Tax planning through tax heavens, BEPS, ESR, POEM

Economic Substance Regulations (ESR) in the UAE

16 August 2020,Sagar Chandiramani, Finance Director,Virtuzone

 

The Economic Substance Regulations (ESR) was introduced in countries across the globe to seek compliance from major regulatory bodies based in Europe and the United States. These regulations are targeted at jurisdictions that offer minimal tax liabilities to businesses and require certain entities conducting specific types of business activities to demonstrate that they have adequate economic substance in that jurisdiction. 

The regulations highlight the regular recording, tracking and reporting of all the economic activities carried out by legal entities in the UAE, including companies, branches and subsidiaries, as well as those based in any of the free zones in the UAE.

The Council of the European Union has laid out certain criteria that these jurisdictions need to comply with as part of its efforts to promote transparency in cross-border transactions and to restrict harmful tax practices. Should the European Union (EU) consider that a certain country does not have substantial economic substance regulations, then that country will appear on EU's list of non-cooperative jurisdictions for tax purposes, also known as the EU 'tax haven' blacklist.

An assessment carried out by the European Union on the tax framework of the United Arab Emirates resulted in the country being deemed a non-cooperative tax jurisdiction and its inclusion on the EU blacklist. On 30 April 2019, the UAE Cabinet adopted new ESR in response to concerns expressed by the European Union Code of Conduct Group about the tax framework of the UAE and its commitment to the anti-Base Erosion and Profit Shifting (BEPS) Action Plan proposed by the Organization for Economic Cooperation and Development (OECD).

The UAE is now part of the BEPS Inclusive Framework (BEPS IF), which comprises of more than 130 countries and jurisdictions. As an Inclusive Framework member, the UAE is committed to implementing the minimum standards monitored by BEPS IF to increase tax-related transparency, something which the BEPS thrusts upon itself. 

The UAE has complied to implement a set of four minimum standards laid out by BEPS:

• Countering Harmful Tax Practices
• Prevention of Granting Tax Treaty Benefits in Inappropriate Circumstances
• Country-by-Country Reporting
• Mutual Agreement Procedure

The UAE's ESR requires businesses to assess whether the newly introduced regulations apply to them. Businesses that are able to demonstrate that they are carrying out substantial economic business activities within the region are considered relevant and need to implement strategies in preparing for the notification and reporting requirements prescribed by their relevant Regulatory Authority.

The UAE Ministry of Finance and the various Regulatory Authorities across the UAE have issued an ESR Notification template, which all legal entities must complete, unless as prescribed otherwise by the relevant Licensing Authority, to notify and report to their relevant Regulatory Authority whether or not they undertake and generate income from the list of relevant activities.

Who Needs to Submit an Economic Substance Notification?

A licencee undertaking one or more of the following Relevant and Core Income Generating Activities during the relevant year must file a Notification with the Registration Authority:

• Banking Business
• Insurance Business
• Investment Fund Management Business
• Lease-Finance Business
• Headquarter Business
• Shipping Business
• Holding Company Business
• Intellectual Property Business
• Distribution and Service Centre Business

For further information and explanation on each of the above Relevant Activities, please refer to the Relevant Activities Guide issued by the Ministry of Finance.

What Are the Economic Substance Compliance Requirements Under the Regulations?

All licencees (either onshore, offshore or in a free zone) must comply with the Economic Substance Notification & Return Filing obligations. In order to demonstrate substantial economic substance, a company needs to review its corporate governance structures and operating models and make relevant changes where possible. The compliance requirements imposed on UAE companies under the Regulations are as follows:

• The company must perform its core income-generating activities (CIGAs) in the UAE;
• The company must be directed and managed within the UAE in relation to the its business activity, evidencing that company holds board meetings and annual general meetings, with a quorum of directors and shareholders physically present in the UAE;
• The company is required to have an adequate number of full-time employees, incur operating expenditure, and have physical assets for carrying out the relevant business activities in the UAE; and
• The company must be able to demonstrate that it controls the execution of activities that have been outsourced to third parties.

Economic Substance Notification & Return Filing

All UAE companies (onshore, offshore or Free Zone) that hold a licence and carry out any of the 'Relevant Activities' during the year, have to file a notification unless as prescribed by the relevant Licensing Authority, as per the template prescribed by the relevant Licensing Authority. 

