Author: Treelife

Historically, the PAN (Permanent Account Number) requirement has been a significant obstacle for foreign companies wishing to establish bank accounts in GIFT IFSC. Obtaining a PAN entailed additional compliance in a new jurisdiction, which deterred many from exploring banking opportunities within GIFT IFSC.

𝐏𝐀𝐍 𝐄𝐱𝐞𝐦𝐩𝐭𝐢𝐨𝐧: Now, foreign companies can bypass the PAN requirement when opening a bank account in GIFT IFSC. They simply need to submit Form No. 60 to the International Banking Units (IBUs) operating in GIFT IFSC.

𝐊𝐞𝐲 𝐂𝐨𝐧𝐝𝐢𝐭𝐢𝐨𝐧𝐬: These foreign companies should not have any income that is chargeable to tax in India.

𝐊𝐞𝐲 𝐃𝐨𝐜𝐮𝐦𝐞𝐧𝐭𝐬 𝐫𝐞𝐪𝐮𝐢𝐫𝐞𝐝 𝐭𝐨 𝐛𝐞 𝐬𝐮𝐛𝐦𝐢𝐭𝐭𝐞𝐝 𝐚𝐥𝐨𝐧𝐠 𝐰𝐢𝐭𝐡 𝐅𝐨𝐫𝐦 𝐍𝐨. 60 𝐛𝐲 𝐭𝐡𝐞 𝐅𝐨𝐫𝐞𝐢𝐠𝐧 𝐂𝐨𝐦𝐩𝐚𝐧𝐲: – Certificate of Registration or incorporation from its home country. – Tax identification number issued in the home country. Both documents must be duly attested by authorized officials of the IFSC banking unit.

𝐔𝐬𝐞 𝐂𝐚𝐬𝐞𝐬: 1. Indian founders who have flipped their structures offshore might find banking in GIFT IFSC attractive due to its closeness to the Indian mainland. 2. Additionally, IBUs in GIFT IFSC hold an advantage over neo-banks, adeptly handling challenges such as FIRC, KYC for inward remittances, and other FEMA compliances. 3. In light of the recent SVB bank collapse, cross-border SaaS companies and startups, including those backed or funded by overseas accelerators that relied solely on SVB or had a single banking relationship, might view GIFT IFSC as an alternative or backup banking option.

For a copy of the CBDT notification, refer to the link here.

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The rapidly evolving financial landscape has placed India on the map for its forward-thinking initiatives. The International Financial Services Centre (IFSC) conceptualized by the Indian government seeks to make India a magnet for both domestic and international investment in the financial arena. Gujarat International Finance Tech-City (GIFT City) stands as a testament to this vision, being the only operational IFSC in India at present. Overseeing its operations, the International Financial Services Centre Authority (IFSCA) maintains a vigilant eye on the financial products, services, and institutions established there.

The Birth of the FinTech Framework

Understanding the need to encourage innovation, IFSCA on 27 April 2022 published a detailed ‘Framework for Fintech Entity in the IFSCs.’ The framework aims to boost the establishment of a world-class fintech hub at the IFSC GIFT City and encourage the promotion of financial technologies across the spectrum of banking, insurance, securities and fund management activities. The framework covers the following:

• Fintech solutions resulting in new business models, applications, processes or products in areas/activities linked to financial services regulated by the IFSCA
• Advanced/innovative technological solutions that aid and assist activities in relation to financial products, financial services and financial institutions

Entities offering innovative solutions or emerging technologies directly related to financial products and services are welcome to seek authorization under this FinTech Framework. It casts a wide net, encompassing areas such as digital lending, neo banking, crowd funding, Insure Tech, Agri tech, and even niche sectors like Defense tech.

How to register with IFSCA as a fintech entity?

The framework broadly prescribes the following two modes for fintech(s) to register with the IFSCA as a fintech entity (FE):

a. Direct entry (Authorisation by IFSCA)

The framework enables some class/categories of technology entities to obtain direct entry having:

• A deployable advanced/innovative technology solution that aids and assists activities in relation to financial products, financial services and financial institutions
• A revenue-earning track record in at least 1 of the last 3 financial years

b. Sandbox

An applicant shall be permitted to undertake one or more of the following activities under the IFSCA sandbox:

• Test fintech ideas or solutions in the IFSCA fintech regulatory sandbox
• Develop and test fintech ideas or solutions in the IFSCA fintech innovation sandbox
• Test fintech ideas or solutions in an inter-operable regulatory sandbox
• Provide fintech ideas or solutions in the overseas regulatory referral mechanism/fintech bridge offered by the IFSCA

Who can apply?

