1EOU Scheme-OverviewEOU Scheme-Overview Units undertaking to export their entire production of Units undertaking to export their entire production of

goods and services may be set up under the Export goods and services may be set up under the Export Oriented Unit (EOU) SchemeOriented Unit (EOU) Scheme

EOUs can get a location of their choice Customs-EOUs can get a location of their choice Customs-bonded anywhere in India bonded anywhere in India For setting up an EOU in Karnataka, Kerala, Lakshadweep or For setting up an EOU in Karnataka, Kerala, Lakshadweep or

Mahe, apply to Development Commissioner, Cochin SEZ Mahe, apply to Development Commissioner, Cochin SEZ EOUs can import without duties, all capital goods and EOUs can import without duties, all capital goods and

raw materials for running the unit.raw materials for running the unit. EOUs can procure these items from Indian sources also without EOUs can procure these items from Indian sources also without

excise duties and sales taxesexcise duties and sales taxes EOUs can sell upto 50% of FOB value of exports in the EOUs can sell upto 50% of FOB value of exports in the

Indian market at concessional dutiesIndian market at concessional duties New EOUs get Corporate Income Tax concessions till New EOUs get Corporate Income Tax concessions till

20092009

2Approvals for EOUsApprovals for EOUs EOUs are given approval for manufacture EOUs are given approval for manufacture

of goods, including re-furbishing, as well of goods, including re-furbishing, as well as for rendering of services including bio-as for rendering of services including bio-technology, BPO, Call Centres, IT enabled technology, BPO, Call Centres, IT enabled Services. An EOU may also engage in Services. An EOU may also engage in mining, agriculture, aquaculture, mining, agriculture, aquaculture, floriculture, or horticulture. floriculture, or horticulture.

Trading by EOUs is not permittedTrading by EOUs is not permitted Minimum Investment for approval as an Minimum Investment for approval as an

EOU should be Rs.10 million in plant EOU should be Rs.10 million in plant &machinery.&machinery. Software /services/ handicrafts/ agriculture/ Software /services/ handicrafts/ agriculture/

floriculture/ aqua-culture/ animal husbandry/ floriculture/ aqua-culture/ animal husbandry/ information technology are exempted from information technology are exempted from this size restriction.this size restriction.

3Approvals for EOUsApprovals for EOUs Licences are required for Licences are required for

Manufacturing Manufacturing arms and ammunition, atomic arms and ammunition, atomic substances, narcotics/psychotropic substances, and substances, narcotics/psychotropic substances, and tobacco productstobacco products

Establishing EOUs in Bangalore and Cochin city Establishing EOUs in Bangalore and Cochin city limitslimits (unless it is a non-polluting sector EOU, or is (unless it is a non-polluting sector EOU, or is located in an industrial estate within the city)located in an industrial estate within the city)

Approvals for licensable activity and Approvals for licensable activity and services are given by the Board of Approvals services are given by the Board of Approvals in the Commerce Ministryin the Commerce Ministry Applications are to be routed through the Applications are to be routed through the

Development Commissioner Development Commissioner Approval Approval (called Letter of Permission (LOP))(called Letter of Permission (LOP)) for for

non-licensable manufacturing activity is non-licensable manufacturing activity is given locally by the Development given locally by the Development CommissionerCommissioner

Relevant forms are available at Relevant forms are available at http://www.cepz.com/eouformshttp://www.cepz.com/eouforms

4EOU Scheme FeaturesEOU Scheme Features EOUs may export all products except EOUs may export all products except

prohibited items of exports prohibited items of exports EOUs may import without duty all types of EOUs may import without duty all types of

goods, including capital goods required for its goods, including capital goods required for its activities, unless they are prohibited for importactivities, unless they are prohibited for import

Even second hand plant & machinery can be Even second hand plant & machinery can be imported.imported.

Capital Goods can be purchased, loaned, Capital Goods can be purchased, loaned, sourced from foreign/domestic leasing sourced from foreign/domestic leasing companies or brought free of cost.companies or brought free of cost.

EOUs get upto 5 years for utilization of EOUs get upto 5 years for utilization of imported capital goods, and upto 3 years for imported capital goods, and upto 3 years for other items. other items.

5EOUs & FDIEOUs & FDI 100% FDI in manufacturing EOUs is permitted under 100% FDI in manufacturing EOUs is permitted under

the automatic route of the Reserve Bank of Indiathe automatic route of the Reserve Bank of India i.e. first bring in the money, and then inform Reserve i.e. first bring in the money, and then inform Reserve

Bank of IndiaBank of India s local office in Form FC(RBI)s local office in Form FC(RBI) within 30 within 30 days of receiptdays of receipt

Also under the automatic route for EOUs areAlso under the automatic route for EOUs are External Commercial BorrowingExternal Commercial Borrowing upto USD 50 million, upto USD 50 million, with with

maturities of 3 years or more,maturities of 3 years or more, for funding and running the for funding and running the unit. unit.

