India has always been the most preferred market to set up huge multinational companies as well as small to medium sized startups. However, the development of Gujarat’s GIFT City has made Ahmedabad a foreign investment magnet for the past decade.
Numerous foreign portfolio investors (FPIs) are raving about investing in GIFT City. Gujarat’s GIFT City is India’s first and only International Financial Services Centre. The insanely increasing popularity of GIFT City has made multiple foreign portfolio investors turn their investing ways around to India instead of going to Mauritius, Singapore, etc. This shift is a positive result of the Indian government’s attractive tax benefits and streamlined business activities.
We are very well aware of the recent tax regimes for businesses planning to move to GIFT City or the ones that are already a part of the City. GIFT City’s tax benefits are guaranteed and backed by a robust legal and regulatory framework. This stands in contrast to the previously uncertain benefits offered through double taxation avoidance agreements (DTAAs) with countries such as Mauritius and Singapore. Legal experts are drawing attention to the fact that these DTAA benefits are currently being scrutinized and are becoming less reliable.
Vinod Joseph, a Partner at Economic Laws Practice, has emphasized the security of GIFT City's ten-year business income exemption, highlighting its low likelihood of being modified by the government. In contrast, India has the ability to renegotiate DTAs with other countries, which could potentially lead to the removal of tax benefits.
Recent changes to tax treaties have led to an increased preference for GIFT City among Foreign Portfolio Investors (FPIs). These changes were implemented to prevent tax avoidance and have resulted in higher compliance burdens and reporting requirements for FPIs. As a result, GIFT City has become more attractive to investors due to its simplified regulatory environment.
Rohit Arora, CEO and Co-founder of Biz2X, emphasizes that these amendments have driven investors towards the more straightforward regulatory framework offered by GIFT City.
The new amendment introduces the Principal Purpose Test (PPT) to prevent treaty abuse. This means that Mauritius-based funds that invested in India before the cut-off date must now prove their choice of jurisdiction and show genuine business operations in Mauritius.
The Indian government has indicated that for a tax-free structure, Foreign Portfolio Investors (FPIs) should consider GIFT City. Shravan Shetty, Managing Director at Primus Partners, has observed that depending on the Mauritius or Singapore routes without government support is becoming increasingly difficult.
The Securities and Exchange Board of India (SEBI) has made it easier for Foreign Portfolio Investors (FPIs) established in GIFT City to accept more investments from Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs).
Previously, NRIs and Overseas Citizenship of India (OCIs) were allowed to invest up to 50 percent in FPIs, but now they can own up to 100 percent of a global fund set up at GIFT City. This change has resulted in a noticeable preference for GIFT City over Mauritius and Singapore, as noted by Vinod Joseph.
In addition to this, the operation costs and the business setup charges are much lower in GIFT City compared to major financial hubs like Dubai and Singapore. This benefit acts as a cherry on top for foreign investments in GIFT City.
Highlighting this, Siddharth Mody, Partner at JSA Advocates and Solicitors said that these low business setting up charges and operation costs makes the decision of investing in GIFT City more viable and most favorable for those who are seeking flexibility in conducting business operations and managing finances efficiently.
Bottom Line
The rise of Gujarat International Finance Tec-City (GIFT City) as a robust and influential financial center is causing a notable shift in the investment preferences of Foreign Portfolio Investors (FPIs), diverting their attention from traditional hubs such as Mauritius and Singapore.
The implementation of extensive tax incentives, alongside state-of-the-art infrastructure and a conducive regulatory framework, has elevated GIFT City to an immensely appealing destination for international investors.
With its ongoing expansion and development, GIFT City is poised to further solidify its status as a prominent financial hub in Asia, thereby instigating significant transformations in the global financial arena.
Got one more reason to invest in GIFT City today? Contact RES Management and get to invest in the best properties of India’s first IFSC center.
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