The Securities and Exchange Board of India (SEBI) has recently allowed FPIs established in GIFT City to accept more substantial investments from Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs)
India’s first International Financial Services Centre (IFSC), GIFT City, is quickly becoming the preferred choice for foreign portfolio investors (FPIs), overtaking traditional investment routes like Mauritius and Singapore. Legal experts and industry insiders attribute this shift to the Indian government’s proactive measures, which include significant tax incentives and improved ease of doing business in GIFT City, Moneycontrol.com reported.
The Indian government has strategically promoted GIFT City over other investment channels, including those in Mauritius, Singapore, Netherlands, and Luxembourg. These efforts are backed by guaranteed tax benefits and a robust legal and regulatory framework, making GIFT City an attractive alternative. In contrast, tax benefits from other countries, even those based on double taxation avoidance agreements (DTAA), are increasingly scrutinized and perceived as unreliable.
The report quoted Vinod Joseph, Partner at Economic Laws Practice, explains that GIFT City offers a ten-year exemption on various types of business income, a provision that is unlikely to be altered by the government. Conversely, tax agreements like the one between India and Singapore can be renegotiated, potentially eliminating tax benefits. Recent amendments to such treaties have aimed to curb tax avoidance, increasing compliance burdens and reporting requirements for FPIs, thereby driving them towards GIFT City.
Previously, NRIs and OCIs could invest only up to 50 percent in FPIs, but now they can own up to 100 percent of a global fund set up in GIFT City. This rule change has made GIFT City even more appealing compared to Mauritius and Singapore
“The introduction of the Principal Purpose Test (PPT) to prevent treaty abuse has further complicated the investment landscape in Mauritius. This amendment mandates Mauritius-based funds to justify their choice of jurisdiction and confirm their genuine business operations, deterring investors who seek simpler compliance requirements,” Moneycontrol.com quoted Rohit Arora, CEO and Co-founder of Biz2X, as saying.
The report also quoted the views of Shravan Shetty and Siddharth Mody.
Shravan Shetty, Managing Director at Primus Partners, highlights that the government is signaling the investment community to opt for GIFT City for a tax-free structure, making it challenging for FPIs to expect similar support through Mauritius or Singapore routes.
Furthermore, the Securities and Exchange Board of India (SEBI) has recently allowed FPIs established in GIFT City to accept more substantial investments from Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs).
Siddharth Mody, Partner at JSA Advocates and Solicitors, adds that the cost of setting up and operational expenses in GIFT City are considerably lower than in established financial hubs like Singapore and Dubai. This cost efficiency, combined with operational flexibility, makes GIFT City a more viable option for many investors.
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