Entities from India

1. An entity registered with the Department for Promotion of Industry and Internal Trade (DPIIT) as a start-up entity relating to fintech
2. An entity incorporated as a company under the Companies Act 2013, as a limited liability partnership (LLP) under the Limited Liability Partnership Act, 2008, or the ‘Branch’ of an Indian company or LLP in an IFSC
3. An entity working directly or indirectly in the ecosystem regulated by a domestic financial sector regulator

Entities from outside India

1. An entity from the Financial Action Task Force (FATF)- compliant countries/jurisdictions

Applicant as a ‘Fintech Entity’ may do the following:

• Separately incorporate an entity in the IFSC
• Establish a branch or a subsidiary of an Indian or foreign incorporated entity in an IFSC

Innovating Within the Sandbox

A ‘Sandbox’ in the fintech context is a controlled environment where businesses can test their novel products or solutions with a limited set of real customers, for a finite duration. This system, prevalent in GIFT City, allows fintech entities to validate their innovations in the capital market, banking, insurance, and other financial spaces in an IFSC.

Fintech Regulatory Sandbox (FRS)

This is a dedicated space for fintech products/solutions, granting them a limited-use authorization. Successful participants can also avail grants from the IFSCA Fintech Incentive Scheme 2022.

Who’s eligible?

• From India:
  • Start-ups registered with DPIIT focusing on Fintech.
  • Entities under the Companies Act 2013, Limited Liability Partnership Act 2008, or branches in an IFSC.
  • Those functioning within the domain regulated by a domestic financial sector regulator.
• From abroad:
  • Entities or branches from FATF-compliant countries.

Fintech Innovation Sandbox (FIS) The FIS is an isolated environment away from the live market. Here, fintech entities can experiment with their ideas based on market-related data. A successful journey in FIS paves the way to the FRS.

Who can participate? The eligibility mirrors the criteria set for the FRS.

Inter-operable Regulatory Sandbox (IoRS)

IoRS means a testing environment for innovative hybrid financial products/services falling within the regulatory ambit of more than one domestic financial sector regulator.

The IFSCA will facilitate Indian fintech companies seeking access to foreign markets and foreign fintech companies seeking entry into India. The applications received by the authority from the domestic sector regulator(s)/coordination group of IoRS shall be subjected to the same screening process for entry into IoRS, as given under the fintech regulatory sandbox criteria of this framework.

After a successful exit from IoRS, entities must liaise with the authority and the relevant regulators to obtain necessary permissions before launching the product in the market.

Overseas Regulatory Referral Mechanism by IFSCA

This is a collaboration between the IFSCA and overseas financial regulators. It aids fintech firms that wish to operate reciprocally in each other’s territories. The terms are governed by a mutual agreement or MOU between the IFSCA and the corresponding foreign financial sector regulator(s).

Monetary Incentives for Innovators

Recognizing the potential of FinTech, IFSCA has rolled out an attractive incentive program. Depending on the category of operations, grants can amount to a substantial INR 75 lacs. This scheme caters to a variety of FinTech entities, ranging from those in the Regulatory or Innovation Sandbox to those engaged in any IFSCA-supported programs.

Refer incentive scheme blog for more details

The Upcoming Payments Revolution

Signifying its intent to further boost the FinTech sector, IFSCA has shed light on regulating payment services within the IFSC. Several payment-related projects are already underway, setting the stage for a transformative payment ecosystem.

In conclusion, GIFT City, with its innovative frameworks and conducive environment, is poised to be a global hub for FinTech innovation. With massive opportunities on the horizon, it’s a matter of time before this city becomes synonymous with financial technology excellence.

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On February 2nd, 2022, the International Financial Services Centres Authority (IFSCA) issued a notification introducing the “FinTech Incentive Scheme”.

1. Objective of the Scheme:

The primary aim is to propel India’s IFSC into the league of leading International Financial Centers by financially assisting FinTech activities. The scheme specifically targets:

– Indian FinTechs targeting foreign markets.

– Domestic FinTechs aiming to list on IFSCA-recognised exchanges.

– International FinTechs targeting Indian IFSC market access.

