Whether EEFC account can be opened by special economic zone units?

Exchange earners foreign currency account (EEFC) is an account maintained in foreign currency with an authorised dealer i.e. a bank dealing in foreign exchange. It is a facility provided to the foreign exchange earners, including exporters, to credit 100% of their foreign exchange earnings to the account, so that the account holders do not have to convert foreign exchange into rupees and vice versa, thereby minimising the transaction costs. But when the question arises that whether EEFC account can be opened by Special Economic Zone units, then the answer is big No.

All categories of foreign exchange earners, such as individuals, companies, etc. who are resident in India, can open EEFC accounts. Special economic zone (SEZ) units cannot open EEFC accounts. But, a unit located in an SEZ can open a foreign currency account with an authorised dealer in India subject to certain conditions. SEZ developers can open EEFC Accounts.

An EEFC account can be held only in the form of a current account. Cheque facility is available for operation of the EEFC account. No interest is payable on EEFC accounts. 

Up to 100% foreign exchange earnings can be credited to the EEFC account. However, the sum total of the accruals in the account during a calendar month should be converted into rupees before the last day of the succeeding calendar month after adjusting for utilization of the balances for approved purposes or forward commitments.

Let me describe a few about Special Unit Zone also;

The Special Economic Zone (SEZ) policy in India first came into inception on April 1, 2000. The prime objective was to enhance foreign investment and provide an internationally competitive and hassle free environment for exports. The idea was to promote exports from the country and realising the need that level playing field must be made available to the domestic enterprises and manufacturers to be competitive globally.

 Legislation has been passed permitting SEZs to offer tax breaks to foreign investors. Over half a decade has passed since its inception, but the SEZ Bill has certain drawbacks due to the omission of key provisions that would have relaxed rigid labour rules. This has lessened India's chance of emulating the success of the Chinese SEZ model, through foreign direct investment (FDI) in export-oriented manufacturing.

The policy relating to SEZs, so far contained in the foreign trade policy, was originally implemented through piecemeal and ad hoc amendments to different laws, besides executive orders. In order to avoid these pitfalls and to give a long-term and stable policy framework with minimum regulation, the SEZ Act, '05, was enacted. The Act provides the umbrella legal framework, covering all important legal and regulatory aspects of SEZ development as well as for units operating in SEZs. 

Since the rules will take care of many issues, the Special Economic Zone Act is likely to take some more time and the government is unlikely to notify them before September 1. The commerce and industry ministry is examining the domestic industry's comments on draft SEZ rules. A meeting of development commissioners of all SEZs will be convened soon to discuss the changes that need to be incorporated before they are notified to be placed before the parliament for final approval.

The objective of the SEZ Act was to create a hassle-free regime and the rules would be formulated keeping this in mind. The ministry is also holding talks with state governments as they have to play an important role in the development of SEZs.

What is a Special Economic Zone(SEZ)?

Special Economic Zone (SEZ) is a specifically delineated duty-free enclave and shall be deemed to be foreign territory for the purposes of trade operations and duties and tariffs. In order words, SEZ is a geographical region that has economic laws different from a country's typical economic laws. Usually the goal is to increase foreign investments. SEZs have been established in several countries, including China, India, Jordan, Poland, Kazakhstan, Philippines and Russia. North Korea has also attempted this to a degree. 

Some of the permissible credits into EEFC account

i) Inward remittance through normal banking channels, other than remittances received on account of foreign currency loan or investment received from abroad or received for meeting specific obligations by the account holder;

ii) Payments received in foreign exchange by a 100% export oriented unit;

iii) Payments received in foreign exchange by a unit in the domestic tariff area for supply of goods to a unit in the SEZ;

iv) Payment received by an exporter from an account maintained with an authorised dealer for the purpose of counter trade. (Counter trade is an arrangement involving adjustment of value of goods imported into India against value of goods exported from India);

v) Advance remittance received by an exporter towards export of goods or services;

vii) Professional earnings including directors fees, consultancy fees, lecture fees, honorarium and similar other earnings received by a professional by rendering services in his individual capacity;

viii) Re-credit of unused foreign currency earlier withdrawn from the account;

ix) Amount representing repayment by the account holder's importer customer, of loan/advances granted, to the exporter holding such account; and

x) The disinvestment proceeds received by the resident account holder on conversion of shares held by him to ADRs/GDRs under the Sponsored ADR/GDR Scheme approved by the Foreign Investment Promotion Board of the government of India.

Foreign exchange earnings received through an international credit card for which reimbursement has been made in foreign exchange may be regarded as a remittance through normal banking channel and the same can be credited to the EEFC account. There is no restriction on withdrawal in rupees of funds held in an EEFC account. However, the amount withdrawn in rupees will not be eligible for conversion into foreign currency and for re-credit to the account.

Some of the permissible debits into this account :-

i) Payment outside India towards a permissible current account transaction [in accordance to the provisions of the Foreign Exchange Management (Current Account Transactions) Rules, 2000] and permissible capital account transaction [in accordance to the Foreign Exchange Management (Permissible Capital Account Transactions) Regulations, 2000].

ii)  Payment in foreign exchange towards cost of goods purchased from a 100 percent Export Oriented Unit or a Unit in (a) Export Processing Zone or (b) Software Technology Park or (c) Electronic Hardware Technology Park

iii) Payment of customs duty in accordance with the provisions of the Foreign Trade Policy of the Central Government for the time being in force.

iv) Trade related loans/advances, extended by an exporter holding such account to his importer customer outside India, subject to compliance with the Foreign Exchange Management (Borrowing and Lending in Foreign Exchange) Regulations, 2000.

v) Payment in foreign exchange to a person resident in India for supply of goods/services including payments for airfare and hotel expenditure.

Can foreign exchange earnings received through an international credit card be credited to the EEFC account - 

 Yes, foreign exchange earnings received through an international credit card for which reimbursement has been made in foreign exchange may be regarded as a remittance through normal banking channel and the same can be credited to the EEFC account.

 CONCLUSION-

Thus, I would like to conclude my article here and I have cleared that EEFC account cannot be opened by Special Economic Zone Units and gave a brief about EEFC account and Special Economic Zone too and I have added some of the permissible debits and credits points which come under EEFC account.