Use of Use of brand names/trademarksbrand names/trademarks, , if royalty is upto 2% on if royalty is upto 2% on exports and 1% on domestic sales,exports and 1% on domestic sales, without technology transfer without technology transfer

Foreign technology tie-upsForeign technology tie-ups, if lump sum payment does , if lump sum payment does not exceed USD 2 million, and if royalty is upto 5% on not exceed USD 2 million, and if royalty is upto 5% on domestic sales and 8% on exports, even for wholly owned domestic sales and 8% on exports, even for wholly owned subsidiariessubsidiaries

6EOUs and Foreign EOUs and Foreign ExchangeExchange EOUs may freely repatriate investment & EOUs may freely repatriate investment &

returns abroadreturns abroad EOUs need to bring export proceeds to EOUs need to bring export proceeds to

India only within 360 days of export India only within 360 days of export And even then, upto 100% may be retained in And even then, upto 100% may be retained in

foreign currency in the unitforeign currency in the unit s EEFC Accounts EEFC Account EOUs may invoice sales to other EOUs etc EOUs may invoice sales to other EOUs etc

in foreign exchangein foreign exchange EOUs may invoice sales to Indian entities EOUs may invoice sales to Indian entities

other than EOUs also in foreign exchange other than EOUs also in foreign exchange sourced from from their EEFC account or sourced from from their EEFC account or abroadabroad

7Tax Concessions for EOUsTax Concessions for EOUsNew EOUs are entitled under to Corporate New EOUs are entitled under to Corporate Income Tax exemption on physical exports Income Tax exemption on physical exports out of India till 2009out of India till 2009Central Sales Tax is reimbursed on Central Sales Tax is reimbursed on purchases from local manufacturerspurchases from local manufacturersSupplies from local manufacturers are free Supplies from local manufacturers are free of Central Excise Duty of Central Excise Duty

In case duties are paid, Terminal Excise Duty is In case duties are paid, Terminal Excise Duty is reimbursedreimbursed

EOUs in manufacturing sector get EOUs in manufacturing sector get exemption from State Sales Tax on inputs exemption from State Sales Tax on inputs (excepting fuel)(excepting fuel)

8EOU Scheme & DTA EOU Scheme & DTA entitiesentities Existing Indian entities can open a new Existing Indian entities can open a new

EOU under the same legal entityEOU under the same legal entity But the EOU division must maintain separate But the EOU division must maintain separate

accounts, including separate Bank accountsaccounts, including separate Bank accounts DTA units can also convert to EOU DTA units can also convert to EOU

schemescheme Units working with EPCG /Advance Licencing Units working with EPCG /Advance Licencing

can also convert to EOU schemecan also convert to EOU scheme Their pending licence obligations will be Their pending licence obligations will be

subsumed into the EOU scheme.subsumed into the EOU scheme. But to be eligible for Corporate Income Tax But to be eligible for Corporate Income Tax

concessions under section 10B, it has to be concessions under section 10B, it has to be ensured that old assets do not exceed 20% ensured that old assets do not exceed 20% of total assets of the EOUof total assets of the EOU

9EOUs & Customs DepartmentEOUs & Customs Department EOUs have to get their premises bonded by the local EOUs have to get their premises bonded by the local

Customs/ Central Excise Department, and function Customs/ Central Excise Department, and function under their supervisionunder their supervision

They can get a location of their choice so bonded. They can get a location of their choice so bonded. All duty-free items have to be brought here first.All duty-free items have to be brought here first.

One single multi-purpose bond with the Customs One single multi-purpose bond with the Customs /Central Excise Department, called the B 17 Bond, /Central Excise Department, called the B 17 Bond, suffices for all operations.suffices for all operations.

While there is no physical control, there is record-While there is no physical control, there is record-based controlbased control EOU has to maintain proper account of the import, EOU has to maintain proper account of the import,

consumption and utilisation of all imported/locally procured consumption and utilisation of all imported/locally procured materials and exports made and submit them periodically to materials and exports made and submit them periodically to the Customs. the Customs.

