India is growing year on year to become a financially suitable destination for the world to invest in. In 2015, Gujarat International Finance Tec-City (GIFT City) was set up in Gandhinagar. GIFT City is the first International Financial Services Centre (IFSC) in India. Apart from this, GIFT City is India’s first greenfield smart city and enjoys financial relaxation by being a Special Economic Zone (SEZ) under the SEZ Act 2005. September 2020 report by the Global Financial Centres Index, London ranked GIFT IFSCs as one of the IFSCs that could become more significant in the next few years. In the 2024 version of the Global Financial will Centres Index, GIFT City bagged the 16th spot in Asia taking over Mumbai as the prime financial center in India. Moreover, GIFT City gained fifteen spots since last year, has made its way into the top emerging financial centers in the world within just a decade of its establishment. In this blog, we take a look at the process, eligibility, and benefits companies can avail by setting up business in GIFT City.

Overview of GIFT City

Gujarat International Finance Tec-City (GIFT City) is India’s first IFSC. The mission of GIFT City is to become a global financial hub, providing opportunities for business setup in GIFT City for companies from all over the globe. Setting up business in GIFT City is alluring for international investors for a number of reasons. With GIFT City being a SEZ, a business setup in GIFT City will attract multiple capital benefits. GIFT City is built to compete with other international finance centers like La Defense in France and Shinjuku in Japan. GIFT City aims to serve as the link to integrate India’s economy into the global financial system.

Policies at the SEZ are structured to actively promote business setup in GIFT City. There has been an offshoring trend in the Indian financial system where India-centric ventures establish global holding structures. With the onset of GIFT City, the government hopes to flip this process and make a shift towards onshoring. GIFT City is the central component of the tri-city approach. The tri-city approach is a culmination of three financial hubs: Gandhinagar, Ahmedabad, and GIFT City. By setting up business in GIFT City, entities can avail the benefits of a holistic financial system developed.

GIFT City nurtures a free-trade zone with numerous tax incentives promoting the flow of capital, products, and services in its vicinity. Setting up business in GIFT City is beneficial for international entities because of the liberal tax and regulatory regime. Additionally, foreign universities operating in GIFT City are exempted from domestic regulations that apply to all other institutes.

In addition to all this, there are many utilities that a business setup in GIFT City can make use of:

  1. Power back-up
  2. Communication services
  3. Solid waste management service
  4. District cooling system
  5. Mass rapid transit system
  6. The city command and control center

GIFT City Special Economic Zone (SEZ) and International Financial Services Centre (IFSC)

GIFT City is an International Financial Service Centre (IFSC) broadly divided into two parts, one being ‘Special Economic Zone (SEZ)’ and the other is the ‘Domestic Tariff Area (DTA)’. GIFT SEZ is a designated area within GIFT City that is developed to promote export-oriented economic activities. It provides infrastructure and regulatory benefits to businesses, particularly in financial services, technology, and related sectors. Companies in the SEZ enjoy significant tax benefits, entities operating in GIFT SEZ can transact business only in foreign currencies and cater to global clients, attracting financial transactions that are currently carried out outside India by international financial institutions. For this, GIFT City features an ecosystem that promotes business activities while incentivizing capital and other benefits.

Setting up Business in GIFT City

Who can engage in business setup in GIFT City IFSC?

GIFT City caters to multiple banks, insurance companies, capital market entities, and more. Business setup in GIFT City is permissible for businesses listed below (Inclusive list):

Banks

  • Indian banks
  • Foreign banks

Insurance Companies

  • Indian insurer
  • Indian reinsurer
  • Indian Intermediaries
  • Foreign Intermediaries
  • Foreign insurer
  • Foreign reinsurer

Capital Market Entities

  • Stock exchanges
  • Depository
  • Broker Dealers
  • Clearing Corporation
  • Registrar/share Transfer Agent

