The GIFT International Financial Services Centre ("GIFT IFSC") established in Gandhinagar, Gujarat is India's first international financial services center with the intent of catering to global MNCs and financial institutions in alignment with international standards of business. To ensure that utmost benefits can be provided, the entire zone has been equipped with world class infrastructure akin to global standards. This newsletter navigates the journey of GIFT IFSC, and the International Financial Services Centres Authority ("IFSCA") set up under the International Financial Services Centres Authority Act, 2019.
IFSCA as a unified regulator is also headquartered at GIFT IFSC and is committed to providing a sound and well-structured regulatory environment by providing a single window clearance system. The IFSCA has been able to achieve this through unification of the powers previously held by four separate regulators: Reserve Bank of India ("RBI"), Securities and Exchange Board of India ("SEBI"), Insurance Regulatory and Development Authority of India ("IRDAI"), and Pension Fund Regulatory and Development Authority of India ("PFRDAI").
We are providing transactional updates including a bird's eye view on legal and regulatory updates related to the GIFT IFSC.
Consultation Paper on regulatory approach towards Tokenization of Real-World Assets
February 26, 2025 - The consultation paper issued by the International Financial Services Centres Authority (IFSCA) aims to present its perspective on the regulation of tokenization for real-world assets, including financial securities like funds, bonds, and stocks, as well as other assets such as payments, deposits, intellectual property, commodities, and commercial real estate. The paper seeks to highlight the regulatory challenges identified by the IFSCA and the Expert Committee on Asset Tokenization, with the goal of engaging relevant stakeholders and domain experts to find balanced and effective solutions. This initiative reflects IFSCA's commitment to a collaborative, consultative approach to regulation, ensuring that the emerging field of asset tokenization is met with a well-considered legal and regulatory framework.
The proposed regulatory approach is centered on providing legal recognition to digital tokens representing ownership or beneficial interest in underlying real-world assets. It also aims to establish reliable mechanisms for the issuance, trading, custody, clearing, and settlement of digital tokens, fostering the orderly growth of the digital token market. A key aspect of the framework will include market infrastructure development, proportionate regulatory requirements based on risk, and a strong focus on risk management, particularly around anti-money laundering (AML), know your customer (KYC) procedures, governance, technology, and cyber risks. Furthermore, the approach emphasizes investor protection, ensuring standards of due diligence, disclosure, and grievance redressal. IFSCA also intends to encourage continuous innovation in the tokenization space, including through regulatory flexibility, self-regulation, and a disclosure-based regime.
IFSCA invites public comments on a series of questions outlined in the paper, with explanations provided to help set the context and clarify regulatory concerns. These questions are organized into four thematic sets, and the authority encourages readers to engage with the consultation process by responding to any of the questions across these sets. IFSCA is not bound to adopt any of the suggestions but values the input of stakeholders in shaping a balanced regulatory approach.
Source: GIFT IFSCA website [Public Consultation dated February 26, 2025]
Interest on late payment of fees by entities undertaking permissible activities in IFSC
February 26, 2025 - This circular provides clarification and updates regarding the fee structure for entities undertaking permissible activities in the IFSC, following the previous circular issued on May 17, 2023, and amended on February 06, 2024. It specifies that if fees or dues are not paid by the due date, an additional 20% late fee will be charged, along with 15% simple interest per month on the late fee amount, calculated for each full month the payment remains overdue. An example illustrates that if an entity's payment of USD 1,000 is delayed by three months, the total payable amount would be USD 1,290 (original fee + late fee + interest). Furthermore, starting March 1, 2025, the interest on unpaid or short-paid fees will change to 0.75% per month, with examples showing how this new structure will apply in cases of late payment.
Source: GIFT IFSCA website [Circular dated February 26, 2025]
Updates in the framework for Aircraft Leasing
February 26, 2025 - This circular outlines the framework for entities seeking registration as a "Lessor" under the International Financial Services Centres Authority (IFSCA) Finance Company Regulations to engage in aircraft leasing activities. It includes provisions for both operating and financial leases related to aircraft, helicopters, aircraft engines, ground support equipment, and aviation training devices.