The Regulation has prescribed what needs to go in the form of a notification, and those are:

• Whether or not the company carries out relevant activities;
• A description of the type of relevant activities carried out by the company and the type of income from those activities;
• Whether the income earned from core income generating activities (CIGAs) is taxable in a jurisdiction outside of the UAE;
• If the licencee is a tax resident outside of the UAE and if yes, where; and 
• If at least 51% of the business is owned, directly or indirectly, by the Federal or an Emirate Government, or a UAE Government body or authority;
• The first reportable financial year the business is subject to.

A company carrying out relevant activities, must submit an Economic Substance Report annually to the Regulatory Authority, in order to evidence that the company satisfies the economic substance requirements. 

The Economic Substance Report should include:

• The value and type of income earned from the relevant activities;
• The location of the activities and the property and/or equipment used to conduct the activities;
• The number of employees, their qualifications, and the number of people responsible for conducting the activities; and
• A disclosure stating that the company has met the economic substance requirements.

What Are the Penalties for Non-Compliance?

Failure to comply with the ESR or the provision of incomplete or inaccurate information, may result in your business being imposed with an administrative fine of between AED 10,000-50,000 during the first fiscal year. Furthermore, for the subsequent fiscal year of non-compliance, your business can be imposed with an administrative fine of between AED 50,000 and AED 300,000. It is worth noting that the Licencing Authorities may even suspend, revoke or deny renewal of your commercial licence if the fines are unpaid. 

UAE lays out 2023 corporate tax plan

Companies in the UAE has to prepare for a corporate tax regime in 2023, while the Trump Organization was found guilty of 17 counts of tax fraud.

The UAE issued a federal decree on the taxation of corporations and businesses today, December 9, to prepare the groundwork for a 9% rate on taxable profits of more than Dh375,000 ($102,000).

The legislation will come into force on June 1 2023. Profits below Dh375,000 will face a zero rate to provide support to small businesses and start-up companies. This may still allow smaller businesses to claim money back from the tax administration.

At the same time, the federal corporate tax regime will maintain targeted exemptions for extractive industries, pension funds and investment funds. A zero rate will apply to qualifying income made in free trade zones.

The Ministry of Finance designed the corporate tax regime to normalise UAE tax policy because the Arab Gulf nation was blacklisted by the EU as a non-cooperative tax jurisdiction. However, the 9% headline rate is below the OECD’s global minimum rate of 15%.

Nevertheless, the UAE government maintains it supports the global minimum corporate rate, so it’s possible that the 9% will be raised to 15% if the world implements pillar two.

Siqalane Taho, Josh White December 09, 2022 for internationaltaxreview.com

Anti-Base Erosion and Profit Shifting (BEPS) Action Plan proposed by the Organization for Economic Cooperation and Development (OECD).

Press Release of Quarterly Results by listed companies

PRESS RELEASE :  Press Release of Results donot have any prescribed regulations to be followed. It can be free style. It typically includes figures as well as some journalistic description and is drafted keeping in view, the overall messaging strategy highlighting the things which the company wants the market to take note.

Typical earnings announcement Press Release by IT services company

 Snapshot of Accenture Performance - Q4 & FY07

Financial Highlights Q4 & FY07*:

• Accenture reported a strong quarter and fiscal year. All operating groups and geographies recording their highest ever revenue with double digit growth (in USD terms), both on a quarterly and annual basis.
• Annual revenue on the lower side of guided range as performance of outsourcing was weaker compared to consulting. For Q4 FY07, consulting grew at 22% Y/Y to $3.1 billion while outsourcing revenue was up 16.9% Y/Y; total new bookings were at a record $4.9 billion.
• Achieved double digit EPS growth of 22% for FY 07; annual EPS at $ 1.97 which exceeded the guided range of $ 1.94 to $ 1.96.