Capital Market Entities Stock exchanges

  • Depository

Asset Management

  • Pension Fund Services
  • Wealth Management
  • Fund Management Entity
  • Investment Adviser
  • Portfolio Management Services (PMS)
  • Alternate Investment Fund (AIF)

Allied and Support Servies

  • Global-in-house Centres
  • Accounting and Audit Services
  • Legal and Consultancy Services
  • R&D Services

Financing Company

  • Aircraft Leasing & Financing
  • Ship Leasing & Financing
  • Core Financing Companies

Technology Company

  • FinTech
  • TechFin

Process for Setting up Business in GIFT City

For business setup in GIFT City, various legal documents need to be submitted to the respective department of the authority (IFSCA). Listed below is an overview of the legal requirements and processes involved in registering business setup in GIFT City:

1. Business structure and registration
Understanding the nature of business to be transacted in GIFT IFSC and aligning it with the suitable framework and regulation under which the entity can be registered is the first and foremost step. For business setup in GIFT City, decide on a suitable legal entity structure for your business, such as a Limited Liability Partnership (LLP), Sole Proprietorship, Private Limited Company, etc.

2. Reserve a name
For business setup in GIFT City, choosing a unique name is crucial for registration. The proposed name should comply with requirements set by the Ministry of Corporate Affairs (MCA) and the availability of the name can be checked through the online name reservation system.

3. Identification of office space
For a business setup in GIFT City, one has to look for a suitable office space as per the business plan and structure. This requires approval from the developer or co-developer. This will serve as the registered address for business. Thereafter, finalize the space with the developer and get Provisional Letter of Allotment (PLOA) issued by the developer.

 4. Charter documents and registration under various laws
Drafting the charter documents like the trust deed, Memorandum of Association (MOA), and Articles of Association (AOA) is crucial for defining a company’s scope of activities and the rights of the company. Take registration under GST, Income Tax, labor laws and other mandatory registrations as required by law before business setup in GIFT City.

5. Base minimum capital requirement
Based on the type of financial service you intend to provide, determine the minimum capital requirement as per the relevant regulation. During business setup in GIFT City, it is mandatory to fulfill the capital infusion requirements. This can be conducted before commencing operations or at the time of application for registration, based on different regulatory requirements in different cases.

6. FORM FA to SEZ authorities
During the process of business setup in GIFT City, the entity needs to prepare and submit FORM FA along with the following annexures:

  • Demand draft of Rs 5,000/-
  • PLOA issued by the co-developer.
  • Detailed project report, including projections for the next five years.
  • Entity ID documents such as license, PAN Card, IEC Code, etc.
  • Self-certified copies of the Memorandum of Association and Articles of Association.
  • Self-certified copies of Board Resolution for setting up an office in GIFT IFSC.
  • Certificate of incorporation.
  • List of directors with their identity proofs.
  • Audited financial statements of previous three years and IT returns of the entity or directors.
  • Brief presentation covering the entity profile and scope of activities in GIFT IFSC.
  • Affidavit

Prepare three sets of the above documents and submit them as follows:

  • Original set to the Office of the Development Commissioner.
  • The second set is for the developer (GIFT SEZ) to facilitate the submission of NOC from the developer to the Office of the Development Commissioner.
  • Third set for the entity itself.

7. Unit Approval Committee (UAC) meeting
After successfully submitting the FORM FA, the Development Commissioner will contact the entity for a meeting with the Unit Approval Committee (UAC).

8. Letter of Approval (LOA)
If the UAC deems the entity fit, the Development Commissioner will issue a Letter of Permission/Approval for your business.

9. Letter of acceptance
After the issuance of the LOA, the entity must produce a Letter of Acceptance to the Development Commissioner agreeing to the terms and conditions specified.

10. Execution of lease deed
The entity must sign a lease deed with the co-developer of the GIFT City within six months of getting the LOA and submitting it to the Development Commissioner.