Key Points:
- Definition of Aircraft Ground Support Equipment: This refers to equipment required for ramp handling services, as specified in the relevant IFSCA notification.
- Eligibility and Registration: Applicants must meet certain criteria, including setting up operations within the International Financial Services Centres (IFSC) as a company, limited liability partnership (LLP), trust, or other acceptable entity forms. They must also ensure compliance with jurisdictional requirements.
- Permissible Activities for Lessors:
- Operating leases for aircraft, ground support equipment, and training simulation devices.
- Asset management support services for leased assets, either owned or leased through subsidiaries.
- Sale and leaseback arrangements, and other transactions related to these assets.
- Capital Requirements:
- Entities must maintain a minimum owned fund of USD 200,000 for general leasing activities and USD 3 million for financial lease activities.
- Fees: Applicants must pay an application fee, registration fee, and an annual recurring fee. The amounts vary based on the type of lease and entity registration.
- Compliance and Reporting: Lessors must comply with various regulations, including anti-money laundering (AML) and know-your-customer (KYC) guidelines. They must also submit annual reports and comply with specific accounting and operational rules.
- Restrictions on Transactions: Lessors must ensure that leased assets are not solely operated or used by individuals or entities based in India, with certain exceptions outlined in the circular.
- Action in Case of Default: If a registered entity fails to meet the required conditions, the IFSCA may take necessary actions.
This framework provides the regulatory structure for entities to engage in aircraft leasing within the IFSC, with a focus on promoting transparency, compliance, and a secure financial environment for such activities.
Source: GIFT IFSCA website [Circular dated February 26, 2025]
Amendment to the framework of Aircraft Lease with regards to the transaction with resident Indians
February 26, 2025: This circular announces amendments to the 'Framework for Aircraft Lease' (AL framework), specifically concerning transactions involving individuals or entities residing in India. The changes allow Lessors in the International Financial Services Centre (IFSC) to purchase assets covered by the framework from manufacturers in India. The revised Clause O.2 outlines that Lessors cannot acquire assets if they will be solely operated or used by residents in India unless the acquisition is from a non-group entity, part of a sale and leaseback arrangement for assets being imported into India for the first time, or directly from an Indian manufacturer. These amendments are effective immediately and are issued under the powers of the IFSCA Act, 2019.
Source: GIFT IFSCA website [Circular dated February 26, 2025]
Consultation Paper for Securitization requirements by overseas insurers or re-insurers
February 26, 2025 - This consultation paper seeks public feedback on proposed securitization requirements for overseas insurers or reinsurers providing insurance coverage to entities regulated by the IFSCA. The IFSCA aims to establish a globally competitive regulatory ecosystem for financial products and services, with a focus on both supporting the Indian economy and creating an international platform. Insurance is vital to the financial ecosystem within GIFT-IFSC, and it's essential for IFSCA-regulated entities (REs) to access customized insurance solutions aligned with global best practices. While local insurers are working to develop such products, some REs have found it challenging to secure suitable coverage. As a result, IFSCA has permitted these REs to access insurance policies from overseas insurers, under specific conditions. The IFSCA encourages international insurers to offer products tailored to the needs of businesses in GIFT-IFSC, while also ensuring that the interests of REs are protected and the vision of turning IFSC into a global insurance hub is realized.
Source: GIFT IFSCA website [Consultation Paper dated February 26, 2025]
Japan's MUFG completes first blockchain-enabled trade deal with Tata International at GIFT City
February 25, 2025 - MUFG Bank, Japan's leading financial institution, has completed its first fully digitalised trade finance transaction at its GIFT City branch, facilitating a $15-million Letter of Credit for Tata International Limited, a subsidiary of the Tata Group. By leveraging the Contour Network Hub from Xalts, the transaction was digitally negotiated, prepared, and accepted within just three hours—dramatically faster than the traditional two-day process. This innovation marks a significant leap in international trade efficiency and underscores MUFG's commitment to embracing technology in trade digitalisation. The transaction also highlights the strategic importance of MUFG's GIFT City branch, positioning it as one of the largest lenders at the GIFT IFSC and reinforcing the bank's support for India's ambition to become a global financial hub. Both MUFG and Tata International praised the collaboration for streamlining operations, with the latter emphasizing the direct business impact of digitalisation in reducing time and costs. With this milestone, MUFG aims to further establish itself as a preferred trade finance partner, leveraging digital solutions to drive sustainable growth and deliver exceptional value to its clients.