 * Figures for FY 2006 reflects adjustments relating to the financial impact of resolution of contracts with the National Health Service (NHS) in England and related adjustments & tax benefits

Operating Highlights Q4 & FY07:

• Utilization in Q4 FY07 at 84% and for FY07 at 85%.
• DSO reduced to 31 days in fiscal '07 from 37 days in fiscal '06.
• Q4 revenue growth driven by consulting in EMEA and outsourcing in America; going forward management sees continued strength in consulting; Accenture plans to double its management consultants as demand surges in Europe and Asia.
• Despite an overall weaker performance from outsourcing it was strong in EMEA geographies; management concentrating on smaller contracts of shorter duration but average rate per contract is steady and renewal rate higher.
• Financial services business was driven by EMEA led by banking; in America capital markets and insurance delivered solid growth.
• Management informed that there was no impact from sub-prime on business as of date.
• Management sees a healthy US & global economy and continued investment in businesses by competition and clients; expected business from discretionary spending of clients at a single digit figure.
• 60,000 new hires in FY07, total employees at 170,000, a 21% growth over FY06; Accenture employs 71,000 people outside the U.S., including 35,000 in India and 11,000 in the Philippines. Hiring is accelerating in countries such as Brazil. Attrition stable at 18% for full year and quarter.
• Spending more than $250 million to expand technology and advisory services over the next 3 years.

Corporate Restructuring : Amalgamations,demerger ,Spinoff, Capital reduction - Companies Act and Income tax act implications

The Framework under companies Act

Chapter XV of the 2013 Act deals with "Compromises, Arrangements and Amalgamations." In this chapter, the Act consolidates the applicable provisions and related issues of compromises, arrangements and amalgamations; however, other provisions are also attracted at different stages of the process. Amalgamation means an amalgamation pursuant to the provisions of the Act. In an amalgamation the undertaking comprising of property, assets and liabilities, of one (or more) company are absorbed by and transferred either to an existing company or a new company. Simply put, the transferor integrates with the transferee and the former loses its entity and dissolves without winding-up. The 2013 Act creates a new regulator, the National Law Company Tribunal ("Tribunal") who, upon its constitution, will assume jurisdiction (the High Courts will no longer have any jurisdiction) of the court for sanctioning mergers. Once the Tribunal is constituted, expected to be formed sometime this year, and related rules finalized, the provisions under the 2013 Act would be implemented.

Before detailing the key changes under the new law, a brief overview of the existing process will be useful. Under the 1956 Act, companies which have reached a consensus to merge must prepare a "scheme" of amalgamation/merger ("Scheme"). The lenders (financial institutions or banks) of the transferor and the transferee must approve¹ the Scheme in-principle, followed by the subsequent approval of the respective Board of Directors of the merging entities. If the merging entities are listed companies, then the listing agreements executed with the stock-exchanges require the company to communicate price-sensitive information to the stock exchange immediately, to seek an approval from the capital market regulator, Securities and Exchange Board of India ("SEBI") simultaneous with the public notification. This essentially happens after the approval of the Board to the Scheme. The next step is to apply² to the High Court having jurisdiction over the registered office of the company seeking an order to convene shareholders and creditors meeting. Without getting into further details of the process, the key point is that any objector amongst the stakeholders can object to the Scheme in the court proceedings.

The element of preparing the Scheme has been retained under the 2013 Act. Unlike the 1956 Act, the new regime (a)recognizes cross border mergers, (b) sets out separate procedure for merger of small companies and those of holding with wholly-owned, (c) prescribes thresholds for objections, and (d) describes mandatory filings to ensure legal compliance.