11. SEZ license and registration with NSDL portal
To allow reporting and other services related to import, procurement, and services, the entities must obtain registration with the National Securities Depository Limited (NSDL) portal for SEZ online registration. This process is to be completed after the issuance of the SEZ license.

12. Bond cum legal undertaking
The entity must prepare and sign a bond cum legal undertaking with the Development Commissioner and the specified officer from GIFT City.

13. Registration certificates and exemption eligibility
There is a list of registration certificates such as GST, RCMC, IEC, etc. that need to be obtained. Also, entities can apply for eligibility certificates to be exempted from various taxes from the central and state governments.

14. Approval from IFSCA
For business setup in GIFT City, the entity is required to apply for registration to the authority for necessary approvals. This includes providing details of the company, complying with the requirements as per the regulation, payment of fees and other terms and conditions as required for obtaining registration.

15. Commencement of operations
After all the above steps are completed, the entities must inform the Office of Development Commissioner about the date of the first export of services through an application titled ‘Commencement of business operations’ and provide supporting evidence such as a tax invoice. A copy of the same should be sent out to the GIFT City developer.

InCorp’s Support for Business Setup in GIFT City

InCorp Global offers multiple one-time setup compliance services for business setup in GIFT City. Services in the one-time setup compliance include:

  1. GST Registration
  2. Import Export Code (IEC)
  3. Bond-cum-Undertaking letter submission
  4. Eligibility certificate under SEZ Act
  5. Registration cum Membership Certificate (RCMC) under Foreign Trade Policy (FTP)
  6. Income Tax portal registration
  7. Withholding tax (TRACES) portal registration

Tax Benefits of Setting up Business in GIFT City

A business set up in GIFT City can avail various financial and tax benefits. Since GIFT City is designed to incentivize the entities setting up business in GIFT City, the Government of India together with the Government of Gujarat has tailored policies.

 Particulars Investors
Other Direct Taxes ·         The interest income paid to non-residents on monies lent to IFSC units are not taxable.

·         The interest on Long Term Bonds and Rupee Denominated Bonds that are listed on a recognized stock exchange in IFSC:

(1)    Issuance before July 1, 2023 – Taxable at a lower rate of 4%

(2)    Issuance on or after July 1, 2023 – Taxable at a rate of 9%

·         The transfer of securities of AIF Category III in IFSC by a non-resident will not be treated as a transfer.

·         There is a tax exemption on the income of a non-resident on the transfer of non-deliverable contacts or derivative instruments or over-the-counter derivatives or distribution of income on offshore derivative instruments entered with an offshore banking unit of an IFSC.

·         There is a tax exemption on income received by a non-resident from a portfolio of securities or financial products or funds, managed or administered by any portfolio manager on behalf of such non-resident, in an account maintained with an offshore banking unit of an IFSC, to the extent such income accrues or arises outside India is exempt from tax and is not deemed to accrue or arise in India.
Other Tax Incentives ·         Exemption from STT, CTT, stamp duty in respect of transactions carried out on IFSC exchanges

·         State subsidies – lease rental, PF contribution, electricity charges

 

 Particulars Units in IFSC
Income Tax ·         100% tax exemption for 10 consecutive years out of 15 years

·         MAT/AMT at 9% of book profits applies to company/other setups as a unit in IFSC. MAT not applicable to companies in IFSC opting for the new tax regime

·         From April 1, 2020, dividend income distributed by company in IFSC will be taxed by the shareholder.
Goods and Services Tax ·         No GST on services:

– received by units in IFSC

–          provided to IFSC/SEZ units or offshore clients

·         GST applicable on services provided to DTA


Attracting Foreign Investments by Setting up Business in GIFT City

Over the years foreign investments coming to India have increased significantly. This was majorly achieved through Foreign Direct Investment (FDI) and Foreign Portfolio Investment (FPI). The FDI has increased from $6 billion in 2002 to $27.9 billion in the calendar year 2022. Additionally, the value of Offshore Derivative Instruments (ODIs) in the Indian economy was valued at around $1.04 trillion as of May 2023, growing at a double-digit rate.