Source: Livemint
GIFT City ties up with Zaggle for prepaid citizen card and visitor management system
February 25, 2025 - GIFT City has partnered with Zaggle, a Hyderabad-based SaaS company, to launch a co-branded Prepaid Citizen Card and Visitor Management System (VMS). This collaboration, spanning five years with potential extensions, aims to improve security and streamline access for residents, employees, and visitors in GIFT City. Zaggle will handle the full spectrum of citizen card services, including identification, banking integration, and VMS implementation. The Citizen Card will act as a secure digital ID and payment tool, facilitating seamless transactions for services like transportation, dining, and EV charging. Meanwhile, the VMS will provide robust visitor tracking and access control, particularly enhancing security in the GIFT Special Economic Zone (SEZ). The launch is expected within the next 3-6 months.
Source: Business Line
Registration on FIU-IND FINGate 2.0 portal for compliance with IFSCA (AML, Counter-Terrorist and KYC) Guidelines, 2022
February 25, 2025 - This circular, building upon the March 14, 2024, notice, emphasizes the requirement for Regulated Entities to register on the FIU-IND FINGate 2.0 portal for compliance with the IFSCA's Anti-Money Laundering, Counter-Terrorist Financing, and Know Your Customer guidelines. Registration must be completed before starting business, or within 30 days if there is an urgent need to begin operations. If there are any issues, including technical difficulties, entities must notify the FIU-IND helpdesk and the IFSCA's AML & CFT division via email. Additionally, any changes to a business's Line of Business must be updated on the portal within 30 days. Failure to comply with these requirements will be considered a breach of the registration conditions. The circular is available on the IFSCA website.
Source: GIFT IFSCA website [Circular dated February 25, 2025]
Appointment and Changes in the Key Managerial Personnel by a Fund Management Entity (FME)
February 20, 2025 - The IFSCA has issued a circular outlining the procedure for the appointment and change of Key Managerial Personnel (KMP) by Fund Management Entities (FMEs) under the IFSCA (Fund Management) Regulations, 2025. FMEs are required to appoint KMPs based in the IFSC who meet specific qualifications and experience criteria. Any appointment or change to KMPs must be reported to the IFSCA in a prescribed format, along with the applicable fee. The Authority will respond within seven working days, and any comments should be considered by the FME. The FME is responsible for ensuring that KMPs meet the eligibility criteria. If a KMP position becomes vacant, the FME must notify the Authority within three months and fill the vacancy within six months. This circular comes into effect immediately and is issued under the powers of the IFSCA Act, 2019.
Source: GIFT IFSCA website [Circular dated February 20, 2025]
Introduction of IFSCA (Fund Management) Regulations, 2025
February 19, 2025 - The IFSCA officially notified the FM Regulations 2025 on February 19, 2025, replacing the previous Fund Management Regulations from 2020. This update follows the Union Finance Minister's call for a comprehensive review of financial sector regulations, aimed at reducing compliance costs and improving ease of business. The revised regulations focus on facilitating fund management activities in the GIFT IFSC by offering more flexibility and clarity. Notable changes include reducing the minimum corpus for non-retail schemes to USD 3 million, allowing FMEs greater flexibility in appointing key personnel, and simplifying regulatory requirements for retail schemes, such as making the listing of close-ended retail schemes optional. The regulations also aim to enhance the growth of Portfolio Management Services (PMS) by lowering the minimum investment amount to USD 75,000. Additionally, FMEs can now open branches or representative offices in other jurisdictions for marketing and client service without prior approval. These changes are expected to streamline operations, safeguard investor interests, and foster the growth of the fund management sector in IFSC.
