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GIFT City: Guide to Investing in India’s Financial Crown Jewel
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by Varun Kalsi, Director, Global Head of Legal and Business Solutions, and Nikita Sayam, Assistant Vice President, Legal and Business Solutions, Lighthouse Canton
The Gujarat International Finance Tech-city (‘GIFT’) SEZ, established in 2007, holds the distinction of being India's sole International Financial Services Centre (IFSC). GIFT City offers many opportunities to investors, including attractive tax benefits, a flexible regulatory framework, access to global and domestic markets, and many more.
What is an IFSC?
An International Financial Services Centre (IFSC), as envisioned within the Indian framework, serves as a specialized jurisdiction with a unique mandate. It is designed to offer financial services to both non-residents and residents of India, exclusively in currencies other than the Indian Rupee (INR). Furthermore, it aims to bring under its umbrella the financial services transactions traditionally conducted outside India by international financial institutions, as well as the overseas branches and subsidiaries of Indian financial institutions. Essentially, an IFSC is strategically positioned within India, yet it operates with the ecosystem advantages akin to an offshore financial hub, making it a critical player in the global financial services landscape.
In India, the establishment and operation of an IFSC requires approval under the Special Economic Zones Act, 2005 by the Central Government. This oversight extends across multiple regulatory bodies, including the Reserve Bank of India (RBI), the Securities and Exchange Board of India (SEBI), and the Insurance Regulatory and Development Authority of India (IRDAI). Further strengthening this regulatory framework, the International Financial Services Centres Authority Act of 2019 (IFSCA Act) was enacted, culminating in the creation of the International Financial Services Centres Authority (IFSCA) in 2020. Tasked with developing and regulating the financial services market within IFSCs, the IFSCA has since introduced a suite of rules and regulations, such as the International Financial Services Centres Authority (Fund Management) Regulations, 2022 (IFSC Regulations). The IFSC Regulations are specifically designed to oversee the registration and operational standards of Fund Management Entities (FMEs), applying these standards to IFSCs across India, including the pioneering GIFT City, thereby ensuring a structured and secure financial services ecosystem.
Fund Management Entities
A Fund Management Entity (FME) is an entity that has obtained registration with the IFSCA in accordance with the specified categories outlined in the IFSC Regulations. This registration places the FME directly under the supervision of the IFSCA, granting it the capability to perform a wide range of fund management activities within an IFSC under a unified registration framework. Lighthouse Canton Capital (DIFC) Pte. Ltd. (IFSC Branch), which is a branch of Lighthouse Canton’s Dubai office is a registered FME in GIFT City.
General advantages of investing in GIFT City
GIFT City stands out as a prime destination for investment and financial operations, offering a suite of unparalleled benefits underpinned by the Indian regulatory and tax frameworks. It has a harmonious blend of fiscal incentives, operational efficiency, and a solid regulatory environment, all designed to facilitate seamless financial transactions and growth.
The general advantages are:
Enhanced tax advantages under Section 80 LA of the Indian Income Tax Act, 1961, with a 10-year favourable tax regime including exemptions and concessions
Reduced operational expenses compared to establishing an offshore family office
Robust regulatory and legal framework enhanced by the proactive engagement of the IFSCA, committed to transparent dialogue on operational guidelines and regulations in GIFT City for clear regulatory compliance
Comprehensive financial ecosystem encompassing banks, insurance, capital markets, legal and consultancy services.
Access to local skilled professionals with exposure to offshore markets.
Exclusive zone in India allowing offshore transactions exempt from Indian foreign exchange regulations.
Who can Invest in a GIFT City unit?
A person resident outside India
A non-resident Indian/NRI
A person resident in India (such as a private limited company or LLP) by way of contribution to an investment fund/ vehicle set up in GIFT City as Overseas Portfolio Investment (OPI) up to 50% of their net worth
1 as on the date of its last audited balance sheet
A resident individual in India up to USD 250,000 (Liberalized Remittance Scheme limit) per financial year (April1st to March 31st).
Eligibility to invest/minimum investment requirements:
The eligibility criteria and minimum investment threshold for an investor looking to participate in a GIFT City unit varies based on the investor's role and accreditation status.
For employees or directors of the unit or its manager, the investment floor is set at USD 40,000.
Other investors (except accredited investors – discussed below) are required to invest a minimum of USD 150,000.
Accredited Investors
Investors who are considered to be better aware of and have wherewithal to withstand the risks emergent from their investments. The IFSCA has provided the following eligibility criteria for Accredited Investors in IFSCs:
Individuals, sole proprietorships, one person companies, and any other legal form comprising of only a natural person meeting any of the following criteria:
** value of the individual’s primary residence will not be included.
*** “financial assets” means and includes: (i) investments in capital market products, as defined under Circular dated December 21, 2022 bearing F. No.817/IFSCA/Distribution/2022-23, issued under International Financial Services Centres Authority (Capital Market Intermediaries) Regulations, 2021; (ii)demand and time deposits with banks and financial institutions in IFSC, India or in any foreign jurisdiction, wherein the value of these deposits shall be considered to be lower of the actual value or USD 100,000; (iii) any other assets specified by IFSCA.
**** To be considered as an investment by an Accredited Investor
Hindu Undivided Families (HUFs) in India and similar such family structures in India and foreign jurisdictions, which are created solely for the benefit of the members of a single family2 ,which meet the income criteria or net asset criteria mentioned above.
Partnership firms, meeting any of the following criteria:
Trusts meeting any of the following criteria:
Body corporates (including limited liability partnerships) meeting any of the following criteria:
*“Constituent” means shareholders of a company, partners of a limited liability partnership, etc. If either the immediate constituent (shareholder / partner) or the ultimate constituent meets the applicable eligibility criteria of Accredited Investor, such body corporate may be considered to be an Accredited Investor.
Where can a Gift City unit invest its funds?
Investment avenues for a GIFT City unit encompass a broad spectrum, including securities listed in an IFSC, securities issued by companies incorporated within an IFSC, as well as those issued by companies in India or foreign jurisdictions, units of an Alternative Investment Fund (AIF).
Lighthouse Canton in GIFT City
Lighthouse Canton has set up a Category III AIF in GIFT City, through which we launched a restricted(non-retail) scheme. Restricted (non-retail) schemes have the investment objective of undertaking diverse or complex trading strategies including investment in listed or unlisted derivatives and for permitted investments under longevity finance. In a similar vein, additional AIFs or schemes by Lighthouse Canton could attract foreign as well as Indian investors (including High-net-worth individuals (HNIs), ultra-high-net-worth individuals (UHNIs), and family offices) interested in different investment objectives which would be made specific to each such AIF.
Lighthouse Canton's AIFs in GIFT City can assist Indian investors in leveraging their mainland-incorporated entities to allocate up to 50% of their net worth to these AIFs, simplifying their investment process. This approach not only consolidates their investment pool within a favourable cost structure but also helps them effectively navigate the complexities of international legal and tax compliance.
For more information on GIFT City or Lighthouse Canton’s GIFT City offering, please contact us.
Disclaimer: Lighthouse Canton offers financial products for professional and/or accredited investors only. This blog is intended for general awareness and does not constitute investment advice.
1To be computed in accordance with the Foreign Exchange Management (Overseas Investment) Rules, 2022
2“Single family” means a group of individuals who are the lineal descendants of a common ancestor and includes their spouses(including widows and widowers, whether remarried or not) and children(including stepchildren, adopted children, ex nuptial children).
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