Introduction
Gujarat International Finance Tec-City (��GIFT City”) located at Gandhinagar, Gujarat is India’s first International Financial Service Centre (“IFSC”) and the first operational smart city designed with an unequivocal focus to be a game-changer for India’s financial services market aims at becoming a global financial hub at par with international financial zones.With an objective to “onshore the offshoring of business”, the idea of GIFT City was envisaged back in 2008 and became operational in 2015. The simplified regulations bundled with various tax & other advantages offer an inviting ecosystem making it a promising destination for both local and global investors. With a specific attention on financial services, it also becomes a propitious landscape for both domestic and international financial giants.
An IFSC is a specific location within the mainland of the country treated as a foreign location with an intent to enable global business offering a worldwide regulatory regime. IFSC at GIFT City gives an opportunity to global and domestic businesses to set up a company, limited liability partnership, subsidiary in the GIFT City under various business verticals including but not limited banking, insurance, stock exchange, alternate investment funds, aircraft leasing, ship craft leasing, etc.
Investment in GIFT City: Game-changer for Investing in India
- Unified Regulator & Single Window Clearance
IFSC in India are governed by a unified regulator named IFSC Authority (“IFSCA”) which encompasses regulatory powers of four financial services regulators in India namely Reserve Bank of India (“RBI”), Securities Exchange Board of India (“SEBI”), Insurance Regulatory Development Authority of India (“IRDAI”), Pension Fund Regulatory & Development Authority of India (“PFRDAI”) enabling it to provide single window clearance for all necessary approvals under one umbrella in an easy manner.
- State-of-the-art infrastructure & easy setting up
The spectacular and unparalleled urban planning done by the Government of Gujarat and Government of India gives heads up to the next- gen ‘plug & play’ infrastructure, facilitating quick and hassle-free business setup with all the infrastructural clearances in place.
- GIFT City Special Economic Zone(“SEZ”)
The SEZ is created to encourage exports and foreign investment especially for multinational corporations. SEZ offers benefits to the businesses operating in this zone, including duty-free imports and exports, easy regulatory processes, tax benefits. GIFT City is the first IFSC in India and to make it all the more alluring and enticing the Government of India also declared it as a SEZ.
- Deemed Foreign Jurisdiction
GIFT IFSC has been designated as a foreign jurisdiction of a non-resident zone under the Foreign Exchange Management Act (“FEMA”) Regulations enabling affability for carrying out foreign exchange transactions in liberal manner. The entities setup in the GIFT IFSC can transact in, retain, repatriate the foreign currencies without limitations which are otherwise applicable to the mainland India.
- Easy movement of foreign capital
The offshore status of the GIFT IFSC bundled with various relaxations and less restrictive financial regulations makes it an attractive destination for foreign investors allowing unrestricted movement of fund invested in the form of repatriation of profits, dividends and investments back to the home country of the foreign investors.
- Liberal policies and business friendly regulatory framework
The regulatory regime of GIFT IFSC is formulated to parallel the best practices accepted globally facilitating flexibility and reduced compliance burden. Amongst the plethora of such benefits a few noteworthy relaxations includes exemption to non-residents from obtaining permanent account number (“PAN”) or filing return of income in India in certain circumstances.
- Tax Benefits in GIFT IFSC
- Tax benefits to the IFSC Units setup in GIFT City:
The IFSC units setup in the GIFT City, India offers various tax benefits like exemptions on corporate tax, tax holiday for ten years, reduced Minimum Alternative Tax (“MAT”) etc increasing the profitability and hence growth of the business houses.
It also offers numerous indirect tax benefits such as no Goods and Service Tax (“GST”) on services received by unit in IFSC, no GST on services provided to IFSC units / SEZ units / offshore clients. If the services are provided to the Domestic Tariff Area of mainland India then the GST is applicable under Reverse Charge Mechanism.
2. Tax benefits to the Investor investing in IFSC GIFT City:
The investor investing in the GIFT IFSC gets numerous fiscal benefits including but not limited to the benefits such as interest income paid to non-residents on money lent to IFSC units in GIFT city are exempted from tax, transfer of specified securities listed on IFSC exchanges by non-residents are not treated as a transfer and hence gains arising from such transfers are not treated as capital gains and are taxable in India , exemption from Securities Transaction Tax (“STT”) , exemption from Commodity Transaction Tax (“CTT”), dividend received by investor in IFSC unit is subjected to concessional rate of tax, no GST on transactions carried out in IFSC exchanges.
- Various financial benefits and incentives
The Government of Gujarat provides various state incentives in the form of financial incentives support schemes to attract companies and investors to GIFT IFSC. These incentives include grants, subsidies, and reduced operational costs due to OPEX support, CAPEX support, employment generation incentives. The government has also announced various state level incentives and subsidies to Information Technology (IT) and Information Technology Enabled Services (ITeS) Companies.
- Global IT & financial hub
GIFT City India provides distinguished benefits to the financial, IT/ ITeS companies making it a pivotal bedrock at par with the various global financial and IT hubs. GIFT City is a vision of the Government of India and Gujarat aiming to serve as a centre for global banking, trade, and business.
- Benefits of GIFT City for startups
To promote the innovation of ideas and entrepreneurship IFSC-GIFT City provides dedicated FinTech sandboxes and requisite startup friendly environment with an aim to shape and fulfill the aspirations and ambitions of start-ups and entrepreneurs.
- Exemptions under the Companies Act of India for the companies set up GIFT IFSC
There are various exemptions and relaxations given to the companies being setup in the GIFT IFSC with respect to the regulatory requirements under Companies Act in India. Few are enumerated as follows:
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- The requirement of having minimum one resident director is waived in a company setup in GIFT IFSC, making it more empirical for the foreign entities to set up in India with the management people they are familiar with;
- Exemption for applicability of secretarial standard which lays down the procedural aspect of in relation to the board meeting and general meeting;
- Relaxation in compliance with regards to loans, advances, guarantees and investment by the companies setup in GIFT IFSC;
- Exemption in relation to appointment of internal auditor.
Conclusion
The Government of India recognizes and reinforces that tapping the global capital and global market are the key drivers for the development of businesses across the borders and plays a pivotal role in the overall economic growth and to strengthen the position of the country in the global economy.
GIFT City accoutered with immense potential and growth opportunities is a magnum opus of the Government of India. Setting up a business entity at GIFT City will help international and domestic businesses to capitalize on the above-mentioned benefits and strategically unlock the growth opportunities and thrive in dynamic and conducive environment offered by the GIFT City.
Author: Guneet Mayall (Senior Associate)