The Changes to the process

1. Regulatory/Third party approvals: As shareholders' and creditors' consents are essential, the 1956 Act, therefore, contemplates issue of a notice to them. The 2013 Act requires service of the notice of the merger along with documents (such as copy of the Scheme and valuation report) not only upon the shareholders and creditors but also on various regulators including the Ministry of Corporate Affairs (through Regional Director, Registrar of Companies and Official Liquidator),⁴ Reserve Bank of India ("RBI") (where non-resident investors are involved), SEBI (only for listed companies), Competition Commission of India (where the prescribed fiscal thresholds are crossed and the proposed merger could have an adverse effect on competition), Stock Exchanges (only for listed companies), Income Tax authorities and other sector regulators or authorities which are likely to be affected by the merger.⁵ This ensures compliance of the Scheme with other regulatory requirements imposed on the merging entities. In fact, under the 1956 Act the courts have made mergers subject to approval of the regulators. The 2013 Act prescribes a 30 day time frame for the regulators to make representations, failing which the right would cease to exist. This is a positive step because in the 1956 Act no such time frame was provided leading to considerable delays in the court proceedings.
2. Approval of the Scheme through postal ballot⁶: The 1956 Act required presence of the shareholders and creditors in the physical meetings, either in person or by proxy, to cast vote for/against the Scheme. In the 2013 Act, the shareholders and creditors also have the option to cast vote through postal ballot while considering a Scheme. The 1956 Act did not allow this and the shareholders and creditors could only cast votes physically. This right will ensure wider participation of the shareholders and creditors, particularly for those who are scattered all over the country and who find it difficult to be either physically present or provide a proxy. Postal ballot, therefore, will offer them a greater flexibility to cast their votes.
3. Valuation Report: Though the 1956 Act is silent on disclosing the valuation report to the stakeholders, as a matter of transparency and good corporate governance, the listed companies used to make available the valuation report for inspection and also during the course of the meetings. Courts also required annexing of the valuation report to the application submitted before them. The 2013 Act now mandates annexing of the valuation report to the notices for the meetings to enable ready access to the shareholders and creditors⁷.
4. Objections⁸: A bane under the 1956 Act was that it permitted the individual shareholders and creditors to raise frivolous objections to arm-twist and unnecessarily harass the companies following the meetings. Such right to object to the Scheme would no longer be available to any and every person. Objections can be raised by shareholders holding 10% or more equity and creditors whose debt represent 5% or more of the total debt as per the last audited financial statements. By raising the bar, the new law aims to ensure that the frivolous objections/litigation can be avoided.
5. Accounting Standards⁹: As a matter of practice, frequently the Scheme provided for accounting treatment that would deviate from the prescribed accounting standards necessitating a note to this effect in the balance sheet of the company. This was frowned upon by the tax authorities. Consequently, in case of listed companies, the listing agreement was amended to provide that an auditor's certificate stating that the accounting treatment is in accordance with the accounting standards was required to be filed for seeking approval of the stock exchanges. The 2013 Act makes such prior certification from an auditor mandatory for both listed and unlisted companies.
6. Merger of a listed company into an unlisted one:¹⁰The 2013 Act specifically provides for the Tribunal's order to state that the merger of a listed company into an unlisted company will not ipso facto make the unlisted company listed. It will continue to be unlisted until the applicable listing regulations and SEBI guidelines in relation to allotment of shares to public shareholders are complied with. Further, in case the shareholders of the listed company decide to exit, the unlisted company would facilitate the exit with a pre-determined price formula which shall be within the price specified by SEBI regulations. The Indian securities law prescribes strict enforcement of listing requirements by companies intending to get listed. SEBI had, however, eased these requirements for listed companies proposing merger by granting them exemptions from complying with the initial public offering requirements¹¹ on a case-to-case basis. Recently SEBI had issued guidelines¹² stating that if the Scheme provides for listing of shares of an unlisted company without complying with the initial public offering requirements, then, upon court approval of the Scheme, the unlisted company has to file a specific application seeking such exemption from SEBI. Such an application has to be filed upon, inter-alia, allotment of equity shares to the holders of securities of the listed company.¹³ The changes under the 2013 Act are in line with SEBI requirements. The 1956 Act was silent on this aspect.

Fast Track Mergers for special cases

Apart from the aforesaid changes, the 2013 Act provides for separate provisions for cross border mergers, merger of two small companies and that of holding with wholly-owned subsidiaries. These are described briefly below.

1. Cross-border mergers: The 1956 Act permits cross-border mergers only where the transferor is a foreign company. In contrast, the 2013 Act permits in-principle mergers between an Indian and a foreign company located in a jurisdiction notified by the central government in periodic consultation with RBI. Such a merger would be subject to RBI approval and Scheme may provide payment in cash or depository receipts or both. The payment in cash or depository receipts would facilitate exit to the shareholders of the merging entity who do not want to be a part of the merged entity. These changes reflect the legislature's intent to facilitate cross-border business. The Income Tax Act presently grants tax exemptions on mergers if the transferee is an Indian company and does not recognize a situation where the transferee will be a foreign company, as contemplated under the 2013 Act. The introduction of cross-border mergers under the 2013 Act may, therefore, require corresponding changes in other laws, including foreign exchange and tax.
2. Merger of "small companies" and holding with wholly-owned subsidiaries: Unlike the 1956 Act under which merger of all companies, irrespective of nature and size requires court approval, the 2013 Act carves out a separate procedure for small companies and the holding and wholly-owned subsidiaries. Section 233 of the 2013 Act prescribes a simplified fast track procedure for their merger which requires consent of shareholders holding 90% in value and creditors representing 9/10th of debt in value as well as approval of the Scheme by the Regional Director, Ministry of Corporate Affairs in case no objections are received from the Official Liquidator and Registrar of Companies. Approval of the Tribunal is not required for such mergers. This could be good news for the merging entities who may not be required to (i) file documents required to be filed under the listing agreement, in the case of listed companies, (ii) give notice to various authorities, (iii) provide auditor's certificate of compliance with applicable accounting standards. However, if the Regional Director is of the opinion that the Scheme is not in the interest of the stakeholders, he may approach the Tribunal who could follow the merger procedure prescribed under the 2013 Act. This ability to transfer to the Tribunal has the potential to change fast-track to a normal merger and make such mergers less appealing.