Source: GIFT IFSCA website [Circular dated February 19, 2025]
Changes in permissible transactions through SNRR Accounts in IFSCA
February 18, 2025 – The IFSCA has issued an amendment to its January 29, 2025 circular regarding the use of Special Non-Resident Rupee (SNRR) accounts for IFSC units. The updated circular revises two key clauses. Firstly, Clause 2 now clarifies that the SNRR accounts can be used for business-related transactions such as administrative expenses, INR proceeds from the sale of scrap, and government incentives in INR, outside the IFSC. Secondly, Clause 3 highlights that a recent amendment to the Foreign Exchange Management (Deposit) Regulations allows IFSC units to open SNRR accounts with authorized dealers in India (outside IFSC) for business transactions outside the IFSC. However, it is emphasized that all transactions involving financial services must be conducted through a Banking Unit within the IFSC. This circular is issued under the authority granted by the International Financial Services Centres Authority Act, 2019.
Source: GIFT IFSCA website [Circular dated February 18, 2025]
Introduction of IFSCA (Bullion Market) Regulations, 2025
February 17, 2025 - The IFSCA has notified the Bullion Market Regulations, 2025, on February 13, 2025, replacing the previous Bullion Exchange Regulations, 2020. The new regulations expand the scope beyond just bullion exchanges to include other participants in the bullion market. Key changes include a higher minimum net worth requirement of USD 10 million for both Bullion Exchanges and Bullion Clearing Corporations, with the possibility of a higher amount based on business size. The regulations also introduce a clearer definition of Key Management Personnel (KMP) and expand the definition of 'consumer' to include a broader range of market participants. Other changes include the introduction of non-independent directors, a code of conduct for Bullion Market Infrastructure Institutions (MIIs), and provisions for orderly winding down of operations. The regulations aim to enhance price discovery, clarify regulatory provisions, and ensure customer protection in the bullion market within the IFSC.
Source: GIFT IFSCA website [Press Release dated February 17, 2025]
Bank of Maharashtra (BOM) gets RBI nod for opening GIFT City Branch
February 16, 2025 - The Bank of Maharashtra (BoM) has received approval from the Reserve Bank of India to open an International Financial Services Centre (IFSC) Banking Unit at GIFT City, marking its first international branch for offshore banking operations from India. This expansion aligns with the bank's global growth strategy and will enable it to offer specialized banking services to clients, particularly those with foreign currency needs. Situated in Gandhinagar, Gujarat, GIFT City is India's first IFSC, designed to enhance India's financial ecosystem by providing world-class services locally. The new unit will help BoM access international financial markets, offer products like External Commercial Borrowings, and meet the funding needs of overseas entities linked to its domestic clients, further boosting the bank's capabilities and global reach.
Source: GIFT website [News dated February 16, 2025]
Cancellation of approval/authorization granted to Prowess Insurance Brokers Pvt. Ltd.
February 13, 2025 - The IFSCA has revoked the approval granted to Prowess Insurance Brokers Pvt. Ltd. (PIBPL) to operate a Branch office in the GIFT IFSC as an Insurance Intermediary Office (IIIO), as of February 13, 2025. This decision was made due to PIBPL's failure to comply with the IFSCA's directives and the provisions outlined in the IFSCA (Insurance Intermediaries) Regulations, 2021. The cancellation was executed under the powers granted to IFSCA by the IFSCA Act, 2019, and the relevant sections of the Insurance Act, 1938.