– Foreign FinTechs eyeing Indian markets through the Inter-Operable Regulatory Sandbox (IORS) framework.

– Domestic FinTechs looking to expand their business to the IFSC.

2. Duration of the Scheme:

The scheme will be in operation for three years from its official announcement date.

3. Definitions:

The notification elucidates several terms for clarity, such as ‘FinTech’ being technology-driven solutions assisting Financial Institutions, and ‘Regulatory Sandbox’ being an environment allowing limited real customer interactions for testing FinTech solutions.

 4. Eligibility:

To benefit from this scheme, applicants must meet certain criteria:

– If from India, they could be DPIIT-registered startups, companies under the Companies Act 2013, resident individuals, or entities under the purview of regulators like RBI, SEBI, etc.

– If foreign, they should be individuals or entities from FATF compliant nations with a majority (over 51%) non-resident shareholding.

5. Scope:

The scheme grants are designed for those associated with the Authority’s sandbox programs, accelerators, or special collaborations with the Authority.

6. Types of Incentives:

Multiple grants are available, subject to conditions:

– FinTech Start-up Grant: Up to Rs. 15 lacs for startups with innovative FinTech solutions.

– Proof of Concept (PoC) Grant: Up to Rs. 50 lacs for early or mature FEs for conducting a PoC.

– Sandbox Grant: Up to Rs. 30 lacs for developing innovative products or services in a sandbox.

– Green FinTech Grant: Up to Rs. 75 lacs for sustainable finance solutions.

– Accelerator Grant: Up to Rs. 10 lacs for supporting accelerators at the IFSC.

– Listing Support Grant: Up to Rs. 15 lacs for domestic FEs aiming to list on recognized exchanges.

The FinTech Incentive Scheme is an ambitious endeavor by the IFSCA to invigorate the FinTech landscape in India, making it competitive on a global scale. It promises not only to boost domestic enterprises but to attract international entities, thereby fostering innovation, collaboration, and growth in the sector.

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Disclaimer – The content of this document is for information purpose only and does not constitute advice or a legal opinion. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer to relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc. before acting on the basis of this write up. The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that the Treelife is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof.

Gujarat International Financial Tec-City (GIFT City) stands as an emblem of India’s proactive approach to contemporary finance and business. Positioned as India’s answer to globally recognized financial centers such as London’s Dockyards or Shinjuku in Tokyo, GIFT City is sprawled over 886 acres by the scenic Sabarmati River in the state of Gujarat.

With its inception, it’s not just large-scale businesses that stand to benefit; the Indian startup ecosystem, too, receives a substantial shot in the arm. Here’s a closer look at how GIFT City interlaces with the country’s burgeoning startup culture.

Why Startups Should Lean Towards GIFT City:

1. Uninterrupted Fund Flow: Avoid the pitfalls of currency conversion by keeping funds in their original USD form.
2. Fluid Repatriability: Transfer funds back to the US or elsewhere, at will.
3. Interest Returns: Up to 5% yield potential on Term Deposits.
4. Simplified Compliance: No taxing obligations with the GIFT City IFSC functioning akin to an International bank.
5. Multi-currency Support: For those without a US bank account, solutions like Razorpay can help facilitate a US-based multi-currency account. This can be a conduit to transfer funds to GIFT City or elsewhere.

Spotlight on GIFT City SEZ:

The Special Economic Zone (SEZ) is a dedicated area meant to lure multinational corporations with a range of benefits from tax breaks to simplified trade regulations.

Key sections include:

– International Financial Services Centre (IFSC): This is GIFT City’s heart, tailored for the financial sector and offering an unparalleled business environment.

– Domestic Finance Centre (DFC): Catering to domestic financial services, the DFC offers a growth-friendly space for Indian financial ventures.

The GIFT City Promise:

1. Elevating Financial Infrastructure: GIFT City is positioned to upscale India’s financial framework, offering a nexus for banks, insurance ventures, and other finance-focused entities.
2. Foreign Investment Draw: The confluence of contemporary facilities, SEZ privileges, and strategic planning makes GIFT City a magnet for international funds.
3. Nurturing Startups: The city’s pro-innovation stance can catalyze startup growth, foster innovation, and generate employment.
4. Minimizing Offshore Dependence: GIFT City offers a compelling alternative to other Asian financial hubs, potentially rerouting Indian business that would otherwise head to places like Singapore or Hong Kong.
5. Global Economic Footprint: As GIFT City thrives, so does India’s stature in global financial circles.

