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Brief Note on SEZ Units and its benefits requirements

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  1. 1. A brief note onSpecial Economic Zone Units By Olive Tree Management Consultants Private Limited Bangalore
  2. 2. What is a Special Economic Zone?Special Economic Zone (SEZ) is a specifically delineated duty free enclave and shallbe deemed to be foreign territory for the purposes of trade operations and dutiesand tariffs. 2
  3. 3. How is the SEZ different from EOUs?SEZ is a clearly demarcated enclave with specified Processing and Non-Processing Areas. EOUs are stand-alone units which could be located in any partof the country as per Investor’s Choice. An existing unit in DTA can also beconverted into an EOU. EOUs are under customs bonding and are underphysical control of jurisdictional Central Excise Offices. In SEZs there are noindividual boundaries or physical controls; units are within an enclave which isdeclared Port for imports and exports and are outside the jurisdiction ofterritorial customs set up. 3
  4. 4. For what purpose a unit in SEZ can be set up?A unit in an SEZ can be set up for the purpose of manufacture of goods or forthe purpose of rendering of services including trading.Where to set up SEZ Unit?SEZs are broadly categorized into two categories, namely(i) Sector Specific SEZ where units in that specific sector only could be set up(ii) Multi-Product SEZ, where units under different sectors could be set up.Applicant has to chose at his convenience.Can trading units be located in the SEZ?Trading units can be located in multi-product SEZs or in FTWZs or in Port basedSEZs. Trading of goods in a particular sector can also be undertaken in sector-specific SEZs. 4
  5. 5. Can one convert a DTA unit into SEZ by shifting its assets to SEZ?Transfer of used capital goods or business from existing DTA or STPI unit toSEZ is permissible subject to the condition that such used capital goods orbusiness will not get income tax exemption benefit when the value of suchgoods or business exceeds the limit of 20% of the total capital goods. 5
  6. 6. What are the incentive/facilities available for SEZ units?Major incentives and facilities available to SEZ units include: Duty free import/domestic procurement of goods Income tax exemption under section 10AA of the Income-tax Act Exemption from Central Sales Tax Exemption from Service Tax Exemption from State Sales Tax and other Levies External commercial borrowing to US $ 500 million in a year without any maturity restriction through recognized banking channels Single window clearance for various Central and State level approvals 100% FDI/NRI investment allowed under automatic route 100% retention of export proceeds in Foreign Currency account Clubbing of SEZ exports with DTA exports or vice-versa for the purpose of securing status holder certificates under provisions of FTP Enhanced limit of ` 2.4 crores for managerial remuneration under the Companies Act Shifting of units from one SEZ to another SEZ 6
  7. 7. What is the obligation of the Unit under the Scheme? SEZ units have to achieve positive net foreign exchange earnings as per the formula given in paragraph Appendix 14-II of Handbook of Procedures, Vol.1. For this purpose, a Legal Undertaking is required to be executed by the unit with the Development Commissioner. The units have to provide periodic reports to the Development Commissioner and Zone Customs as provided in Appendix 14-I F of the Handbook of Procedures, Vol.1. The units are also to execute a bond with the Zone Customs for their operation in the SEZ. Any company set up with FDI has to be incorporated under the Indian Companies Act with the Registrar of Companies for undertaking Indian operations The units have to maintain proper records of accounting 7
  8. 8. What is the approval mechanism for the units?All approvals are to be given by the Unit Approval Committeeheaded by the Development Commissioner (DC). A Letter ofApproval to set up a unit in a SEZ is issued by the DC, provided theunit meets all the criteria specified in the Application. Theprocedure of application is detailed under Clause 17 of the SEZRules, 2006. 8
  9. 9. Is it possible for EXIT of SEZ Units?One condition under which SEZ Units operate is that there is a fixed periodof approval during which time the units must meet the condition ofachieving positive NFE. This period is 5 years. It is evident that uponcompletion of this period the unit has the option to exit from scheme(though it may also opt to continue in the SEZ for a fresh period of 5 years)which would also mean its physical departure from particular zone. 9
  10. 10. Our Services related to Special Economic Zone (SEZ)Advisory/Regulatory Support Compliance Support• Consulting Services on SEZ Units • Filing of periodical returns with• Approval of SEZ Units (Preparation SEZ/Central Excise & Service Tax/ of application, project report, etc.) Commercial Tax Authorities etc.,• Obtaining/Renewal of letter of • Structuring of permission (LOP) contracts/transactions to optimize• Obtaining Import Export Code indirect tax incidence Number (IEC) • Advice on classification, valuation,• Approval for enhancement of applicability of taxes on production capacity transactions and admissibility to• Permission for additional location / tax benefits/exemptions change of location • Identification of innovative tax• Permission for sale of DTA sale planning opportunities• Assisting in claiming Duty • Single point contact & centralized Drawback coordination for tax payments, compilation of documents 10
  11. 11. Thank YouFor further information please contact Sathya Hegde +91.99451.79868 11