Technical and Financial Hurdles

Addressing Technical Feasibility Concerns

The DOI frequently raises technical feasibility concerns during amendment evaluations, particularly for technology upgrades or capacity expansions. These concerns typically relate to infrastructure limitations, technical expertise availability, or compatibility with existing systems.

To overcome these challenges, investors should include comprehensive technical feasibility studies in their amendment applications. Engaging certified technical consultants to prepare these studies adds credibility. When possible, including technology transfer arrangements or technical training components can address expertise-related concerns.

FAQs About Project Proposal Amendments

What is the fee structure for different types of amendments?

The fee structure varies based on the enterprise classification and amendment type. As per the Industrial Enterprise Regulation, 2076, micro enterprises pay NPR 5,000, small enterprises pay NPR 10,000, medium enterprises pay NPR 15,000, and large enterprises pay NPR 25,000 for most amendments. Capacity expansions exceeding 50% of original capacity may incur additional fees calculated as a percentage of the increased investment.

How long does the amendment approval process typically take?

According to Section 17 of the Industrial Enterprises Act, 2076, the DOI must decide on amendment applications within 30 days of registration. However, complex amendments requiring multi-agency approvals may take 45-60 days. Amendments involving foreign investment or priority sectors may require additional review by the Industrial Promotion Board, potentially extending the timeline to 90 days.

Can I operate with the proposed changes while the amendment is being processed?

No, implementing changes before receiving formal approval violates Section 15 of the Industrial Enterprises Act, 2076. Operating with unauthorized changes may result in penalties including fines up to NPR 500,000 for first offenses and potential suspension of business operations for repeated violations. All changes must be implemented only after receiving written approval from the DOI.

What happens if my amendment implementation exceeds the approved timeline?

If implementation cannot be completed within the approved timeline, you must apply for an extension at least 30 days before the deadline expires. The application should detail the reasons for delay and include a revised implementation schedule. The DOI may grant extensions of up to one year based on justified circumstances. Failure to request extensions may result in amendment approval revocation.

Are there any tax incentives available for certain types of amendments?

Yes, Section 25 of the Industrial Enterprises Act provides various tax incentives for specific amendment types. Capacity expansions in less developed regions receive additional income tax exemptions of up to 50% for three years. Technology upgrades that improve energy efficiency or reduce environmental impact qualify for accelerated depreciation allowances of up to 50%. Export-oriented expansions may receive additional customs duty exemptions on imported machinery.

Can foreign investors increase their ownership percentage through an amendment?

Yes, foreign investors can increase their ownership percentage through an amendment, but this requires special approval under the Foreign Investment and Technology Transfer Act, 2075. The application must include due diligence on the additional investment funds, updated joint venture agreements, and proof of foreign currency inflow. Certain sectors have foreign investment caps that cannot be exceeded regardless of amendment approvals.

What documentation is required for technology transfer amendments?

Technology transfer amendments require comprehensive documentation including the technology transfer agreement detailing scope, duration, and payment terms; technical specifications of the technology; implementation and training plans; intellectual property rights documentation; and royalty payment structures. The agreement must comply with Section 17 of the Foreign Investment and Technology Transfer Act, which caps royalty payments at 5% of gross sales for most industries.Add to Conversation