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What is Free Trade and Warehousing Zone (FTWZ)? |
| A. |
Free Trade and Warehousing Zone is a deemed foreign territory within India which was created as a subsection of the Special Economic Zone. |
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| Q. |
What are the activities allowed inside the FTWZ? |
| A. |
Activities allowed inside the zone are as mentioned below: |
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Trading with or without labelling |
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Packaging and repacking |
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Re-sell, re-invoice, or re-export of goods |
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Refrigerated warehouse storage |
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Assembly of complete and semi-knockdown kits |
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| Q. |
How companies can operate through the FTWZ? |
| A. |
In the FTWZ, there are two ways that companies can operate: |
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Model 1: Company will become a Unit holder inside the zone and will do the authorized operations and avail all the fiscal and other incentives and benefits including the Income Tax exemption. Arshiya will act as the Developer and also the service provider for various services like 4PL, IT, 3PL etc. |
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Model 2: Arshiya Supply Chain Management will be the Unit holder and will hold the goods on behalf of clients and provide various services (For Example: warehouse management and labour). In this case, Income Tax benefits are not available for clients. |
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| Q. |
Is there a ratio of exports to imports that restricts or enhances tax benefits within the FTWZ? |
| A. |
It is mandatory to fulfil the Net Foreign Exchange criteria (NFE). The NFE Formula is defined by the following ration:
The Unit shall achieve Positive Net Foreign Exchange to be calculated cumulatively for a period of five years from the commencement of production according to the following formula, namely:‐
Positive Net Foreign Exchange = E – I > 0
Where: |
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E: is Free on Board value of exports, including exports to Nepal and Bhutan against freely convertible currency, by the Unit and the value of following supplies of their products, namely:‐ |
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Supply of goods to all categories of Deemed Exports including supply of goods against Diamond Impress Licence |
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Supply made to bonded warehouses set up under the FTP or U/s. 65 of the Customs Act and FTWZs, where payment is received in foreign exchange |
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Supply against special entitlements of duty free import of goods under the FTP |
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Export of services by services units including services rendered within SEZ or services rendered in the DTA and paid for in free foreign exchange or such services rendered in INR which are otherwise considered as having been paid for in free foreign exchange by the RBI |
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Supply of Information Technology Agreement items and notified zero duty telecom or electronic items, namely, Color Display Tubes for monitors and Deflection components for colour monitors or any other items as may be notified by the Central Government |
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Supply to other units and Developers in the same or other SEZ or EOU/EHTP/STP/BTP Unit provided that such goods and services are permissible for import or procurement by such units and Developers |
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Supply of goods to DTA against payment in foreign exchange from the EEFC account of the DTA buyer of Free Foreign Exchange received from overseas |
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Supply of goods against free foreign exchange by a FTWZ Unit |
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Explanation : For the proposes of this sub – rule, the supplies under clause (m) shall be against procurement certificate, as applicable and the supplies under clauses (d) to (h) and (j) shall be as per the terms and conditions of the respective duty exemption notified by the Central Government in the Ministry of Finance |
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And |
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I: Consist of sum of the following:‐ |
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Sum total of the Cost Insurance and Freight value of all imported inputs used for authorized operations during the relevant period and the Cost Insurance and Freight value of all imported capital goods including goods purchased on high seas basis even though paid for in INR and the value of all payments made in foreign exchange by way of export commission, royalty, fees, dividends, interest on external commercial borrowings during the first five year period or any other charges |
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Value of goods obtained from other Unit or EOU/EHTP/STP/BTP Unit or from bonded warehouses or procured from international exhibitions held in India or precious metals procured from nominated agencies |
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The cost Insurance Freight value of the goods and services including pro – rata Cost Insurance Freight of Capital goods, imported duty free or leased from a leasing company or received free of cost and or on loan basis or on transfer for the period they remain with Unit |
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Explanation:‐ for the purposes of this sub – rule “Inputs” means raw materials, intermediated, components, consumables, parts and packing materials. |
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For annual calculation of Net Foreign Exchange, value of imported capital goods and lump sum payment of foreign technical know – how fee shall be amortized at the rate of 10% every year from the 1st year to 10th year. |
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| Q. |
Do separate document need to be maintained for DTA sales and FT sales in order to gain the income tax benefits? |
| A. |
Yes, Separate accounts need to be maintained for products exported abroad and supplied to DTA in order to avail the income tax benefits. |
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| Q. |
What is the minimum lease period between the Unit Holder and the FTWZ Developer in order to be granted Unit Holder Registration? |
| A. |
Per the SEZ Rules of 2006, a 5 year minimum lease period is required between the FTWZ developer and Unit holder. |
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| Q. |
Are sales made to the DTA deemed exports? And do those sales fulfil the NFE positive criteria? |
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Yes. If the Sales are made in foreign currency. Sales made to DTA are considered export which fulfil the NFE Criteria if the transactions are in foreign currency. |
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| Q. |
Are FTWZs exempted from Labour laws? |
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Normal Labour Laws are applicable to FTWZs and are enforced by the respective State Governments. The State Governments have been requested to simplify the procedures/returns and introduce a single window clearance mechanism by delegating appropriate powers to Development Commissioners of FTWZs/SEZs. |
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| Q. |
How much time does it takes to get the approval from the committee to set up a unit inside the FTWZ? |
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Approval takes up to 45 days or 6 weeks from the date the proposal is submitted to the approval committee. |
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| Q. |
Is 100 % Foreign Direct Investment allowed for setting up units in a FTWZ? |
| A. |
Yes |
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| Q. |
What benefits are applicable to companies operating through a FTWZ? |
| A. |
The benefits of FTWZ include: |
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Importing products into India through FTWZ |
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Exporting products out of India through FTWZ |
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Re‐exporting products out of India through the FTWZ |
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Import Benefits: |
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Duty deferment benefits, thus unlocking working capital |
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Hassle‐free business environment in terms of local laws regulatory compliance |
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24 / 7 Customs clearance enhancing speed and efficiency of India distribution |
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Quality control capability prior to duty‐payment (will allow companies to have quality control on products before the duty payment |
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Enabling Implementation of Vendor Managed Inventory (VMI) Model |
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Postponement Distribution capabilities |
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Export Benefits: |
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Products from India entering the FTWZ are treated as an export thereby providing immediate export benefits (Duty Drawback, DEPB Credits etc.) to suppliers or companies in DTA |
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This will allow companies to consolidate, value‐optimising and conduct quality control on these products before end distribution world‐wide increasing supply chain efficiencies (forward & reverse) |
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Local Tax Exemption (e.g. CST, Sales Tax, Excise & VAT) on purchase of material from DTA for the authorised operations |
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Ability to conduct Quality Control before despatch from India and flexibility of sending it back to DTA for repairs or replacement |
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Hassle‐free business environment in terms of local laws & regulatory compliance |
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Enhanced Capital Cash Flow and Higher Inventory Visibility |
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Re‐Export Benefits: |
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Income Tax exemption on Re‐export of Imported goods |
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Service tax exemption on all activities conducted inside the FTWZ including rentals & labour |
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Exemption from custom & stamp duty on imports into FTWZ, meant for re-export out of India |
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Hassle free re‐export of value optimising products |
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Ability to leverage India as a regional/global distribution & value optimising hub |
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| Q. |
Are income tax benefits applicable on exported products from a FTWZ to other SEZ or FTWZ? |
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No. Income tax benefits are not available on the export of products to other SEZ/FTWZ |
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