As mentioned above, GIFT City focuses on enabling the development and regulation of financial products, services, and institutions by the virtue of being the sole IFSC in the country. Traditionally, funds were routed into the country using vehicles like mutual funds, pension funds, and hedge funds that invest in Indian markets. However, with the introduction of GIFT City, the acceleration in foreign investments has increased with several fund management entities already registered in the jurisdiction.

GIFT City Compared to Other Financial Centers

GIFT City was only established in 2015, translating to GIFT City being at an advantageous position over other financial centers like London, New York, Singapore, and Hong Kong. There are quite some key differentiators for business setup in GIFT City when compared to other financial centers. Some of the differentiators are as listed below:

1. Infrastructure
Since GIFT City was recently developed, it features a modern state-of-the-art infrastructure that is up to the recent trends. GIFT encompasses modern office spaces, commercial complexes, residential areas, and social areas. The city is also seamlessly connected to the airport and major highways, increasing the connectivity of the area. This is a significant advantage over financial centers like New York and London which incur aging facilities and issues of overcrowding.

2. Regulatory framework
GIFT City’s regulatory landscape is specially tailored to promote ease of doing business while aiding the process of business setup in GIFT City. It is one of the key parameters that sets GIFT City apart from other financial centers. All financial centers have above-par regulatory frameworks. However, business setup in GIFT City comes with flexibility and adaptability.

3. Tax holiday
Tax exemptions are one of the major attractions for setting up business in GIFT City. GIFT City features many competitive tax rates with several exemptions and concessions. This makes it an ideal option for both domestic and international businesses. In comparison to other financial centers, a business setup in GIFT City emerges as a cost-effective choice.

4. Talent pool
India is a growing economy with one-third of the population being youth (15-24), which has a lot to offer in terms of talent. Also, numerous universities set up in GIFT City support the process of talent acquisition by providing access to graduates from top universities across the world.

5. Support services
As mentioned above, a business setup in GIFT City attracts many support services like CapEx and OpEx support to ease the process of doing business. Apart from this, legal support and other support services are also provided for setting up business in GIFT City.

6. Investments
GIFT City is home to many businesses across various industries including banking, insurance, and capital markets. The designed location and emerging markets create a comprehensive financial growth environment for businesses. This makes GIFT City a preferred location for investors looking to tap into the growing Indian economy.

Post Business Setup in GIFT City Support from InCorp

InCorp Global is the comprehensive solution for all your GIFT city needs. We offer services throughout the journey at GIFT City. Business setup in GIFT City can avail our services during setup and post-setup. Some of our post-setup compliance services include:

  1. Direct Tax Compliance
  2. Indirect Tax Compliance
  3. International Tax Compliance
  4. SEZ Compliance
  5. IFSCA Compliance
  6. Accounting and Bookkeeping
  7. Payroll Compliance
  8. Corporate Secretarial Compliance

Conclusion

GIFT City is an ideal location for any entity considering business setup in GIFT City. There are various benefits and incentives offered to entities looking for business setup in GIFT City. Since the introduction of IFSC, navigating through the compliances, eligibility, legal requirements and more can be complex. There are many setup and post-setup requirements that entities need to follow to achieve a seamless integration into the GIFT IFSC system. This is where InCorp comes in, we offer comprehensive solutions for business setup in GIFT City.

Why Choose InCorp Global?

InCorp Global offers comprehensive services for business setup in GIFT City. We aid entities in setting up business in GIFT City. Also, we offer post-setup services making us a one-stop solution for all the business needs in GIFT City. Also, InCorp experts provide guidance, which is tailor-made to your business needs, making the overall process smoother and more efficient. To know more about our services, you can contact us at (+91) 77380 66622 or email us at info@incorpadvisory.in.

Frequently Asked Questions