Frequently Asked Questions
Is sub-contracting permitted for FTWZ units?
Since FTWZ units are engaged in trading and warehousing, sub-contracting of production or production process is not permissible. [Rule 41 (1) (g)]
Can foreign/DTA/Service companies establish units in an FTWZ?
Yes. Foreign/DTA/Service companies can establish units in an FTWZ provided they meet the requirements of the scheme.
Supplies to bonded warehouses and FTWZs by SEZ units, where payment is received in foreign exchange, are counted towards fulfillment of positive net foreign earnings. Is actual receipt of foreign exchange necessary in such cases?
The DTA buyers are allowed to pay in foreign exchange for procurement of goods from SEZs by the RBI. Therefore, the actual payment needs to be made in foreign exchange.
Can the entire production be sub-contracted by an SEZ Unit?
Production can be sub-contracted by an SEZ unit, upto the value of goods produced by the unit in its own premises in the preceding financial year and for the first year of operation, it shall be restricted to the value of goods produced by the unit in its own premises during the first year of production. This means that if a unit produces in its own premises, say Rs. 5 crores worth of goods in the preceding year or in the first year, the sub- contracting of production could be undertaken to the extent of goods worth Rs. 5 crores outside the unit. [Rule 41 (1) (f)]
Can units in an SEZ import/procure vehicles free of duty?
Goods can be imported/procured for authorized operations.
Rule 27(3) provides that no duty exemptions and other benefits shall be available for any goods for personal use or consumption. Therefore, cars cannot be imported/procured free of duty. [Rule 27 (3)]
Is it necessary to have only one entry and exit point or can there be more than one entry and exit point?
The Rule provides for the SEZ to have specified entry and exit points and the Development Commissioner would consider the locational aspects and decide on the number of entry and exit points to be provided. There is no bar on more than one entry or exit points. [Rule 11(2)]
Whether exit options are provided to the SEZ unit ?
Rule 74 provides for exit from the SEZ scheme by an entrepreneur who has a unit in the SEZ. (Rule 74)
Where 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.
What are the incentives and facilities available to SEZ units?
The major incentives and facilities available to SEZ units include:
• Duty free import/domestic procurement of goods for development, operation and maintenance of SEZ units. Construction of factory building is also eligible for such benefits.
• 100% Income Tax exemption for SEZ units under Section 10AA of the Income Tax Act for first 5 years, 50% for next 5 years thereafter and 50% of the ploughed back export profit for next 5 years. Income tax benefit as mentioned above is available on the profits out of exports made out of India.
• Exemption from minimum alternate tax under section 115JB of the Income Tax Act.
• External commercial borrowing by SEZ units upto US $ 500 million in a year without any maturity restriction through recognized banking channels.
• Exemption from Central Sales Tax for the authorised operations in the SEZ. t
• Exemption from Service Tax for the authorised operations in the SEZ.
• Single window clearance for Central and State level approvals through approval committee.
• Exemption from State sales tax and other levies as extended by the respective State Governments. (Section 7, 26 and second schedule)
What is the procedure for setting up a unit in an SEZ?
For setting up a unit in SEZ, an application in Form - F prescribed in the rules, needs to be submitted to the concerned Development Commissioner. [Rule 17(1)]
All relevant approvals for establishment of units would be facilitated by the Approval Committee which is chaired by the Development Commissioner.
After approval, a Letter of Approval (LoA) will be issued to the applicant. (Rule 19)
After obtaining the Letter of Approval, the unit may take possession of the land/built up space and execute a bond-cum- legal undertaking jointly with the Development Commissioner and Specified Officer as given in Form - H of SEZ Rules (Rule 22) and commence its operations thereafter.