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How to Set up a Business in Special Economic Zones (SEZ) in India?

Special Economic Zone

A Special Economic Zone (SEZ) is a designated geographic area where the government has taken action to liberalise trade, commerce, and commercial regulations to promote economic activity and distinguish it from other regions of the nation. The Special Economic Zones have proven beneficial to SEZ India’s investment incentives, further encouraging foreign businesses to invest in India due to SEZ India’s FDI rules.

Duty-free commerce and various economic policies were developed to help investors, encourage both local and foreign direct investment and increase employment in the economy. Special economic zones (SEZs) in India are regions where local enterprises can benefit. SEZs in India are, therefore, a well-liked investment location for many corporations, especially exporters.

Overview of Special Economic Zone

Within India, a special economic zone (SEZ) is an area of land with more lenient economic regulations than the rest of the nation. On April 1, 2000, India’s Special Economic Zone (SEZ) policy was introduced to address problems caused by multiple controls and clearances, a lack of top-notch infrastructure, and an unstable fiscal system for foreign trade as well as to increase foreign investment in India. With the fewest restrictions possible, this programme aimed to transform SEZs into a catalyst for economic growth, backed by high-quality infrastructure and attractive fiscal incentives at both the federal and state levels.

The SEZ Act, 2005[1] and SEZ Rules, which came into force on February 10, 2006, are India’s particular SEZ laws. Before this, SEZs operated according to the Foreign Trade Policy’s rules. The main goals of the act are to increase foreign investment and create a hassle-free, competitive environment for exports on a global scale.

Purposes of Special Economic Zone (SEZ)

Any government may establish a Special Economic Zone (SEZ) through its administrative or policy actions to create an exclusive SEZ. Following are a few of the objectives:

  • Establishing a Special Economic Zone allows for the promotion of international investments in the nation and also increases domestic investments.
  • Local employment in the labour and service sectors increases as a result of the establishment of numerous new industries in a Special Economic Zone. As a result, the market sees the creation of new prospects.
  • The emergence of new industries and producers in the nation leads to the developing of a region’s facilities and infrastructure.
  • Establishing a Special Economic Zone results in an influx of fresh concepts, innovations, and production techniques and an increase in a nation’s trading operations.
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Establishment and Setting up of units in SEZ zone

An applicant must speak with SEZ Developer and be aware of all the projections and paperwork needed before submitting an application for the establishment of a unit in SEZ. The steps for submitting an application to establish SEZ unit are as follows: 