GIFT City’s Dual Lures: SEZ & IFSC:

– SEZs cater to attracting Foreign Direct Investment (FDI) by offering a conducive environment for exports and finding global markets. Goods and services from SEZs are treated distinctively, often enjoying tax benefits and simpler trade regulations.

– IFSC, within GIFT City, offers a consolidated platform for diverse financial services. From stock exchanges to risk management, this hub simplifies growth trajectories for businesses, all while offering tax and regulatory perks.

GIFT City and the Startup Landscape:

Startups stand to gain manifold:

– Diverse Funding Avenues: GIFT City’s global orientation ensures startups have broader access to funding.

– Pro-Business Ambience: From tax breaks to a unified clearance system, doing business is seamless.

– Innovation as a Pillar: GIFT City’s forward-looking approach fosters startup growth.

– Partnership Potentials: The city’s diverse business landscape offers numerous collaboration opportunities.

– Ready Talent Pool: GIFT City’s vicinity is replete with skilled professionals, ensuring startups have ready access to talent.

– Global Exposure: The city’s international ethos ensures startups think beyond domestic confines.

– Sustainability Drive: GIFT City’s green commitment appeals to eco-conscious startups.

In wrapping, GIFT City isn’t just an infrastructure marvel but a strategic move, poised to revolutionize India’s startup scene. Especially in the backdrop of global financial shifts, like the SVB crisis, GIFT City stands tall, beckoning entrepreneurs and investors alike. As India pitches itself as an Asian financial linchpin, GIFT City is, undoubtedly, its crown jewel.

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The Indian government has recently relaxed the regulations for family offices in the International Financial Service Centre (IFSC), making it an attractive option for wealthy families looking to manage their wealth and invest globally. Family offices in IFSC can set up a Family Investment Fund (FIF), which is a self-managed fund that can pool money from a single family and invest in a variety of assets, including equities, debt, and real estate. However, before getting into the benefits and details, it is important to understand what is a Family Office and What is IFSC

What is a Family Office?

A family office is a privately held company that handles investment management and wealth management for a wealthy family with the goal being to effectively grow and transfer wealth across generations.

Family offices can be either single-family offices or multi-family offices. A single-family office is owned and operated by a single family, while a multi-family office is owned and operated by multiple families.

What is International Financial Service Centre (IFSC)?

An International Financial Services Centre (IFSC) is a special economic zone that is designed to attract foreign investment in financial services. An International Financial Services Centre (IFSC) caters to customers outside the jurisdiction of domestic economy. Such centres deal with the flow of finance, financial products and services across the borders. The IFSC offers a wide range of financial services, including Banking, Insurance, Asset management, Commodity trading, Derivatives trading, Foreign exchange trading, Stock broking.

IFSC typically offer a number of benefits to financial institutions, such as:

• Favourable Tax Regime
• Liberal Regulatory Environment
• Strong Infrastructure
• Skilled Workforce

An IFSC as envisaged under the Indian context “is a jurisdiction that provides financial services to non-residents and residents (institutions) in any currency other than Indian Rupee (INR)”

An IFSC is set up to undertake financial services transactions that are currently carried on outside India by overseas financial institutions and overseas branches/ subsidiaries of Indian financial institutions

Residential Status of Units in IFSC

• Under Foreign Exchange Management regulations – Non-Resident
• Under Income tax laws – Resident

IFSC in India

The first IFSC in India is the Gujarat International Finance Tec-City (GIFT City), which is located in Gandhinagar, Gujarat. GIFT City was established in 2015 and it is currently home to over 100 financial institutions.

In India, an IFSC is approved and regulated by the Government of India under the Special Economic Zones Act, 2005. Government of India has approved GIFT City as a Multi Services Special Economic Zone (‘GIFT SEZ’) and has also notified this zone as India’s IFSC. The launch of the IFSC at GIFT City is the first step towards bringing financial services transactions relatable to India, back to Indian shores

Family Offices in India and Family Investment Funds

India’s financial wealth is projected to reach USD $5.5 trillion by 2025, at a growth rate of 10% annually¹. India is also witnessing a surge in US-dollar millionaires, expected to double by 2026². As a result, there is a growing need for family offices.

