FOREIGN FIRMS ALLOWED TO SET UP SEZ BRANCHES

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The Reserve Bank of India has granted general permission to foreign companies to set up branches in special economic zones (SEZs) to undertake either manufacturing or services activities. The permission will apply to those units which are in businesses where 100% foreign direct investment is allowed by the government. Moreover, these units have to function on a stand-alone basis. In other words, they cannot have any dealing with entities outside the special economic zones in India, which include other branches or subsidiaries of their parent office in India.

The facility, however, will not apply to foreign banks. Offshore branches in SEZs are guided by the RBI norms on overseas banking units. The central bank has also set out the procedure to be followed for remitting the winding up proceeds of such business units in case that happens. These guidelines list out the documents required for winding up remittances. They include; an auditor's certificate indicating the manner in which the remittable amount has been arrived at supported by a statement of assets and liabilities of the applicant. The auditor will also have to certify that all employee liabilities have been fulfilled. In addition, they have to confirm that no income due from overseas has remained unremitted.

Besides the certification from the auditors, the units would also need to get a no-objection certificate from the tax authorities and a declaration that no legal proceeding is pending in any Indian court and that there are no legal impediments to the remittance.

In March `01, RBI had issued a circular extending various facilities to units in SEZs. These include the permission for SEZ units to realise and repatriate to India the full export value of goods or software within a period of 12 months from the date of export. The Reserve Bank has also been empowered to extend the period beyond 12 months.

SEZ units were also permitted to credit 100% of their foreign exchange receipts to their EEFC account except foreign exchange acquired, by way of purchase against rupees from any person resident in India other than another unit in a special economic zone.

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