Tax provisions

on

 21. What are the tax provisions relating to free trade zone? Explain.

A Free Trade Zone (FTZ) is a special area where goods can be stored, handled, and manufactured without being subject to standard customs duties or local taxes until they leave the zone. The goal is to boost global trade and foreign investment. [1, 2]



Key tax provisions and benefits include:
  • Income Tax Holidays: Under the Income Tax Act , eligible units in an FTZ (or Special Economic Zone ) can claim deductions on profits derived from exports. For example, a business can often claim a large percentage—such as 100%—of its export profits as a tax deduction for the first five consecutive years.
  • Customs Duty Exemptions: Imported raw materials and machinery enter the FTZ tax-free and duty-free. You only pay duties if the final goods are moved out of the zone into the domestic market.
  • Indirect Tax Relief: Businesses operating in an FTZ are typically exempt from local taxes, like state sales taxes or VAT on inputs used for manufacturing.
  • Repatriation of Profits: Companies are usually allowed to take their profits and capital back to their home country without paying extra repatriation taxes. [6]
Think of an FTZ like a locked room at the airport. You can unpack, fix, and repack your luggage inside the room without paying a toll. You only pay a toll if you walk out of the room and into the main city with your luggage. [1]


To qualify for these tax breaks, your business must be new (not just a split of an old business) and must bring in foreign money through exports. You must also follow strict auditing rules. [7]





Comments

Post a Comment