What is a SEZ?
A SEZ is a "Specifically delineated duty-free enclave and shall be deemed to be foreign territory for the purposes of trade operations and duties and tariffs"
EXIM Policy 2000, Chapter 9 para 30

Who can establish a SEZ?
Any private/public/joint sector or State Government or its agencies can set up Special Economic Zones (SEZs).

What are the rules that govern the setting up of units in a SEZ in India?
There are two documents that govern the setting up of units in a SEZ:
1. The SEZ Act of India, 2005
2. The SEZ rules 2006
These documents can be downloaded from the website www.sezindia.nic.in

Is 100 % Foreign Direct Investment allowed for setting up units in a SEZ?
Yes (except for a few prohibited list of industries eg. armaments, drugs and such sensitive items)

Who will give approvals for the establishment of a SEZ ?
The Board of Approvals (BoA) is authorized to give approvals to the developer for the establishment of a SEZ. The Board consists of representatives of various government departments relevant for the SEZs. The composition of the Board is given under Clause 8 of the SEZ Act.

Who governs the Special Economic Zone (SEZ)?
The Board delegates the authority to govern the SEZs to Development Commissioners appointed for specific SEZs. The authority to approve setting up of a unit at Sri City SEZ has been delegated to the Development Commissioner, Visakhapatnam Special Economic Zone. The contact details of the Development Commisoner's office is -
The Development Commisioner ,
C/o VSEZ, Duvvada,Visakhapatnam - 530046,
Andhra Pradesh, India,
Tel: +91-891-2587555 | Email: dc@vsez.com

Who is responsible for the maintenance of a SEZ?
The Developer of a SEZ is responsible for its maintenance.

What is the approval mechanism for the units to be set up in a SEZ?
All approvals are to be given by the Unit Approval Committee headed by the Development Commissioner (DC). Clearance from the Department of Policy and Promotion/Board of Approvals, wherever required will be obtained by the Development Commissioner. A Letter of Approval to set up a unit in a SEZ is issued by the DC, provided the unit meets all the criteria specified in the Application. The Application form, can be downloaded from www.sezindia.nic.in
The procedure of application is detailed under Clause 17 of the SEZ Rules, 2006.

What are the obligations of the Unit under the Scheme?

• SEZ units have to achieve positive net foreign exchange earned over five years i.e. Exports (FOB value of all exports) - Imports (CIF value of all imports) > 0. Please see Clause 53 of Chapter VI of the SEZ Rules, 2006 for a more detailed explanation
• For this purpose, a Legal Undertaking is required to be executed by the unit with the Development Commissioner
• Any company set up with FDI has to be incorporated under the Indian Companies Act with the Registrar of Companies for undertaking Indian operations
• The units have to maintain proper records of accounting
• Annual Performance Reports must be submitted to the Development Commissioner
• The units are also to execute a bond with the zone Customs for their operations in the SEZ

Who monitor the functioning of the units in SEZ ?
Performance of the SEZ units monitored by a Unit Approval Committee consisting of Development Commissioner, Custom and representative of State Govt. on annual basis.

What is the practical role of Development Commissioner?
Development Commissioner is the nodal officer for SEZs and help in resolution of problem, if any, faced by the units / developer.

Are SEZs controlled by Government ?
In all SEZs , the statutory functions are controlled by the Government. The operation and maintenance are privatized in private SEZs.

Will there be a Customs House in a SEZ?
Yes. There will be an on-site Customs House.

What is the processing area in a SEZ?
The processing area is the bonded area within the SEZ where all manufacturing, services and trading units are located.

What is the non-processing area (NPA) in a SEZ?
The NPA is the area outside the bonded area within the SEZ earmarked for residential, commercial and recreational development.

Are all industries permitted in a SEZ?
Any type of industry can be located in a SEZ with the appropriate approvals and clearances from the Pollution Control Board. At Sri City, polluting industries will be allowed to be set up only after scrutinizing the environmental impact of the industry and the safe-guard measures adopted by the units. This is entirely at the discretion of the management of SriCity.

Can units operate both in the domestic tariff area (DTA) and SEZ area?
A company can set up units both in the SEZ and DTA, provided separate accounting procedures are maintained by the units. A unit in the DTA cannot export to itself in the SEZ.