  • The process for establishing SEZ unit is outlined in Section 15 of the SEZ Act. A corporation must submit its proposal to the relevant state government, which will then present it to the Board of Approval to establish a unit at a location designated as SEZ. The Central Government established the Board of Approval, which comprises 19 distinct members and can be contacted directly by the applicant. 
  • The board’s primary responsibility is to thoroughly examine applications for establishing businesses in Special Economic Zones through decisions made by the board with the support of a majority of 1/3 of the board members. The secretary of the Department of Commerce and Industry, members of the Central Board of Direct Taxes, representatives from the Ministries of Law and Justice, Home Affairs, and numerous other Ministries make up a quorum of the board.
  • Before using SEZ Online, an applicant must register as a user to access the system using a User ID and password. The user must visit the SEZ Online website, give basic details, and then submit the New Unit registration form online to complete registration.
  • After registering, users must complete a “new user application” by providing the necessary information, such as the company’s general information, the administrators’ contact information, the items or products the company sells, and other information such as investments, equity, forex, stock, and sales partnerships.
  • Submitting Form-F and other papers: During this process, candidates had to upload the documents indicated below with a filled-out Form-F, as specified in the “Add Documents” area. It must be made mandatory for certain uncommissioned documents to be delivered in person to DC’s office:
  • Copies of the corporate memorandum, articles of incorporation, and certificate of incorporation.
  • Demand Draught Specifications, The related Special Economic Zone’s “Pay and Accounts Officer” must receive a demand draught for Rs. 5000, and the field must be filled with the necessary information.
  • A copy of the project report, director profiles, and company profiles
  • Board resolution copy.   
  • List of international and domestic capital products.
  • Forms 18 and 32 were submitted with a mythical monster.
  • A copy of the administrators’ identity and residency evidence
  • Last three years’ income tax returns.
  • A copy of the financial statements that have been audited.
  • A copy of the corporate IEC copy.
  • Corporate PAN Copy.
  • Copy of the term sheet for the incubator facilities.
  • A copy of the main premises’ term sheet.
  • Letter for selling/arranging redemption.
  • Administrators list with contact information.
  • The letter mentions the email address and website.
  • Affidavit 
  • Requesting an undertaking for pollution management.
  • If the DC is not satisfied with the documents that have been submitted, he may ask for more. If the DC office returns the request and the demand is then raised from the DC office, the one shall supply the papers within the specified.
  • DC may approve the NUA’s request after verifying all the information provided and meeting the various needs. Upon approval, a message outlining the additional information will be sent to the person’s registered email address.
  • Upon DC office approval, a link to pay the registration fee will be enabled, requesting some information for payment. After receiving payment, an NSDL Direction Ltd. (NDML) representative can confirm receipt of the money and, upon verification of a legitimate payment entry in the SEZ online system, can authorise the payment. One will produce administrative and operational user IDs after payment authorisation.
  • The lease deed information must be submitted to the DC office for approval. Upon receiving approval, the unit is expected to sign a lease with the SEZ developer, where it will be doing business. The unit may be required to enter the lease deed details into the SEZ online system and submit it online to the DC’s office upon signing the agreement. Additionally, the unit must deliver a physical copy of the lease document to the DC’s office.
  • The SEZ official may approve the request after evaluating the project’s viability in terms of foreign exchange revenues and compliance with applicable regulations. Through the SEZ Online system, the SEZ Official can examine and print the approval letter and send it to the applicant.
  • The Central Government notifies the SEZ’s area when the board approves it. Following the notification, the Development Commissioner is responsible for giving the company the necessary approval to establish their business.
  • In the case of a violation of any established terms and conditions, the Letter of Approval may also be revoked. Additionally, the concerned party must have a fair chance to be heard before the letter is cancelled. Additionally, while developing and putting into practice the production plans, the Development Authority must be informed.
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Incentives and Benefits of setting up a business unit in a SEZ

The following are some of the advantages and incentives for setting up a business in an Indian special economic zone:

Tax advantages: To increase business efficiency, business houses establishing operations in Special Economic Zones benefit from both FDI Policies in SEZ India and exemption from Central and State taxes. The units can operate with better profit margins as a result.

Exemption: 100% income tax exemption on export income for SEZ units under Section 10AA of the Income Tax Act for the first five years, a 50% exemption for the following five years, and a 50% exemption of reinvested export profit for the next five years.

Investment incentives in SEZ India: When a firm applies to establish a unit in a Special Economic Zone, several investment incentives that pertain to raising the company’s capital are relaxed.

Single Window Approval System: A single window approval system for business units’ licencing and approval requirements has been established.

Licence requirements: Due to the nature of the activities and the intent behind the creation of SEZs, the Special Economic Zones have been granted a significant relaxation of compliance and licencing requirements to boost economic activity.

Labour Regulations: In SEZs, the government frequently relaxes its hiring and labour laws to conduct business there easier.

Relaxation of environmental requirements: In Special Economic Zones, there are a variety of relaxed environmental requirements that improve business efficiency and cut down on red tape.

Conclusion

The idea of special economic zones has successfully boosted the nation’s growth, strengthening international trade relations, the inflow of foreign currency, and ease of doing business in India. Numerous tax benefits are involved, licencing regulation and other essential benefits. This programme has been effective in the Indian business environment because of the licencing regulations and method to manage the business in Special Economic Zones, making it a lucrative alternative for corporations to invest and engage in such economic operations.

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Read our Article: Meaning of SEZ and GST Implications on SEZ Units

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