IFSC Gift City
IFSC
In India, the IFSC GIFT City has been approved by the government of India under the Special Economic Zones Act 2005. Activities carried out in an IFSC extend cross the entire financial services spectrum, including banking, capital markets, insurance, global in-house centres (GICs), asset management and other sectors.
India’s geostrategic location facilitates serving all time zones, including major financial markets like Hong Kong, London, New York, etc. It has a large pool of talented professionals and professional service providers with huge and diversified demography. India is also emerging as a leading technology innovation hub, given the fintech boom being witnessed over the last few years.
The government of India established International Financial Services Centres Authority in April 2020. IFSCA has regulatory oversight over all financial institutions incorporated in the IFSC, and
India’s geostrategic location facilitates serving all time zones, including major financial markets like Hong Kong, London, New York, etc. It has a large pool of talented professionals and professional service providers with huge and diversified demography. India is also emerging as a leading technology innovation hub, given the fintech boom being witnessed over the last few years.
The government of India established International Financial Services Centres Authority in April 2020. IFSCA has regulatory oversight over all financial institutions incorporated in the IFSC, and
it has been vested with the powers of four sectoral regulators, viz. the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), Insurance Regulatory Development Authority of India (IRDAI) and Pension Fund Regulatory Development Authority of India (PFRDAI).
Different Sectors in IFSC
Banking
IFSCA, it is now the regulatory authority for the financial institutions, including banking units (BU) set up in a IFSC. Accordingly, banks are now required to obtain a licence from IFSCA for setting up IFSC Banking Units (IBUs) in the IFSC GIFT City.
Indian banks1 and foreign banks2 having a presence in India can set up a banking unit in an IFSC. Foreign banks not having a presence in India and wholly-owned subsidiaries (WOS) of foreign banks incorporated in India are also permitted to set up a banking unit (BU) in an IFSC.
Banking Units can operate a Commercial Banking division, Private Banking division, Capital Market division and act as foreign exchange prime broker, underwriter to the subscription of funds, as custodian of securities, as a portfolio manager, as merchant banker, etc.
Indian banks1 and foreign banks2 having a presence in India can set up a banking unit in an IFSC. Foreign banks not having a presence in India and wholly-owned subsidiaries (WOS) of foreign banks incorporated in India are also permitted to set up a banking unit (BU) in an IFSC.
Banking Units can operate a Commercial Banking division, Private Banking division, Capital Market division and act as foreign exchange prime broker, underwriter to the subscription of funds, as custodian of securities, as a portfolio manager, as merchant banker, etc.
Global Administration Office
A Global Administrative Office (GAO) is a financial institution set up in an IFSC by a banking company that manages, administers or coordinates the operations of the parent bank or any of the group entities and provides support services to the parent bank or any of the group entities6 for the execution of the permitted activities inside or outside IFSC.
A banking company incorporated in India or outside India is permitted to set up a GAO in an IFSC as a branch. A banking company incorporated in India or outside India and having IBU or RO in an IFSC can also set up a GAO. The GAO framework enables banks to render various support services to their parent bank and simultaneously carry out activities such as new product development, market research, etc., on behalf of the parent bank, which otherwise may not be possible under RBI Regulatory norms.
A banking company incorporated in India or outside India is permitted to set up a GAO in an IFSC as a branch. A banking company incorporated in India or outside India and having IBU or RO in an IFSC can also set up a GAO. The GAO framework enables banks to render various support services to their parent bank and simultaneously carry out activities such as new product development, market research, etc., on behalf of the parent bank, which otherwise may not be possible under RBI Regulatory norms.
Finance Companies
A finance company is a financial institution separately incorporated to deal in one or more of the permissible activities in an IFSC without accepting deposits from the public and not registered as a banking unit with the IFSCA.
A finance company can be set up as a subsidiary, joint venture, newly-incorporated company or in any other form as specified by IFSCA. For undertaking one or more non-core activities, a finance company can also be set up in the form of a limited liability partnership (LLP) or trust. In the case of the finance unit, it can be set up as a branch under these regulations. Further, a finance unit can be setup for undertaking core activities, provided the applicant is an incorporated entity and is engaged in the business of financial services duly regulated by a financial sector regulator in its home jurisdiction.
