Import Export License For Msmes And Startups: Why It Matters
Introduction
With the advent of twenty-first century came industrialization followed by boom in Globalisation, which later saw its presence after Liberalisation, Privatisation and Globalisation Reforms (LPG reforms) of 1991, which ultimately opened the gates unprepared Indian market. But it did open other opportunity for Indian sellers to go global beyond the domestic boundary. In today’s global economy, expanding ones’ business beyond domestic borders can open up new opportunities and markets. However, to legally engage in international trade, having an Import and Export License is crucial. Whether you’re importing raw materials or exporting finished goods, this license ensures that your business complies with the regulations of international trade. In this blog post, we will explain why an import-export license is essential, the benefits it brings, and the documents required to obtain it.
WHAT IS AN IMPORT AND EXPORT LICENSE?[1]
An Import and Export License is a government-issued permit that allows businesses to legally import and export goods across international borders. In India, this license is provided by the Directorate General of Foreign Trade (DGFT), which operates under the Ministry of Commerce and Industry. The license ensures that your business adheres to national and international trade laws, meets regulatory requirements, and complies with foreign exchange regulations.
IMPORT LICENSE VS. EXPORT LICENSE IN INDIA[2]
Import and export licenses in India serve distinct purposes in regulating international trade. Both licenses are essential for businesses engaged in import and export activities, but they differ in their requirements and application processes. Understanding these differences helps businesses comply with trade regulations and ensures smooth operations.
Import license:
Requirement: Required for bringing goods into India.
Purpose: Regulates the import of restricted and sensitive goods.
Issuing authorities: Issued by various governmental departments based on the product category.
Export license:
Requirement: Needed for sending goods out of India.
Purpose: Controls the export of restricted and sensitive goods.
Issuing authorities: Managed by governmental agencies specific to the product category.
WHAT IS THE PURPOSE OF AN IMPORT AND EXPORT LICENSE?[3]
An import license serves the purpose of regulating the entry of goods into a country. It ensures that imported goods meet safety, quality, and regulatory standards, protecting consumers and the domestic market. The license also helps in monitoring and controlling the import of restricted or sensitive goods. Whereas an export license regulates the export of goods from a country, ensuring that all exported products meet the required safety, quality, and regulatory standards. It controls the export of sensitive or restricted goods, protecting national security and complying with international trade agreements.
- Monitor trade: Helps in monitoring and tracking the import of goods.
- Regulate entry and exit: Controls the import of goods into the country.
- Ensure standards: Ensures imported goods meet safety and quality standards.
- Control restricted goods: Regulates the import of restricted or sensitive items.
- Consumer protection: Protects consumers from substandard or harmful products.
- National security: Protects national security by regulating the export of sensitive goods.
- Comply with agreements: Ensures compliance with international trade agreements and regulations.
WHY AN IEC IS IMPORTANT FOR AN EXPORTER/IMPORTER?
Given the existing export-import policy, no entities could enter into the business of global trading unless they possess an IEC number. The IEC number act as a green card for startups and business willing to enter into exporting business. IEC number is required to be mentioned in the shipping bill while exporting goods outside India. It is important to note down that the IEC is issued by the Directorate General of Foreign Trade (DGFT[1]) Organization.[4]
- Legality of International Trade Activities
Having an import and export license is a legal requirement for any business that deals with foreign trade. It ensures that operations are in compliance with government regulations and international trade laws. Without a valid license, imports or exports can be detained at customs, leading to costly delays and legal issues.
- Access to Global Markets
The license is a gateway for businesses to enter and expand into international markets. It allows you to import goods for resale, raw materials for production, or export your products to foreign clients. Obtaining an import-export license opens up opportunities for cross-border trade and makes it easier to enter lucrative international markets.
- Tax Benefits and Exemptions
Having an import-export license may qualify for several tax benefits and exemptions under the Foreign Trade Policy. This includes the Export Promotion Capital Goods (EPCG) scheme, and Duty Drawback Scheme, which allows businesses to recover the customs duties paid on imported goods used in the manufacturing of exported products. This can significantly reduce operational costs and enhance profitability, especially for businesses engaged in large-scale manufacturing or export.
- Streamlined Customs Clearance
An import-export license facilitates the smoother clearance of goods at customs. With the necessary documentation, your shipments are less likely to be delayed, ensuring timely delivery to your customers. Faster customs clearance means more efficient supply chain management, reducing costs related to storage and handling.