Source: GIFT IFSCA website [Press Release dated February 13, 2025]
Changes in eligibility criteria of Remote Trading Participants on the Stock Exchanges
February 11, 2025 – The IFSCA, through its circular IFSCA/CMD-MIIT/RTP/2023-24/001, originally permitted foreign entities without a physical presence in the IFSC to trade on Stock Exchanges as Remote Trading Participants (RTPs) on a proprietary basis. After receiving feedback and suggestions from market participants and Stock Exchanges, the IFSCA has decided to amend the eligibility criteria for RTPs to encourage more participation. The revised criteria include regulations for entities regulated by their home country's securities market authority and entities from specific foreign Stock Exchanges. These entities must meet various conditions, including not being based in countries with significant anti-money laundering issues, trading only in cash-settled derivatives, and engaging in clearing through IFSCA-registered Clearing Members. Furthermore, entities must comply with anti-money laundering and customer verification guidelines. The IFSCA now supersedes its previous circular with this updated one, and Stock Exchanges are required to update their bylaws accordingly, reporting progress to the IFSCA monthly.
Source: GIFT IFSCA website [Circular dated 11th February 2025]
Liquidity Enhancement Scheme for Bullion Exchange
February 04, 2025 – IFSCA introduced a circular for a liquidity enhancement scheme with respect to Bullion Exchange. Through the circular, Bullion Exchange has been permitted to introduce on or more liquidity enhancement schemes ("LES") to indirectly enhance the liquidity of illiquid commodity derivatives contracts.
Through this circular, the IFSCA has given complete authority to respective Bullion Exchanges as they can formulate their own benchmarks. However, the incentives under LES can only be in the following two forms:
(a) Discount in fees, adjustment in fees in other segments or cash payment: The incentives during a financial year shall not exceed 25% of the net profits or the free reserves of the exchange, whichever is higher.
(b) Shares, including options and warrants, of the Bullion Exchange: The shares that may accrue on the exercise of warrants or options, given incentives under all LES, shall not exceed 25% of the issued and outstanding shares for a financial year.
Source: GIFT IFSCA website [Circular dated 4th February 2025]
Impact of Budget on GIFT City
February 02, 2025 - The issuance of offshore derivative instruments (ODIs), commonly known as participatory notes (P-Notes), from GIFT City is expected to rise following the recent relaxations announced in the Budget for entities operating within the International Financial Services Centre (IFSC). Experts believe that the new measures make it more appealing to issue P-notes from GIFT City compared to other offshore jurisdictions like Mauritius and Singapore. Finance Minister Nirmala Sitharaman's Budget speech introduced an exemption on income arising from the transfer of non-deliverable forward contracts with FPIs in the IFSC. This is anticipated to encourage offshore entities to shift their ODI businesses to India and allows non-bank FPIs, such as broker-dealers and alternative investment funds, to issue ODIs in the IFSC.
The tax benefits in GIFT City are proving to be a major draw. While FPIs in Singapore must meet stringent conditions to avail a 15% tax rate on dividends under the India tax treaty, GIFT City offers a lower 10% rate with far fewer requirements. Suresh Swamy, Partner at Price Waterhouse & Co LLP, noted that GIFT City's tax regime provides greater certainty compared to the more complex and conditional tax structure in Singapore, where non-compliance could result in taxes as high as 40%. Additionally, Rajesh Gandhi from Deloitte highlighted that GIFT City's 10% withholding tax on dividends is more competitive than Singapore's 15%, with the added advantage of no anti-avoidance rules like India's GAAR or the principal purpose test under the Multilateral Instrument (MLI) that apply in Singapore.
The recent budget changes, which extend tax exemptions on ODIs, are set to take effect from April 1, 2026. This is expected to further boost GIFT City's position as a hub for ODI issuance, especially considering that in November 2024, the value of outstanding P-notes stood at Rs 1.4 trillion, though still a small fraction of overall FPI assets under custody. While P-notes once represented a larger share of FPI assets, their appeal has waned due to tighter regulations and disclosure requirements. However, GIFT City's regulatory environment is seen as a more favorable option for investors seeking efficient access to Indian markets.
With prominent fund entities such as Morgan Stanley, Lighthouse Canton, and Lightrock already registered in GIFT City, and derivative transactions in the IFSC amounting to $40 billion in December 2024, the city is emerging as an increasingly important financial hub. Currently, 91 FPIs are registered in GIFT-IFSC, and with these new measures, the area is poised to attract more international investors looking for favorable tax and regulatory conditions.
Source: Business Standard
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