Duty foregone under the EOU scheme with interest Duty foregone under the EOU scheme with interest is recoverable in case of fraudulent activity is recoverable in case of fraudulent activity (along (along with prosecution & penalties)with prosecution & penalties)

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Export Obligations of EOUsExport Obligations of EOUs

EOUs have only to be foreign exchange positiveEOUs have only to be foreign exchange positiveFE Inflows> FE OutflowsFE Inflows> FE Outflows

wherewhere FE InflowsFE Inflows = Export earnings (Direct Exports+ Exports through = Export earnings (Direct Exports+ Exports through

Third Parties + Inter-unit Sales + Exports to Third Parties + Inter-unit Sales + Exports to EOU/SEZ/STP/EHTPs)EOU/SEZ/STP/EHTPs)

FE OutflowsFE Outflows = Foreign Exchange outgo on imports of Raw = Foreign Exchange outgo on imports of Raw materials/consumables + FE payments of commission/ royalty/ materials/consumables + FE payments of commission/ royalty/ fees/ dividends/ interest on ECB + share of amortised value of fees/ dividends/ interest on ECB + share of amortised value of capital goods importedcapital goods imported Imported capital goods are amortized over 10 years; only amortized Imported capital goods are amortized over 10 years; only amortized

amount is included in NFE calculationamount is included in NFE calculation Values are included in the calculation even if the imports are not actually Values are included in the calculation even if the imports are not actually

paid for.paid for.

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EOU Scheme- Duty-free Supplies from EOU Scheme- Duty-free Supplies from Indian MarketIndian Market

Supplies from Indian manufacturers to EOUs Supplies from Indian manufacturers to EOUs are classified as deemed exports, and the are classified as deemed exports, and the suppliers are eligible forsuppliers are eligible for

Advance Licence for import of intermediate Advance Licence for import of intermediate inputsinputs

Deemed Export Duty DrawbackDeemed Export Duty Drawback Discharge of export performance obligation on Discharge of export performance obligation on

the supplierthe supplierEOUs may obtain, on production of a suitable EOUs may obtain, on production of a suitable disclaimer from the suppliers, the duty disclaimer from the suppliers, the duty drawback and refund of Terminal Excise Dutydrawback and refund of Terminal Excise Duty

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EOUsEOUs Access to Indian Market Access to Indian Market

Sales to the Indian MarketSales to the Indian Market EOUs can sell duty-free to other EOU /SEZ EOUs can sell duty-free to other EOU /SEZ

/STP /EHTPs etc /STP /EHTPs etc EOUs can sell on full duties in the DTA against EOUs can sell on full duties in the DTA against

foreign currency foreign currency (from EEFC account or from (from EEFC account or from abroad)abroad) This also counts for NFE.This also counts for NFE.

Apart from the aboveApart from the above, , EOUs can sell upto 50% of FOB value of EOUs can sell upto 50% of FOB value of

physical exports to the DTA at concessional physical exports to the DTA at concessional duties duties

EOUs can sell over and above that at full EOUs can sell over and above that at full duties, subject to NFE being positiveduties, subject to NFE being positive

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EOU Sales to other EOUsEOU Sales to other EOUs

EOUEOUs Sales are s Sales are duty-freeduty-free to Indian to Indian entitiesentities like like SEZ /EOU /EPZ /STP /EHTP units, SEZ /EOU /EPZ /STP /EHTP units, Advance Licence Holders, Advance Licence Holders, Bonded Warehouses & Bonded Warehouses & Educational institutions, defence Educational institutions, defence

establishments, other agencies notified by establishments, other agencies notified by Government of India as eligible for duty-free Government of India as eligible for duty-free imports.imports.

These sales count for computation of These sales count for computation of NFE.NFE. But they do not count as physical exports.But they do not count as physical exports.

They can be invoiced in foreign currency They can be invoiced in foreign currency or in Indian currency.or in Indian currency.

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EOUs & Subcontracting EOUs & Subcontracting EOUs can subcontract up to 50% of EOUs can subcontract up to 50% of production or part of production process to production or part of production process to units in the EOU or Indian manufacturers.units in the EOU or Indian manufacturers.

EOUs may temporarily take to the job EOUs may temporarily take to the job workerworkers premises jigs, moulds, tools, s premises jigs, moulds, tools, fixtures, tackles, instruments, hangers, fixtures, tackles, instruments, hangers, patterns & drawings for job workpatterns & drawings for job work

EOUs can even subcontract to units abroadEOUs can even subcontract to units abroad EOUs can import raw materials & components EOUs can import raw materials & components

free of cost for job-working and return.free of cost for job-working and return.EOUs can undertake job-work for export on EOUs can undertake job-work for export on behalf of local manufacturers. behalf of local manufacturers.

