Brief Note on SEZ Units and its benefits requirements

1. A brief note on
Special Economic Zone Units
By
Olive Tree Management Consultants Private Limited
Bangalore
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2. What is a Special Economic Zone?
Special Economic Zone (SEZ) is a specifically delineated duty free enclave and shall
be deemed to be foreign territory for the purposes of trade operations and duties
and tariffs.
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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 part
of the country as per Investor’s Choice. An existing unit in DTA can also be
converted into an EOU. EOUs are under customs bonding and are under
physical control of jurisdictional Central Excise Offices. In SEZs there are no
individual boundaries or physical controls; units are within an enclave which is
declared Port for imports and exports and are outside the jurisdiction of
territorial customs set up.
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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 for
the 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 based
SEZs. Trading of goods in a particular sector can also be undertaken in sector-
specific SEZs.
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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 to
SEZ is permissible subject to the condition that such used capital goods or
business will not get income tax exemption benefit when the value of such
goods or business exceeds the limit of 20% of the total capital goods.
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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
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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
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8. What is the approval mechanism for the units?
All approvals are to be given by the Unit Approval Committee
headed by the Development Commissioner (DC). A Letter of
Approval to set up a unit in a SEZ is issued by the DC, provided the
unit meets all the criteria specified in the Application. The
procedure of application is detailed under Clause 17 of the SEZ
Rules, 2006.
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9. Is it possible for EXIT of SEZ Units?
One condition under which SEZ Units operate is that there is a fixed period
of approval during which time the units must meet the condition of
achieving positive NFE. This period is 5 years. It is evident that upon
completion 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.
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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
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11. Thank You
For further information please contact
Sathya Hegde
+91.99451.79868
sathyahegde@olivetree.in
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