Unlocking global diversification: GIFT City’s promise for family offices

This new regulation is a game-changer as it directly addresses some of the major challenges affecting the global plans of family offices. Here are the advantages that make GIFT City an ideal choice for family offices over offshore destinations:

Unrestricted global diversification

The FIF is a powerful tool for building a diversified portfolio, reaching beyond domestic assets to include a variety of international options, such as listed and unlisted securities, and even tangible assets like real estate, bullion, and art. Individual investors are permitted to contribute up to $250,000 to FIFs (subject to the 20% tax collection at source, or TCS, applicable from 1 July). Meanwhile, a qualifying Indian entity, which must be 90% family-owned, can contribute up to 50% of its net worth.

The fund has to amass a minimum corpus of $10 million within three years of its establishment. Additionally, FIFs have the unique advantage of access to banks situated in GIFT City, where they can potentially take on leverage in the form of loans.

One of the significant benefits of establishing an FIF is the potential it offers to maximize the liberalised remittance scheme (LRS) limit for family members. By using the entity route, an FIF can achieve the required corpus of $10 million and individual family members can save their personal $250,000 global remittance limit for other international ventures.

Progressive regulation

Investors have often voiced concerns over India’s stringent rules on international investments. Nevertheless, the IFSCA, which oversees the regulation of GIFT City, operates based on a modern and transparent regulatory structure that ensures ease of business operations and protection for investors. For instance, only entities with a profitable track record of three years can make overseas direct investments (ODIs), unless they are family offices in the IFSC, where this rule is not applicable.

The recently introduced fund management regulations by IFSCA aim to regulate the fund management entity (FME), a shift from the traditional method of regulating the funds themselves. This, coupled with tax incentives, is likely to lure global fund managers to GIFT city The FIF will be treated as an Indian resident for taxation, while considered a foreign resident for exchange control. All investments made by the FIF will be subject to FME regulations.

The GIFT City advantage

For Indian HNIs, GIFT City offers unparalleled opportunities to access diverse financial services domestically, eliminating the need for overseas transactions. Its close proximity to major Indian cities, such as Ahmedabad and Mumbai ensures seamless connectivity to worldwide markets. Additionally, the costs associated with administration, setting up, and ongoing operations are significantly lower compared to similar foreign jurisdictions.

Tax concessions

Operating within the parameters of a Special Economic Zone (SEZ), GIFT City provides several tax benefits and exemptions. An enticing prospect is the potential to receive a 100% income tax exemption for 10 consecutive years within a 15-year period, (subject to the nature of investments qualifying as requisite ‘business’) along with exemptions from GST. Asset classes with long exit horizons such as global PE/VC funds seem attractive when viewed through this lens.

Family offices that establish a FIF in GIFT City can leverage the expertise of wealth managers and advisers in GIFT City to enhance their investment strategies. The global financial hub status of India relies on IFSCA maintaining its relatively open regulatory approach. If the regulatory body continues to embrace progressiveness and competitiveness, GIFT City has the potential to evolve into a formidable global financial hub in due course.

Nakul Beri is senior managing director, global client origination and coverage at Waterfield Advisors.

Updated: 28 Jun 2023, 09:58 PM IST