India is among the foremost Asian countries who have considered the idea of setting up an Export Processing Zone (EPZ) model to promote country’s exports. To attract more foreign investment and provide an internationally competitive and hassle free environment for export promotion in India, Special Economic Zone (SEZ) was introduced. In the year 2000, with an inception of SEZ policy, India had begun to walk on the path of success.
Initially, the SEZ policy was included under foreign trade policy 2000. The policy was implemented through piecemeal and ad hoc amendments to different laws, besides executive orders. In order to overcome these drawbacks and to give a stable long term policy framework with minimum regulation, the Special Economic Zone Act, 2005 was introduced. The Act provided broad legal framework, covering all important legal and regulatory aspects of SEZ development as well as for units operating in SEZs.
SEZ is a specific duty-free enclave and shall be deemed to be foreign territory for the purposes of trade operations and duties and tariffs. In other word, SEZ is a geographical region that has economic laws different from the country’s economic laws. SEZs have been established in several countries, including China, India, Jordan, Poland, Kazakhstan, Philippines and Russia.
Main objectives of establishing a SEZ
- Generating additional economic activity
- Promoting exports of goods and services
- Promoting investments from domestic and foreign sources
- Creation of employment opportunities
- Development of infrastructure facilities
- Exposure to technology and global market
Benefits and incentives of setting up a business unit in a SEZ
- Tax benefits (tax holidays, income tax exemptions, etc.)
- Liberal labor regulations
- Exemption from excise and customs duty on procurement of capital assets, consumable stores, raw-materials from domestic market
- Streamlined procedures for getting approvals (online / single window)
- Liberal approach in foreign direct investments
- Increased capital account convertibility
- Relaxed export regulation
- Full repatriation of profits
- Non-applicability of related environmental laws
Setting up a unit in SEZ
A company planning to setup unit in a specific SEZ needs to apply with the respective Development Commissioner’s (DC) office of SEZ zone. To file an application, company needs to fill the Form-F, stipulated by SEZ rules. The applicants filing the form, needs to submit this form online through SEZ online system using module New Unit Application (NUA).
The steps for NUA are as summarized below:
1. Creating user ID: This is the initial stage for setting up a SEZ unit. For setting up a new unit in SEZ, the user, for the purpose of registration, shall login to SEZ online system and create a new user ID.
2. Raising NUA request: After registration, users are required to fill a “new user application” providing the necessary details which includes general details of company, details of directors, item / products, in which the company deals in, and other details like investments, equity, for-ex, applicant and marketing collaborations of the company.
3. Submitting Form- F and other documents: Further in this procedure, applicants need to upload the below listed documents with a filled Form – F, as mentioned in “Add Documents” field. These enlisted documents have to be submitted physically in DC’s office:
- Copy of incorporation certificate, Articles and Memorandum of Association of the company
- Demand draft of INR 5000/- in favor of “The Pay & Accounts Officer,< payable location>”
- Copy of company’s profile, directors’ profile and project report
- Copy of board resolution
- List of imported and indigenous capital goods
- Form 18 and 32 filed with ROC
- Copy of residential proof and identity proof of directors
- Income tax returns of last 3 years
- Copy of audited financials
- Copy of IEC of the company
- Copy of PAN of the company
- Copy of term sheet for incubation premises
- Copy of term sheet for main premises
- Letter for marketing / buyback plan
- List of directors with their details
- Letter mentioning website and e-mail address
- Undertaking for pollution control
Along with these documents, applicant needs to submit Form – F containing the details of NUA.
4. Rectification of deficiencies: If the DC does not get satisfied with the submitted documents, he may raise a demand for additional documents. In case, the request is sent back by DC office and the demand is raised from DC office, applicant shall submit the documents within the stipulated
5. Approval of request: After verification of all the documents submitted and other requirements fulfilled by applicant, DC is authorized to approve the request of NUA. Further the approval, an e-mail will be sent to applicant on the registered e-mail describing the supplementary
6. Payment of registration fee: After approval from DC office, a link for payment of registration fee will be enabled; enquiring a few details for payment. On payment of fee, NSDL Database Management Ltd. (NDML) representative will verify receipt of payment and will authorize the payment upon verification of valid payment entry in SEZ online system. Upon authorization of payment, applicant can create administrator and operational users IDs.
7. Submission of lease deed details to DC’s office for approval: After acceptance of letter of approval, the unit is expected to enter into a lease agreement with the developer of the SEZ in which it is commencing business. After entering into the agreement, the unit will have to enter the lease deed details in the SEZ online system and submit it online to the DC’s office. The unit shall also have to submit a copy of the lease deed to the DC’s office in physical form.
8. Intimation of date of commencement: As soon as the unit commences production, the date of commencement of production has to be intimated to the DC’s office. The unit shall online intimate the date of incorporation through SEZ system. In addition, the DC may also require the unit to submit supporting documents in physical form.
For the Fact: As of March 2018, 223 SEZs are in operation and a massive 419 SEZs have been approved.
Deciding on which SEZ is best for your business, it can be a difficult and stress-inducing process. We at AJSH & Co LLP can guide you in setting up a SEZ unit in India as per your business requirements. To know more about this, click here.