A finance and technology GIFT to investors

The Gujarat International Finance Tec-City (GIFT City) was conceived as an International Financial Services Centre (IFSC), offering international connectivity and a business-friendly environment. It is the only greenfield smart city in India set up as a multi-service special economic zone (SEZ) and is regulated by the IFSC Authority (IFSCA). It is both a conduit and a destination for foreign direct investment (FDI). The IFSCA oversees all financial institutions, ahead of bodies such as the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI).

The government offers a 100% income tax exemption for 10 consecutive years out of 15. Minimum alternate and alternate minimum taxes are charged at 9% of book profits. No goods and services tax (GST) applies to transactions through IFSC exchanges and there are exemptions from various taxes and stamp duty. A single-window online registration and approval system eases doing business. Transactions must be in a foreign currency, but administrative and statutory expenses can be paid in rupees. Investors may use the liberalised remittance scheme by opening a foreign currency account in the IFSC.

Several sectors benefit from being within the IFSC. The IFSC (Banking) Regulations, 2020 set out bank establishment and operation. Indian and foreign banks can set up branches, and foreign banks without a presence in India may set up an IFSC banking unit. The IFSCA (Capital Market Intermediaries) Regulations, 2021 enable registered distributors to sell capital market products and services globally and offer services in other jurisdictions. Memorandums of understanding between the IFSCA and the Monetary Authority of Singapore (MAS) have led to technical and supervisory collaboration in financial services, including stock exchanges. The NSE IFSC-SGX Connect is a milestone in cross-border capital market collaboration.

The IFSC (Fund Management) Regulations, 2022 allow investors and promoters to invest globally in listed and unlisted securities and other financial products and take advantage of various tax benefits. Alternative investment funds enjoy lower operating costs, unlimited outbound investments and the ability to borrow funds and to leverage. The IFSC (Insurance Intermediary) Regulations, 2021 allow new entities to offer insurance, with special outreach to global investors, enhancing FDI. Insurance intermediaries such as brokerages, who bring customers and insurance firms together, are allowed 100% foreign investment.

The IFSCA has a framework for aircraft operating leases, showing the government’s determination that India has its own leasing and financing structure. Non-resident lessors are exempted from taxes on royalties and interest income from leasing aircraft through units in IFSC, provided they begin operations by 31 March 2024. The IFSCA also has a ship acquisition, financing and leasing mechanism. Entities in the IFSC intending to lease a ship first register as finance companies or units under the IFSCA (Finance Company) Regulations, 2021. An entity can thus set up operations as a company, LLP, trust or branch.

The IFSCA has in place fintech incentives. Startups and others using the GIFT’s regulatory sandbox are recognised by the Department for Promotion of Industry and Internal Trade. A fintech co-operation agreement has been signed between the IFSCA and the MAS. Google announced in June 2023 the setting up of a global fintech operation centre in the GIFT, focusing on AI.

The IFSC (Bullion Exchange) Regulations, 2020 have enabled the opening of India’s first bullion exchange, the India International Bullion Exchange, easing the import of gold by jewellers. The IFSCA (Global In-House Centres) Regulations, 2020 are a framework for the recognition and operation of such centres in the GIFT IFSC.

With many students going abroad for further education, the IFSCA (Setting up and Operation of International Branch Campuses and Offshore Education Centres) Regulations, 2022 allow foreign universities and educational institutions to set up international branches and offer attractive investment opportunities.

The GIFT has seen a significant inflow of FDI, some USD102 million, mostly in the present financial year. This proves the growing confidence of foreign investors in the GIFT as an international financial hub.

Rohit Jain is the managing partner and Kunal Sharma is a partner at Singhania.