The Indian regulators have provided a formal recognition to family offices under the International Financial Services Centres Authority (Fund Management) Regulations, 2022 (“FM Regulations“) with the aim to encourage more Indian family offices to establish Family Investment Fund (FIF) in GIFT City, competing with Singapore and Dubai.

As per FM Regulations, FIF and Single family is defined as follows:

Key Aspects of an FIF

Tax and Exchange Control Regulations

Pre-Requisites for FIF Application

1. Principal officer (PO)

• The applicant shall designate a principal officer who shall be responsible for overall activities of the FME including but not limited to fund management, risk management and compliance.
• PO to be based out of IFSC
• PO to meet following experience:
  • A professional qualification or post-graduate degree or post graduate diploma (minimum two years in duration) in finance, law, accountancy, business management, commerce, economics, capital market, banking, insurance or actuarial science from a university or an institution recognised by the Central Government or any State Government or a recognised foreign university or institution or association; or a certification from any organization or institution or association or stock exchange which is recognised/ accredited by Authority or a regulator in India or Foreign Jurisdiction; and
  • An experience of at least 5 years in related activities in the securities market or financial products including in a portfolio manager, broker dealer, investment advisor, wealth manager, research analyst or fund management.
• Any changes to PO to be with prior approval of IFSCA

2. Other Personnel FIF is required to appoint other personnel commensurate to the size of its operations and activities.

3. Fit and Proper The Applicant, PO, directors/ partners/ designated partners, key managerial personnel and controlling shareholders shall be fit and proper persons, at all times. A person shall be deemed to be a fit and proper person if :-

1. such person has a record of fairness and integrity, including but not limited to-
   • financial integrity;
   • good reputation and character; and
   • honesty
2. such person has not incurred any of the following disqualifications –
   • the person has been convicted by a court for any offence involving moral turpitude or any economic offence or any offence against securities laws;
   • a recovery proceeding has been initiated against the person by a financial regulatory authority and is pending;
   • an order for winding up has been passed against the person for malfeasance;
   • the person has been declared insolvent and not discharged;
   • an order, restraining, prohibiting or debarring the person from accessing or dealing in financial products or financial services, has been passed by any regulatory authority, and a period of three years from the date of the expiry of the period specified in the order has not elapsed;
   • any other order against the person, which has a bearing on the securities market, has been passed by the Authority or any other regulatory authority, and a period of three years from the date of the order has not elapsed;
   • the person has been found to be of unsound mind by a court of competent jurisdiction and the finding is in force;
   • the person is financially not sound or has been categorized as a wilful defaulter;
   • the person has been declared a fugitive economic offender; or
   • any other disqualification as may be specified by the Authority.

4. Infrastructure

• FIF should have necessary infrastructure like adequate office space, equipment, communication facilities and manpower to effectively discharge its activities
• The infrastructure requirements should be commensurate to the size of its operations in IFSC
• The office should be dedicated, secured and accessible only by authorised persons of the FIF

5. Period of Validity The certificate of registration of FIF would remain valid for such period as may be specified by IFSCA unless it is suspended or cancelled by IFSCA or surrendered by FIF and taken on record by IFSCA

Sharing Economic Interest with Stakeholders

• An FIF cannot seek money from individuals / entities outside of the single family. However, FIF may share economic interest with its employees, directors, FME or other persons providing services to the FIF, as per its internal policy to reward the persons providing services to the FIF or to align the interest of such persons with those of the FIF.
• The FIF may accept contributions from the aforementioned persons for the limited purpose of granting economic interest to them, which in no case shall exceed an aggregate of 20% of FIF’s profits. Also, such external persons should be informed of the risks of investment in the FIF.

Exit for stakeholders with Economic Interest

• Exit may be offered by any person / group of persons from the single family who already holds interest in FIF
• Price for acquisition should not be less than the price determined by an independent third-party service provider such as a fund administrator or custodian registered with the IFSCA, a valuer registered with IBBI or such other person as may be specified by IFSCA.
• Such service provider shall take into account the following factors:
  • highest price paid by any person for acquiring any interest in FIF during the last 12 months;
  • the fair price of the FIF, to be determined after taking into account valuation parameters including return on net worth, book value, earning per share, price earning multiple vis-à-vis the industry average, and such other parameters as are customary for valuation of such entities.
• Service provider shall also provide a valuation report giving justification for such valuation.

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