SEZ Exit Options available for SEZ units registered as LLP

Prepared On:
17/08/22


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Background

The SEZ Act of India was enacted in 2005, with an intention to attract Foreign Direct Investment (FDI) into India and encourage exports, both of which will bring precious foreign exchange into India and help make India a strong economy.

SEZ unit registration was straight forward but involved extensive compliance mandates post registrations. However, this did not discourage corporates like Public/ Private Limited and Limited Liability partnerships (LLP) from registering a SEZ unit, as these units enjoyed a host of benefits like

  • Customs duty exemption on imports
  • GST exemption
  • Labour law compliance Exemptions
  • Income Tax Holiday

For a detailed FAQ on SEZ unit registration and benefits kindly click here

And to understand about Income Tax holiday for SEZ units click here

Removal of Income Tax Holiday

The government withdrew the Income Tax exemption under section 10AA of the Income tax act with effect from 1st April 2020, for SEZ units registered after this date. The units which were registered earlier would continue to enjoy the benefit for the unexpired term of 5/ 10/ 15 years.
With the withdrawal of Income Tax benefit, which was the biggest benefit under the SEZ regime and introduction of GST law which enabled easy refund of input tax credit, the SEZ units are finding it difficult to continue to operate from SEZ due to stringent laws around movement of assets and people and reporting requirements.

Hence

Way forward: Options

In this article we are not talking about SEZ exit process, but providing possible options and discuss on the pros and cons of various options for units that were registered before 31st March 2020 and where tax holiday hasn't expired

sez pros and cons

Disclaimer:

“The information contained herein is only for informational purpose and should not be considered for any particular instance or individual or entity. We have obtained information from publicly available sources, there can be no guarantee that such information is accurate as of the date it is received, or it will continue to be accurate in future. No one should act on such information without obtaining professional advice after thorough examination of situation.”