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EOU Scheme: Exit PolicyEOU Scheme: Exit PolicyUnits can de-bond without paying duties capital goods they Units can de-bond without paying duties capital goods they have used for 10 yearshave used for 10 years

Software units can de-bond on duty-free basis after 3 years.Software units can de-bond on duty-free basis after 3 years.

Units can wind up their operations on meeting their export Units can wind up their operations on meeting their export obligations by obligations by

Exporting back any imported capital goods and other Exporting back any imported capital goods and other material, or transferring them to another SEZ/EOU unit, ormaterial, or transferring them to another SEZ/EOU unit, or

Destroying the items in Customs presence, orDestroying the items in Customs presence, or Donation on gratis basis to educational institutions, orDonation on gratis basis to educational institutions, or De-bonding on payment of duty on capital goods under the De-bonding on payment of duty on capital goods under the

EPCG Scheme as a one time option, orEPCG Scheme as a one time option, or De-bonding all duty-foregone items by paying duties De-bonding all duty-foregone items by paying duties at current at current

rates rates on unutilised raw materials on unutilised raw materials (imported value)(imported value) and on capital and on capital goods (on goods (on depreciated value only)depreciated value only) and selling them in the DTA. and selling them in the DTA.

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EOU Scheme: Exit PolicyEOU Scheme: Exit Policy

In case of failure to achieve positive NFE, In case of failure to achieve positive NFE, duty foregone under the EOU scheme with duty foregone under the EOU scheme with interest is recoverable in proportion to the interest is recoverable in proportion to the shortfall in NFEshortfall in NFE

If the unit has not met positive NFE, de-If the unit has not met positive NFE, de-bonding shall also be subject to payment of bonding shall also be subject to payment of penalties under the Foreign Trade penalties under the Foreign Trade (Development & Regulation) Act, 1992, and (Development & Regulation) Act, 1992, and under the Customs Act, 1960under the Customs Act, 1960

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EOU Scheme: Who can operateEOU Scheme: Who can operate To run manufacturing activities foreign To run manufacturing activities foreign

companies need to set up an Indian Companycompanies need to set up an Indian Company The Indian Company has to have independent The Indian Company has to have independent

legal status, distinct from the parent foreign legal status, distinct from the parent foreign company. company.

The Company may be a wholly-owned subsidiary, The Company may be a wholly-owned subsidiary, or a joint venture company in financial or a joint venture company in financial collaboration with an Indian company in India.collaboration with an Indian company in India.

A Company registered in India can start an A Company registered in India can start an EOU unit without starting a new legal entity: EOU unit without starting a new legal entity: separate accounts suffice.separate accounts suffice.

To run manufacturing activities foreign To run manufacturing activities foreign companies need to set up an Indian Companycompanies need to set up an Indian Company The Indian Company has to have independent The Indian Company has to have independent

legal status, distinct from the parent foreign legal status, distinct from the parent foreign company. company.

The Company may be a wholly-owned subsidiary, The Company may be a wholly-owned subsidiary, or a joint venture company in financial or a joint venture company in financial collaboration with an Indian company in India.collaboration with an Indian company in India.

A Company registered in India can start an A Company registered in India can start an EOU unit without starting a new legal entity: EOU unit without starting a new legal entity: separate accounts suffice.separate accounts suffice.

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How to ContactHow to Contact For more details of Indian EOUs, see For more details of Indian EOUs, see

website website http://eouindia.comhttp://eouindia.com For details of EOUs with the Development For details of EOUs with the Development

Commissioner, CSEZ, see Commissioner, CSEZ, see www.cepz.com/sez/heou/index.htm www.cepz.com/sez/heou/index.htm especially the How To Apply section at especially the How To Apply section at

http://www.cepz.com/eouhowtoapply http://www.cepz.com/eouhowtoapply Contact CSEZ office Contact CSEZ office

at Cochin at Cochin mail@csez.commail@csez.comPhone in at ++91-484-Phone in at ++91-484-

24132222413222at Bangalore adcblr@csez.comat Bangalore adcblr@csez.com

Phone in at 080-25714874Phone in at 080-25714874

EOU Scheme-OverviewApprovals for EOUsSlide 3EOU Scheme FeaturesEOUs & FDIEOUs and Foreign ExchangeTax Concessions for EOUsEOU Scheme & DTA entitiesEOUs & Customs DepartmentExport Obligations of EOUsEOU Scheme- Duty-free Supplies from Indian MarketEOUs Access to Indian MarketEOU Sales to other EOUsEOUs & SubcontractingEOU Scheme: Exit PolicySlide 16EOU Scheme: Who can operateHow to Contact