Special Economic Zones (SEZs)

Special Economic Zones (SEZs) are specific geographical regions that have economic laws different from and more liberal than a country's typical economic laws. The goal is usually an increase in Foreign Direct Investment (FDI) in the country. A policy for setting up of SEZs in the country with a view to provide an internationally competitive and hassle free environment for exports was introduced on April 1, 2000 .  An SEZ is like a foreign territory within a country. An SEZ is governed by a special set of rules to facilitate foreign direct investment for export-oriented production. These zones are typically marked by minimum bureaucracy, best infrastructure, generous tax holidays, unlimited duty free imports of raw, intermediate and final goods as well as capital goods and a package of incentives to attract foreign and domestic investments for promoting export-led growth. Units may be set up in SEZ for manufacturing of goods and/or rendering of Services.

There is a clear understanding that a well-implemented and designed SEZ can bring about many desired benefits for a host-country: increase in employment, FDI attraction, general economic growth, foreign exchange earnings, international exposure, and the transfer of new technologies and skills. Hence, many developing countries are also developing the SEZs with the expectation that they will provide the engines of growth for their economies to achieve industrialization

Special Economic Zone Act (SEZ Act) has been introduced in the year 2005. It is an act to provide for the establishment, development and management of the Special Economic Zones for the promotion of exports and for matters connected therewith or incidental thereto.

It is expected that this will trigger a large flow of foreign and domestic investment in SEZs, in infrastructure and productive capacity, leading to generation of additional economic activity and creation of employment opportunities.

Under the Act, SEZ could be set up either jointly or severally by the Central Government, State Government, or any person (including a private or public limited company, partnership or proprietorship):

  • For Manufacture of Goods; or
  • For rendering Services; or
  • For both manufacturing of Goods and for rendering Services; or
  • As a Free Trade and Warehousing Zone.
Benefits/Incentive/Facilities available for SEZ enterprises
  • Exemption from customs / excise duties for development of SEZs for authorized operations approved by the Board of Approval
  • Income Tax exemption on export income for a block of 10 years in 15 years under Section 80-IAB of the Income Tax Act
  • Exemption from minimum alternate tax under Section 115 JB of the Income Tax Act
  • Exemption from dividend distribution tax under Section 115O of the Income Tax Act
  • Exemption from Central Sales Tax (CST)
  • Exemption from Service Tax
  • Enhanced limit of Rs. 2.4 Crores per annum allowed for Managerial   Remuneration under section 269 of the Companies Act 1956
  • Exemption from port restriction under Drugs & Cosmetics Rules

Setting up of a SEZ unit

  • For setting up a manufacturing, trading or service units in SEZ, 3 copies of project proposal in the prescribed format is to be submitted to the Development Commissioner of the SEZ.
  • All approvals to be given by the Unit Approval Committee headed by the Development Commissioner. Clearance from the Department of Policy and Promotion/Board of Approvals, wherever required will be obtained by the Development Commissioner, before the Letter of Intent is issued.
  • SEZ units have to achieve positive net foreign exchange earning as per prescribed  formula. 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 Zonal Customs as provided in the Foreign Trade Policy
  • The units are also to execute a bond with the Zonal 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

Lex Valorem is competent to advise, document, liaise and obtain registration for SEZ units.  In addition to this Lex Valorem can also advise on stamp duty issues related to SEZs and any other real estate related issues that require interpretation of the respective State legislatures.

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