Lending, factoring, undertaking, sale-purchase of derivatives, operation of treasury centres, merchant banking, registrar and share transfer agent, investment advisory services and many other core and non-core activities are permitted by IFSCA to an authorised Finance Company.
A finance company can be set up as a subsidiary, joint venture, newly-incorporated company or in any other form as specified by IFSCA. For undertaking one or more non-core activities, a finance company can also be set up in the form of a limited liability partnership (LLP) or trust. In the case of the finance unit, it can be set up as a branch under these regulations. Further, a finance unit can be setup for undertaking core activities, provided the applicant is an incorporated entity and is engaged in the business of financial services duly regulated by a financial sector regulator in its home jurisdiction.
Lending, factoring, undertaking, sale-purchase of derivatives, operation of treasury centres, merchant banking, registrar and share transfer agent, investment advisory services and many other core and non-core activities are permitted by IFSCA to an authorised Finance Company.
Global In-House Centre
GICs are service delivery operations typically in low-cost jurisdictions and serve as offshore back-end processing centres for the parent company. GIC are established on the basis of various factors such as talent pool, infrastructure, regulatory environment and tax incentives available to them.
A financial services group entity can be set up as a GIC in an IFSC, given the GIC will exclusively provide support services to its financial services group, for the purpose of carrying out a financial service in respect of a financial product.
The establishment of a Global In-house Centre (GIC) in the International Financial Services Centre (IFSC) GIFT City offers the global financial services group the potential to optimise the scope of its primary operations. This is achieved through the presence of a well-regulated ecosystem and the development of physical infrastructure. Additionally, the GIC enables the group to access dependable support services at a comparatively lower cost, as opposed to outsourcing these
services to external entities in their home jurisdiction.
A financial services group entity can be set up as a GIC in an IFSC, given the GIC will exclusively provide support services to its financial services group, for the purpose of carrying out a financial service in respect of a financial product.
The establishment of a Global In-house Centre (GIC) in the International Financial Services Centre (IFSC) GIFT City offers the global financial services group the potential to optimise the scope of its primary operations. This is achieved through the presence of a well-regulated ecosystem and the development of physical infrastructure. Additionally, the GIC enables the group to access dependable support services at a comparatively lower cost, as opposed to outsourcing these
services to external entities in their home jurisdiction.
Capital Market Intermediaries
The Capital Market Intermediaries Regulations focus on ease of doing business and consistent with the fundamental principles laid down by the International Organization of Securities Commissions.
Coverage of CMI include broker-dealers, clearing members, depository participants, investment bankers, custodians, credit rating agencies, debenture trustees, account aggregators. An applicant seeking registration with the IFSCA shall be required to be to establish a branch or a company, limited liability partnership, body corporate, partnership firm, proprietorship firm or any other form as permitted.
The CMI Regulations aim to align the practises of capital markets in International Financial Services Centres (IFSCs) with the global practises observed in well- established capital market jurisdictions abroad.
Coverage of CMI include broker-dealers, clearing members, depository participants, investment bankers, custodians, credit rating agencies, debenture trustees, account aggregators. An applicant seeking registration with the IFSCA shall be required to be to establish a branch or a company, limited liability partnership, body corporate, partnership firm, proprietorship firm or any other form as permitted.
The CMI Regulations aim to align the practises of capital markets in International Financial Services Centres (IFSCs) with the global practises observed in well- established capital market jurisdictions abroad.
Fintech
The IFSCA broadly prescribes two modes for Fintechs to register with the IFSCA. Under the Direct Entry mode it enables the deployable advanced/innovative technology solution that aids and assists activities in relation to financial products, financial services and financial institutions with revenue records for last three years.
Under, Sandox mode, testing of fintech ideas or solutions in the IFSCA regulatory sandbox, or development and testing under innovation sandbox or testing of ideas in inter-operable sandbox or servicing of fintech ideas and solutions over fintech bridge.
There are multiple verticels in which a Fintech can work like digital lending, personal finance, crowdfunding, wealth tech, insurtech, alternative trading platforms, cyber insurance, agritech, sustainable tech, AI and space tech, etc.
Fintech Incentive Scheme provides grants to start-ups for development of go-to- market initiatives with a novel idea of upto INR 15 crore, proof of concept grant of upto INR 50 lack, sandbox grant for innovative products of INR 30 lack, green fintech idea for ESG of upto INR 75 lakh, accelerator grant of INR 10 lakh and listing support to domestic fintech entities of INR 15 lakh.
