Professional Documents
Culture Documents
Special Economic Zones (“SEZ”) are governed by the SEZ Act and the
SEZ Rules
• Comprehensive legislation encompassing various aspects relating to the
setting-up and operations of SEZs
SEZ law provides for tax and fiscal incentives for developers and units
that are superior to other similar schemes in force
Every SEZ shall be under the administrative control of a Development
Commissioner
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INTRODUCTION – EVOLUTION OF SEZ
EVOLUTION OF SEZ IN INDIA
A SEZ scheme initially introduced in April, 2000 as part of India’s Foreign Trade Policy
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INTRODUCTION – SEZ: THE GENESES
Successful SEZ Regime
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SEZ - FISCAL BENEFITS
KEY INDIRECT TAX BENEFITS – DEVELOPERS AND UNITS
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CORPORATE TAX BENEFITS - SEZ UNITS
With the Direct Tax Code yet to be enacted or notified as an Act, there is effectively no sunset clause
or deadline applicable for the profit linked tax holiday for SEZ units
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MIGRATION INTO SEZ
STPI TO SEZ – WHY MIGRATE?
Particulars SEZ STPI Advantage
Customs duty applicable on
Customs duty on
1 Upfront Exemption civil works, exempted on SEZ
imports
other procurements
Excise duty on Excise duty applicable on
2 indigenous Not applicable (export status) civil works, exempted on SEZ
purchases other procurements
No exemption (refund
3 Service Tax Upfront Exemption / Refunds SEZ
/CENVAT available
CST refundable but prone
4 CST Upfront Exemption SEZ
with practical difficulties
Upfront exemption / refunds in Payable - No exemption
5 VAT SEZ
key States Mostly a cost
Exempt - Profit linked MAT is
6 Corporate Tax Payable - No exemption SEZ
payable
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SETTING UP AN SEZ UNIT
BROAD PROCESS OF SETTING-UP A SEZ UNIT
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DC to forward the application to the Unit Approval Committee (“UAC”)
3 UAC to deliberate the information and merits of the application along with
credentials of the Entrepreneur proposing to set up a SEZ Unit
4 Upon deliberations, UAC will confer the Letter of Approval (“LOA”) on the Unit
after which the Unit can begin to operate in the SEZ
5 Pursuant to obtaining the LOA, the unit to fulfill formalities like seeking approval
of list of services, execution of the BLUT etc.
6 Unit begins to operate out of the SEZ and unit to submit the registered lease
deed within six months of having obtained the LOA
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LEGAL PROVISIONS – INCOME TAX REGULATIONS
Under the income-tax regulations a SEZ unit is eligible for the tax relief if:
Unit is not set up by using previously used plant and machinery (subject to a limit of 20% of total
plant and machinery) and
The Unit is not formed by splitting up or reconstruction of an existing business.
Setting up a SEZ unit with substantial number of existing employee, transfer of existing contracts
would be construed as a business set up by splitting up or reconstruction of an existing business.
As per the latest circular, the setting up of a new unit in an SEZ will not be considered as splitting
up of or reconstruction of its existing business, if it complies with any one of the 2 conditions below
in the year of commencement of business:
Transfer or redeployment of technical manpower from existing unit does not exceed 50% of
the total technical manpower actually engaged in the development of software or IT –enabled
products of the new SEZ unit as on the last day of the year ; or
The net addition to new technical manpower in all units of the taxpayer at the enterprise level
is, at least, equal to the number that represents 50% of the total technical manpower of the
new SEZ unit during the year. For example -
New SEZ Unit (No. of technical Enterprise Level ( No. of technical Whether hit by condition of split /
manpower) manpower including new SEZ Unit) reconstruction
New Transfer from Total Existing Net addition of Total
Existing new recruits
100 40 140 500 300 800 No; as each of the conditions is satisfied
100 200 300 500 180 680 No; as condition at the enterprise level is
satisfied
100 200 300 500 130 630 Yes; none of the conditions is satisfied
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SEZ BENEFIT CYCLE
Procedural
nightmares done High quality infrastructure
away with available for Units
Reduced cost on account
of setting up for the Units
Reduced operating
costs of SEZ for the
Reduced input costs for Developer
the Units
Reduced cost of
Reduced costs resulting
setting up SEZ for the
in increased profits
Developer
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TRANSACTION PROCESS : STEPS TO MOVE INTO
AN SEZ
Leasing Considerations :
Process and leasing considerations
Proposal • LOA (letter of agreement) to be submitted
Submission Submission of post the LOI signing
Shortlisting of space Proposal Approval
Development Lease Deed to DC
Commissioner (DC)
• SEZ Unit Approval – The approval could
1 2 3 4 be between 45- 60 days at the minimum,
dependent upon the meetings scheduled.
Submit proposal to
Lease Deed to be
Approach IT SEZ
DC in Form – F Approval of
executed between • The company signing the lease should be
along with the proposal in a foreign exchange earner (i.e. be dollar
Developer client “Unit” &
developer’s letter of committee meeting
consent
developer positive at the end of 5 years)