What is a Special Economic Zone?

What is a Special Economic Zone?

Industry Insights · 3 minute read

A Special Economic Zone (SEZ) is a designated area in a country that has different economic and legal systems than the rest of the country. These zones are designed to encourage investment, trade, and employment opportunities within a country's borders.

Special Economic Zones are becoming increasingly popular as businesses continue to take advantage of the benefits they offer and provide jobs and revenue to the countries that establish them. According to the IMF, there are nearly 5,400 SEZs (PDF) worldwide.

Here, we’ll explore SEZs and discuss some of the key benefits they provide businesses. We will also look at the history of Special Economic Zones and see how they have evolved.

The History of Special Economic Zones

The concept of the Special Economic Zone (SEZ) can be traced back to the mid-20th century when certain areas were designated as “Free Trade Zones” or “FTZs.” In some cases, FTZs are referred to as “Foreign Trade Zones.”

FTZs were similar to SEZs in that they had different rules for businesses. However, they were typically designed to be considered outside the customs area for duty and tax exemptions. Most FTZs were developed to benefit import and export businesses.

In modern times, SEZs offer benefits for import and export businesses but also for general businesses that want to establish headquarters offshore. SEZs have seen a resurgence in both popularity and number, with countries around the world leveraging them to attract foreign investment.

Today, there are thousands of Special Economic Zones worldwide, including those in China, India, and other nations in Asia, as well as countries in Europe, Latin America, and the Caribbean. These zones offer attractive tax incentives and relaxed regulations, which make them appealing to businesses looking to establish operations abroad.

The Benefits of Special Economic Zones

Special Economic Zones (SEZs) feature preferential economic and trade regulations. These zones aim to promote economic development by providing incentives for businesses to invest in the region. 

SEZs are often located near ports or airports, providing companies with easy access to global markets. Additionally, foreign investors may find it easier to operate in countries that have SEZs, resulting in more foreign direct investment. 

Generally, businesses in SEZs benefit from tax breaks, relaxed customs procedures, and access to financing. Additionally, infrastructure such as utilities, transportation links, and other services may be built or improved to support businesses located in the zone. Businesses that choose to locate themselves within an SEZ can benefit from substantial reductions in operational costs.

SEZs provide benefits to the countries that establish them as well. By providing these advantages, SEZs can help attract more investment and create more jobs in the region. SEZs can also help countries reduce income inequality by providing opportunities for economic growth and employment. 

This makes SEZ designation particularly attractive to developing countries or countries in economic zones that are less centralized.

The AZUR SEZ in Anguilla

Businesses hoping to take advantage of tax benefits, low operational costs, and a cost-effective means of setting up business globally should consider establishing themselves in the AZUR SEZ in Anguilla. AZUR makes it easy to establish a business via its virtual city without the need for a robust physical presence in the zone.

To learn more about opportunities at AZUR, contact us today.

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