SPIN OFF

Taxability of gains arising on slump sale 

Section 50B provides the mechanism for computation of capital gains arising on slump sale. On a plain reading of the Section, some basic points which arise are :

1. S. 50B reads as ‘Special provision for computation of capital gains in case of slump sale’. Since slump sale is governed by a ‘special provision’, this Section overrides all other provisions of the Act.

2. Capital gains arising on transfer of an undertaking are deemed to be long-term capital gains. However, if the undertaking is ‘owned and held’ for not more than 36 months immediately before the date of transfer, gains shall be treated as short-term capital gains. 

3. Taxability arises in the year of transfer of the undertaking. The undertaking will be deemed to be transferred on execution of the agreement and registration thereof coupled with the handing over of possession of the undertaking to the transferee. However, if the year of the agreement of the undertaking and registration thereof and the year of its possession fall in two different previous years, then the previous year in which the possession of the undertaking is handed over to the transferee will be considered as the year of transfer.

4. Capital gains arising on slump sale are calculated as the difference between sale consideration and the net worth of the undertaking. Net worth is deemed to be the cost of acquisition and cost of improvement for S. 48 and S. 49 of the Act.

5. As per S. 50B, no indexation benefit is available on cost of acquisition, i.e., net worth.

Policy : Foreign trade promotion schemes, STPI, SEZ

IMPORTER EXPORTER CODE (IEC)

Update on FTP

1. India lost the case against United States of America (USA) in World Trade Organisation (WTO).

2. USA alleged that India is violating the provisions of Subsidies and Countervailing Measurers Agreement (SCM) by giving export rewards to its exporters in form of various schemes.

3. India needs to withdraw all the export schemes where it is rewarding the exporters through various schemes like Merchandise Export from India Scheme, Export Promotion Capital Goods, Special Economic Zone, Duty Free Imports for Exporters, EOU/BTP/EHTP Schemes etc.

4. SCM doesn’t permit the countries to give rewards to exporters where the per capita income is more than USD 1000 consecutively for three years. India has crossed this threshold in Year 2015. In 2017, the WTO notified that India’s GNI was $1,051 in 2013, $1,100 in 2014 and $1,178 in 2015.

5. However, India has filed an appeal against this decision with WTO appellate tribunal and the bench is not working due to lack of quorum.

6. It is pertinent to note that Service Export from India Scheme and Advance Authorisation Scheme has not been challenged by USA.

7. Indirect tax rebate schemes, drawbacks are allowed if these does not exceed to amount of such taxes actually levied on inputs that are consumed in the production of the exported product.

Then what is the fate of these export incentive schemes?

    Government of India has announced scheme of 

    Remission of Duties and Taxes on Exported Products (RoDTEP)

    to compensate the exporters.  It will allow reimbursement taxes and duties paid by them such as value added tax, coal cess, mandi tax, electricity duties and fuel used for transportation, which are not getting exempted or refunded under any other existing mechanism but are incurred in the process of manufacture or distribution of exported products. It seems to be India government is doing its own preparation before the decision of tribunal by giving cabinet approval to this scheme on 13th March, 2020.

    RoDTEP seems to be replacement of Merchandise Export from India Scheme (MEIS) that was found to violate the World Trade Organization Rules. However, picture will be clearer once the draft of scheme come into existence.

