Unlocking Opportunities: Exploring the Potential of GIFT City as a Financial Hub

Jul 08, 2023

Senior Investment Specialist

Senior Investment Specialist

Gujarat International Financial Tec-city (GIFT City) is an 886 acres multi-service Special Economic Zone (SEZ) with India's first notified International Financial Services Center (IFSC) and an exclusive Domestic Tariff Area (DTA). It is positioned as a financial and technological hub designed to cater to customers outside the Indian jurisdiction.

First ideated in 2007, the core objective of the GIFT City was to develop a world-class zone for the long-term provision of office/service accommodation and high technological, economic, and commercial infrastructure. GIFT City offers state-of-the-art connectivity, infrastructure, and transportation access.

Legally, the IFSC is considered a delineated jurisdiction that provides financial services in foreign currency. Entities operating in the GIFT City have access to a robust regulatory framework, a business-friendly environment, tax exemptions, liberalised cross-border transaction services, and easy access to currency conversion facilities among others.

In 2019, a unified authority for regulating the financial services in the IFSC was formalised and the IFSC Authority (IFSCA) was established. Today, The IFSCA operates as a unified regulator for the development and regulation of financial products, financial services, and financial institutions in the IFSC in India.

Areas of business at GIFT City

GIFT City offers benefits to several areas of businesses that can be demarcated under two categories: financial services, and allied services. The financial service hosted at GIFT City hosts are:

A. Banking: GIFT City IFSC hosts banking units of Indian and foreign banks . Banking from an IFSC Banking Unit (IBU) is considered offshore banking due to the foreign island character of the IFSC. Key business activities permitted for IBUs are:

B. Capital Market: GIFT City also provides for the delivery of capital market solutions to clients across the world . It also offers direct access to institutional and high-net-worth individuals looking to access equity, commodities, and currency derivatives markets. Following types of capital market intermediaries can operate in GIFT City. Stock Exchange, Commodity Exchange, Clearing Corporation, Depository, Stockbroker, Investment Advisor, Portfolio Manager, Mutual Fund, AIFs, Stockbrokers, Portfolio Managers etc. are permitted to be set up and provide services in GIFT City. IFSCA has allowed broker-dealers, clearing members, investment bankers, portfolio managers, amongst others to establish and provide these services,

C. Fund management: Fund management is another financial service that is hosted in GIFT City . Based on the category of license held by the Fund Management Entity (FME), it can launch any of the following schemes at the IFSC.

D. Insurance: Indian insurance companies and foreign insurers with a No-Objection Certificate from their home authority can set up an insurance office in the IFSC. These insurance offices can provide direct insurance for offshore direct insurance business including direct insurance business from global subsidiaries of Indian conglomerate companies/individuals present in any offshore location. It can also provide offshore reinsurance business of insurers present in any offshore location, insurers in the IFSC, and business emanating from India subject to Insurance Regulatory and Development Authority of India norms.

E. Financial Company: A finance company or financial unit is also permitted to operate in IFSC to provide core activities and non-core activities . Some of such activities are listed below. Core activities

Non-Core activities

The allied services hosted in the GIFT City range from Global In-House centres, aircraft leasing & financing, bullion exchange, foreign universities, and ship leasing.

Benefit of GIFT City for Startups

To promote innovation of ideas and solutions in financial services market, IFSC also introduced dedicated FinTech sandboxes . DPIIT recognised FinTech startups and other entities can operate in the regulatory sandbox of GIFT City. The regulatory sandbox provides a live environment with a limited set of real customers for a limited timeframe. The sandboxes offered to FinTech entities are:

To become an eligible FinTech startup, apply for DPIIT recognition at: https://www.startupindia.gov.in/content/sih/en/recognition-page.html

Tax benefits of GIFT City

To attract businesses to GIFT City, the Government of India has introduced several direct and indirect tax benefits . Key tax benefits offered are listed below.

A. Direct Tax

B. Indirect Tax

Conclusion

GIFT City's ambition to establish a world-class financial and technology hub is especially beneficial for growing startups. Its potential to attract significant foreign investment, business-friendly policies, and focus on innovation and entrepreneurship makes startups with exposure to international markets especially lucrative.

In a liberalised regulatory space like GIFT City within the resilient and solid Indian economy, startups operating in the financial sector can leverage GIFT City and avail operational and taxation benefits. As GIFT City continues to evolve and mature, it holds immense potential to reshape India's financial landscape, foster economic growth, and contribute to India's journey towards becoming a global financial powerhouse.