Under, Sandox mode, testing of fintech ideas or solutions in the IFSCA regulatory sandbox, or development and testing under innovation sandbox or testing of ideas in inter-operable sandbox or servicing of fintech ideas and solutions over fintech bridge.
There are multiple verticels in which a Fintech can work like digital lending, personal finance, crowdfunding, wealth tech, insurtech, alternative trading platforms, cyber insurance, agritech, sustainable tech, AI and space tech, etc.
Fintech Incentive Scheme provides grants to start-ups for development of go-to- market initiatives with a novel idea of upto INR 15 crore, proof of concept grant of upto INR 50 lack, sandbox grant for innovative products of INR 30 lack, green fintech idea for ESG of upto INR 75 lakh, accelerator grant of INR 10 lakh and listing support to domestic fintech entities of INR 15 lakh.
Fund Management Entities
The FME regulations cover authorised FMEs consisting of entities which pool money from investors for further investment through VC. Family investment funds investing in securities, financial products and other permitted asset classes are some of the authorised FME options.
Registered non-retail FMEs consist of managers pooling money through private placement for investing in one or more restricted schemes and acting as portfolio managers. Registered retail FMEs pool money from all investors and invest in retail or restricted schemes.
These FMEs can undertake management of Venture Capital Schemes, family investment funds, restricted schemes, retail schemes, launching ETFs, etc.
Registered non-retail FMEs consist of managers pooling money through private placement for investing in one or more restricted schemes and acting as portfolio managers. Registered retail FMEs pool money from all investors and invest in retail or restricted schemes.
These FMEs can undertake management of Venture Capital Schemes, family investment funds, restricted schemes, retail schemes, launching ETFs, etc.
Aircraft Leasing
An entity registered as a Finance Company is permitted for operating lease transaction for an aircraft lease under ‘permitted non-core activity,’ and a finance lease transaction for an aircraft lease under ‘permitted core activity.
For it to be registered in IFSC, the entity need to be engaged in the business of providing aircraft or helicopter and engines of aircraft or helicopter or any other part thereof and/or aircraft ground support equipment under an operating lease, financial lease and/or a hybrid of the financial and operating lease.
The activities permitted under the registration include operating/financial/hybrid lease of an aircraft, ground support equipment, asset management support services and related permitted services.
For it to be registered in IFSC, the entity need to be engaged in the business of providing aircraft or helicopter and engines of aircraft or helicopter or any other part thereof and/or aircraft ground support equipment under an operating lease, financial lease and/or a hybrid of the financial and operating lease.
The activities permitted under the registration include operating/financial/hybrid lease of an aircraft, ground support equipment, asset management support services and related permitted services.
Ship Leasing
Same as aircraft leasing the entity needs to be a registered finance company in IFSC for having a ship leasing operation. A registered FC is permitted to have operating lease, voyage charters, contract of affreightments, employments in shipping pools, sale and lease back, purchase, novation, transfer, assignment of Ship leases(financial/operational/hybrid).
Insurance office and Insurance Intermediary office
operational special economic zones in India. Industrial states, free ports, large-scale international businesses and multinational corporations are also operational in special economic zones. The presence of these businesses opens immense opportunities for the insurance business. These may carry activities of general insurance, Life insurance, Health insurance, re-insurance, insurance distributor, claim service providers, surveyors and loss assessors
Taxation
100% tax exemption for 10 consecutive years out of 15 years. Dividend income received by a non-resident from a unit in an IFSC is taxable at the rate of 10%.
An exemption is given to a non-resident on any income earned on the transfer of non-deliverable forward contracts or offshore derivative instruments or over-the- counter derivatives entered into with an offshore banking unit of an IFSC, fulfiling the prescribed conditions.
No GST on services either received by a unit in IFSC or provided to IFSC/SEZ units or overseas clients. But, GST is applicable on services provided to the Domestic Tariff Area (DTA).
An exemption is given to a non-resident on any income earned on the transfer of non-deliverable forward contracts or offshore derivative instruments or over-the- counter derivatives entered into with an offshore banking unit of an IFSC, fulfiling the prescribed conditions.
No GST on services either received by a unit in IFSC or provided to IFSC/SEZ units or overseas clients. But, GST is applicable on services provided to the Domestic Tariff Area (DTA).
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