Can SEZ units sell to the domestic market?
Yes. SEZ units can sell goods and services, including rejects and scrap or other by-products of the manufacturing process in the domestic market on payment of applicable customs and excise duties.

Can SEZ units do job work for domestic companies for exports?
Yes. SEZ units can do contract work for domestic companies, provided all raw material including semi-finished goods and consumables including fuel is supplied by the DTA exporter. The finished goods must be directly exported from the SEZ unit on behalf of the DTA exporter. The export document is jointly in the name of the DTA unit and the SEZ unit. The DTA exporter is eligible for refund of duty paid on the inputs by way of brand rate of duty drawback.

Can SEZ units subcontract part of their production process (e.g. finishing process) to units in the DTA?
Yes. SEZ units can subcontract to units in the DTA which are registered with the excise department and also abroad with prior permission of the Specified Officer given on an annual basis. The goods sent out for subcontracting have to be returned to the SEZ within 120 days from the date of removal or within a period as may be extended by the Special Officer in charge of this procedure.

Can goods be exported directly from the sub-contractor's premises in the DTA?
Yes. Goods can be exported directly from the DTA unit provided it is registered with the Central Excise Department. This is allowed only by way of direct export and not through third parties.

Can subcontracting be given to another SEZ unit within the same SEZ or in another SEZ?
Yes.

Are sales permitted from one unit to another in a SEZ or from one SEZ to another?
Yes. Inter Unit Sales are permitted as per the Policy. Buyer procuring from another unit pays in Foreign Exchange.

Are offshore banking units allowed to operate in a SEZ?
Yes. They operate as a bank outside India adopting international norms for operations.

Does Andhra Pradesh have a state specific SEZ policy ?
Yes. The policy can be downloaded from www.apsez.com/policy/policy.htm

Are existing labour laws applicable in a SEZ?
All existing labour laws are applicable in a SEZ. Labour in a SEZ will be treated as a Public Utility Service.

Are Local laws applicable in a SEZ?
Yes. Local laws are applicable in a SEZ unless specifically given exemption by the State Government.

Are imports and exports faster from a SEZ?
Yes. Due to procedural ease as provided in the scheme and the on-site Customs House, the turnaround time for imports and exports in a SEZ is shorter. Loading and unloading costs are cheaper due to service tax exemptions.

If one buy goods from DTA should they require to pay State Sales Tax and Excise?
NO. State has exempted the sales from DTA to SEZ from local levies and taxes.

Routine examination of goods by customs in the EOU is common. Will the same practice continue at the SEZ?
Customs examination is to the bare minimum. SEZ units function on self certification basis.

What are the provisions relating to External Commercial Borrowing (ECB) in SEZ ?
External commercial borrowings by units up to $ 500 million a year allowed without any maturity restrictions For details please see guidelines issued by RBI (F.No. 4(2)/2002-ECB, dated 15.9.2002

What are the incentive/facilities available for SEZ units?

• 15-year graded Income Tax Holiday
• Exemption from Excise and Customs Duties
• Exemption from Central Sales Tax / VAT
• Exemption from Service Tax
• Exemption from local taxes
• Single Window Clearance
• 100% FDI through automatic route
• Domestic Sales on payment of applicable duty
• External commercial borrowings by units up to $ 500 million a year allowed without any maturity restrictions
• Freedom to bring in export proceeds without any time limit
• Flexibility to keep 100% of export proceeds in EEFC account
• Offshore banking unit
• On-site custom house
• Self-certification
• Warehouses/ICD

What are the facilities for Domestic suppliers to Special Economic Zone?
Supplies from Domestic Tariff Area (DTA) to SEZ to be treated as physical export. DTA supplier would be entitled to :

• Drawback/DEPB
• CST Exemption
• Exemption from State Levies
• Discharge of EP if any on the suppliers
• Income Tax benefits as applicable to physical export under section 80 HHC of the Income Tax Act.

What about the Licenses for Imports?
No License is required for imports, including second hand machineries.

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Note: The contents hereof are provided for information purposes only. Whilst the information herein is obtained from sources believed to be reliable, we make no warranty or representation, express or implied, with respect to the fairness, correctness, accuracy, reasonableness, viability for any particular purpose, or completeness of the above information and opinions. We strongly suggest that potential investors seek their own independent advice in relation to any legal tax, accounting and regulatory issues relating to information given in the section.