—  Covid -19 Impacts
Notification – 57/2015-20,
Public Notice No. -67/2015-20 and
Trade Notice No. 60/2019-20 (All dated – 31^st March, 2020)

—  FTP Validity extended to more one year i.e. 31^st March, 2021

—  RCMC validity extended from 31^st March, 2021 to 30^th September, 2020

—  SEIS for FY 2018-19 can be filed upto 31^st December, 2020

—  For SEIS for FY 2019-20 – Service Category and rate of scrips to be notified separately

—  SEIS for FY 2020-21 – Decision on continuation to be taken subsequently

Governing act of Foreign Trade Policy 2015-2020 is The Foreign Trade (Development and Regulation) Act, 1992.(Hereinafter Referred As ‘FTDRA, 1992’)

—  However, India has lost case against USA in WTO and the fate of all export incentive schemes are in danger. Fortunately, SEIS scheme has not been challenged by USA

—  Let us understand about the Service Export from India Scheme in Frequently Asked Questions (FAQ) format.

—  What is ‘Service’? (Para – 9.50)

—  “Service” Includes all tradable services covered under General Agreement on Trade in Services (GATS) and earning Free Foreign Exchange

—  The GATS define services in four ‘modes’ of supply: cross-border trade, consumption abroad, commercial presence, and presence of natural persons.

—  Who is a ‘Service Provider’ Under Foreign Trade Policy 2015-20?

As per Para 9.51 of FTP, Service Provider means a person providing:

      (i)            Mode1- Cross border trade - Supply of a ‘service’ from India to any other country e.g. BPO/KPO/ITES services, consultancy etc.

    (ii)            Mode 2- Consumption abroad - Supply of a ‘service’ from India to service consumer(s) of any other country e.g.: tourism, educational services, medical treatment etc.

   (iii)             Mode 3 – Commercial Presence - Supply of a ‘service’ from India through commercial presence in any other countrye.g.: banking, hotel etc.

  (iv)            Mode 4- Presence of natural persons - Supply of a ‘service’ from India through the presence of natural persons in any other country like doctor, nurse, IT engineer etc. functioning as a consultant, employee, from one country to another. 

—  SEIS benefit is available for Mode 1 and Mode 2 only.

—  SEIS benefit is not available for Mode 3 and Mode 4.

Reward Rates:

—  As per Appendix 3D of Foreign Trade Policy 2015 - 20, reward rates for various services are as follows: -

—  What are the eligibility criteria for claiming rewards under SEIS?

—  Services rendered should fall under the definition of “Service” of “Foreign Trade Policy

—  Service Provider should have minimum Net free Foreign Exchange Earnings of US$ 15,000 and individual service providers and sole proprietorship US $ 10,000 in year of rendering service

—  Service provider must have active IEC Code at the time of rendering of services

—  Who are not eligible for claiming rewards under SEIS?

As per Para 3.09 of FTP, SEIS benefit is not allowed if the Foreign exchange remittances/sources of earnings in form of

—  Other than those earned for rendering of notified Services would not be counted for entitlement.

—  any other inflow of foreign exchange, unrelated to rendering of services, etc.

—  Export turnover relating to services of units operating under EOU / EHTP / STPI / BTP Schemes or supplies of services made to such units.

—  Related to Financial Service Sector – Foreign remittance earned through

—  Export Proceeds Realization of Clients

—  Issuance of Foreign Equity through ADRs/GDSRs or other similar instruments

—  Issuance of Foreign Currency Bonds

—  Raising all type of Foreign Currency Loans

—  Sale of Securities and other Financial Instruments

—  Other receivables not connected with services rendered by financial institutions

—  Equity or debt participation.

—  Receipts of repayment of loans.

—  Donations.

—  Earned through contract/regular employment abroad (e.g. labour remittances)

—  Export of goods

—  Clubbing of turnover of services rendered by SEZ / EOU/ EHTP/ STPI/BTP units with turnover of DTA Service Providers

—  Payments for services received from EEFC Account;       

—  Foreign Exchange earnings for services provided by Airlines, Shipping lines service providers plying from any foreign country X to any foreign country Y routes not touching India at all

—  Service providers in Telecom Sector

—  How to calculate Foreign Exchange Earnings (FEE)?
*Net Foreign Exchange Earnings = Gross Earnings of Foreign Exchange – Total Expenses/Payment/Remittances of Foreign Exchange by the IEC holder, relating to service sector in the Financial Year           

What is the effective date of scheme?

    The Rewards under MEIS/SEIS shall be admissible for exports made/services rendered on or after the date of notification of this policy.

—  What is the last date of filing of application for Duty Scrips ?

—  For SEIS, the last date for filing application shall be 12 months from the end of relevant Financial year of claim period.