- Build Credibility with Suppliers and Customers
An import-export license is a mark of credibility. Suppliers and customers are more likely to trust and engage with businesses that are properly licensed and compliant with international trade laws. Display your import-export license prominently in your marketing materials and online presence to gain customer confidence.
- Increased Business Opportunities
Many international buyers or suppliers will only work with businesses that hold a valid import-export license. Being licensed can increase your business’s access to global trade networks and open up more opportunities for growth. Networking at international trade shows or joining trade associations becomes easier with the credibility of a proper license.
- Risk Mitigation and Compliance
The import-export license ensures that your business is operating within the legal framework of the country. This reduces the risk of fines, penalties, and other legal challenges that can arise from non-compliance with trade regulations. With the ever-changing landscape of global trade regulations, having the right license ensures you’re not caught in legal or regulatory disputes.
- Foreign Exchange Benefits
Import-export licenses allow your business to deal with foreign currencies, manage foreign exchange risk, and engage in global financial transactions. This is especially beneficial if you plan to scale your business to international markets. Proper documentation ensures that your transactions are transparent and compliant with foreign exchange regulations, minimizing risks associated with currency fluctuations.
- No Maintenance Charges[5]
Once successfully availed the IEC from the relevant authority, you don’t have to worry about entertaining additional charges for its maintenance. Moreover, it also must be noted that IEC registration is free from any applicable hidden charges. The only cost one needs to address is when you applied for this code. IEC for Startup doesn’t impose any requirement for additional or maintenance fees.
- Merchandise Exports from India Scheme (MEIS)
Through this scheme, the startups can avail rewards to offset the overhead cost and infrastructural inefficiencies. The MEIS scheme is essentially launched as an incentive scheme to boost the exporting activities within the country. The MEIS scheme is all about the Duty Credit Scrips that helps in:-
- Paying basic & additional customs duty prescribed u/s 3(1), 3(3), and 3(5) of the Customs Tariff Act, 1975, for importing of input as well as capital goods, expect items enlisted in Appendix 3A.
- Paying central excise duties on the inputs procured domestically.
- Paying basic & additional custom duty mentioned u/s 3(1), 3(3) and 3(5) of the Customs Tariff Act, 1975 & fees prescribed under paragraph 3.18 of this Policy.
- Service Exports from India Scheme (SEIS)
Service Exports from India Scheme (SEIS) essentially intends to facilitate the export of service from our country by rendering duty scrip credit for eligible exports. As per the scheme, service providers from Indian Territory would be eligible to avail of reward under the SEIS scheme, for all
DOCUMENTS REQUIRED FOR IMPORT AND EXPORT LICENSE[6]
To apply for an Import and Export License (IEC Code), businesses need to provide a few essential documents. Here’s a list of the documents required for the application:
- PAN Card of the Business: A Permanent Account Number (PAN) card is mandatory for obtaining an IEC code, as it verifies the business entity’s identity.
- Proof of Business Address: This includes a copy of the business’s address proof, such as a rental agreement, electricity bill, or property tax receipt.
- Bank Account Details: A cancelled cheque or a bank certificate confirming your business’s account details is required for IEC registration.
- Identity Proof of the Business Owner/Directors: A copy of the Aadhar card, Passport, or Voter ID of the owner or directors is needed for verification.
- Partnership Deed or Certificate of Incorporation: For partnership firms, a partnership deed is required. For companies, a certificate of incorporation from the Registrar of Companies (ROC) is necessary.
- GST Registration: GST registration details are often required, as it is essential for conducting business and handling taxes on both imports and exports.
- Company’s Memorandum and Articles of Association (MoA and AoA): For companies, submitting the MoA and AoA can be required as part of the application.
- Authorization Letter: If you appoint someone to apply on your behalf, you need to submit an authorization letter authorizing them to represent your business.
- Passport-Sized Photographs: Recent passport-sized photographs of the business owner and directors are also required for verification purposes.
[1] https://taxindiafirm.com/why-chennai-is-the-perfect-hub-for-new-businesses-startups-5/
[2] https://www.bajajfinserv.in/import-export-license
[3] https://www.bajajfinserv.in/import-export-license
[4] https://corpbiz.io/learning/how-the-iec-for-startup-could-be-beneficial-in-india/
[5] https://corpbiz.io/learning/how-the-iec-for-startup-could-be-beneficial-in-india/
[6] https://taxindiafirm.com/why-chennai-is-the-perfect-hub-for-new-businesses-startups-5/