—  However, if you are late – Than don’t worry – DGFT is very much liberal, they will give you incentive with a late filing cut. Incentive will be given as per below table: -

—  SEIS claim cannot be filed beyond 31^stMarch 2022 for the FY 2018-19. In nutshell, a person can file claim within 3 years of end of financial year.

—  For example if a Service Provider applied for SEIS within 6 months of expiry of due date, he will get 98% of the eligible claim but if applied with a more delay than the claim amount will get reduced to 95% to 90% depends upon when he has applied.

—  Let us understand by an example – For the FY 2018-19, due date for filing application for reward under SEIS scheme is 31^stMarch 2020

—  If claim is filed after 31^stMarch 2020 but before 30^thSeptember 2020 – He is eligible for 98% of rewards.

—  If claim is filed between 1^stOctober 2020 to 31^stMarch 2021 – He is eligible for 95% of rewards

—  If claim is filed between 1^stApril 2021 to 31^stMarch 2022 – He is eligible for 90% of rewards

Government Proposal in 2020 and going forward

• Proposal to discontinue SEIS as it has not helped India in "increase shipments positively".
•  Proposal to discontinue this SEIS in its current form. There is view that it has not helped us to increase our exports positively,
• He said that industry has to get out of the mind set of subsidies as they are detrimental to India's long-term interests.
• Only 2200 Companies take that take that subsidy. Some of them are such large names, making 1000s of crores of rupees of profit, that there is no business of giving them a subsidy," he said.
• The minister wondered that if those big companies do not get this subsidy, will they stop providing those services.
• He suggested that the subsidy can be used to promote sectors like tourism."...tourism...has huge untapped potential... which are the areas where we need targeted support for a defined time frame to get better value addition," he added.

Where SEIS Scrip Can be Used?
In payment of taxes like customs duties, excise duties, service tax on the procurement of services, exchange duties and other.

Scrips cannot be utilized for payment of GST.

Scrips are transferable.

There is no GST on sale of scrips.

   What is the validity of the Scrips?

   These credit Scrips are valid for a term of 24 months from the date of its issuance.(Public Notice No. 33/2015-2020 dated 23.10.2017)

    Issuing hard copy of physical duty credits scrips had been discontinued w.e.f. 10.04.2019 and made it online for easy of doing business as per Trade Notice No.03/2015-2020 dated 03.04.2019

—  What are the points to be Ponder?

—  Directorate General Foreign Trade (DGFT) Headquarter randomly select 10% of cases through computer system for each Regional Authority (RA) where scrips have already been issued, under each scheme.

—  Documents to be maintained for the period of three years from the issuance of scrips as Regional Authority may ask for original proof of landing certificate, annexures attached to the application form or any other document.

—  Government views on SEIS –
Commerce Minister Piyush Goyal Proposes to discontinue export incentives for services exports under SEIS in present form

• Proposal to discontinue SEIS as it has not helped India in "increase shipments positively".
•  Proposal to discontinue this SEIS in its current form. There is view that it has not helped us to increase our exports positively,
• He said that industry has to get out of the mind set of subsidies as they are detrimental to India's long-term interests.
• Only 2200 Companies take that take that subsidy. Some of them are such large names, making 1000s of crores of rupees of profit, that there is no business of giving them a subsidy," he said.
• The minister wondered that if those big companies do not get this subsidy, will they stop providing those services.
• He suggested that the subsidy can be used to promote sectors like tourism."...tourism...has huge untapped potential... which are the areas where we need targeted support for a defined time frame to get better value addition," he added.

Foreign trade policy for 2015-2020 

The government has unveiled its foreign trade policy (FTP) for five years from 2015 to 2020 on 1st april 2015.

 Unveiling the policy, Commerce Minister Nirmala Sitharaman said the new policy would boost exports and create jobs while supporting the Centre’s 'Make In India' and 'Digital India' programmes. “Export obligation under the export promotion capital goods scheme will be reduced by 25% to promote domestic manufacturing."

FTP would focus on defence, pharma, environment-friendly products and value-added exports, she said, adding: “The govt will continue to incentivise units located in special economic zones... With a focus on employment-creating sectors, the government will promote e-commerce."

Later in a series of tweets, Sitharaman said the latest FTP was introducing two new schemes — "Merchandise Exports from India Scheme (MEIS) and "Services Exports from India Scheme (SEIS). Under MEIS, a higher level of support would be provided to processed and packaged agricultural and food items. And, agricultural and village industry products would be supported across the globe at the rates of 3% and 5%.