An International Financial Services Centre (IFSC) is a jurisdiction that provides financial services to non-residents and residents in foreign currencies. These centers (Like Gift City in India) are designed to offer a wide range of financial services, such as banking, insurance, asset management, and securities trading. They operate within a special regulatory framework designed to attract international business.
Key Features of an IFSC
- Regulatory Framework: IFSCs have a distinct regulatory environment that offers benefits such as tax incentives, reduced regulations, and specialized laws to facilitate international financial transactions.
- Tax Benefits: Many IFSCs offer tax incentives to attract businesses and financial institutions, including reduced corporate tax rates, exemptions from certain taxes, and other financial incentives.
- Infrastructure: IFSCs provide state-of-the-art infrastructure, including technology, communications, and facilities, to support financial services operations.
- Business Environment: These centers create a business-friendly environment with streamlined processes for setting up and running financial services businesses.
- Global Integration: IFSCs are well-integrated into the global financial system, providing access to international markets and facilitating cross-border transactions.
Examples of IFSCs
- London: One of the oldest and most established IFSCs, known for its robust financial ecosystem and significant global financial market participation.
- New York: Another leading IFSC, known for its influence on global finance, particularly in areas such as investment banking and securities trading.
- Singapore: An emerging IFSC, offering strategic location advantages and strong regulatory support to attract global financial services firms.
- Dubai International Financial Centre (DIFC): A prominent IFSC in the Middle East, providing a secure and efficient business environment for financial services.
- GIFT City, India: Gujarat International Finance Tec-City (GIFT City) is an emerging IFSC in India. It is aimed at providing a competitive business environment to attract international financial services firms.
Benefits of IFSCs
- Enhanced Financial Services: By providing a concentrated hub for financial services, IFSCs enhance the quality and efficiency of financial services.
- Economic Growth: They contribute to economic growth by attracting foreign investments, creating jobs, and promoting trade.
- Innovation: IFSCs often become centers for financial innovation, including new financial products and technologies.
- Access to Capital: Businesses and governments in the region can access a broader pool of capital, facilitating investment and development projects.
Challenges and Considerations
- Regulatory Risks: While the regulatory environment is designed to be attractive, it must also be robust to prevent issues such as money laundering and financial fraud.
- Global Competition: IFSCs compete globally to attract businesses, which can lead to a “race to the bottom” in terms of regulation and taxation.
- Economic Dependence: Over-reliance on financial services can make an economy vulnerable to global financial market fluctuations.
Overall, IFSCs play a crucial role in the global financial system, providing specialized services and facilitating international trade and investment. They are critical for the financial integration of economies and support the growth of the global financial services industry.
Update of Gift City – Gujarat
- Gujarat International Finance-Tec City (GIFT) consists of a Multi-Service Special Economic Zone (SEZ), which has been notified as India’s maiden International Financial Services Centre.
- It has a Single unified regulator for IFSC-Powers vested in IFSCA for regulation of financial institutions, financial services, and financial products in the IFSC.
- The GIFT City promises to offer a wide range of services like capital market transactions, banking services, offshore asset management, and other financial transactions.
- The goal is to return home to the funds invested in India brought from other countries.
- A free trade zone with various creates a welcoming place where India-centric trading that has moved to Dubai, Mauritius, or Singapore tax incentives. They have enabled the flow of finance, financial products, and services across borders.
Why GIFT City?
GIFT City IFSC operates in 6 business activities – asset management, banks, capital markets, insurance, other financial institutions, and emerging activities. Its benefits are:
- Lower Operating Costs.
- NRIs, and OCIs coming via Gift City to gain greater exposure to domestic equities.
- Investment by NRIs through GIFT City allows them to hold up to 100 percent in a foreign portfolio.
- Non-resident investors are exempt from obtaining PAN and filing returns of income in India.
- CAT III AIFs are subject to fund-level taxation (LTCG, STCG as applicable. Business Income Exempt).
- No tax at the investor level for income from AIFs.
- Engagement with Unified financial regulator.
- Enabling the ecosystem for fund management with the presence of key stakeholders including custodians and fund administrators.
- No diversification limits on investments made by AIF in IFSC. However, the investment made is in line with the investors’ risk appetite. Also, appropriate disclosures need to be made for the investment.
Gift City is a breakthrough to maximize the participation of the Indian Diaspora worldwide. It enhances an inclusive, tax-efficient & regulated manner. We expect many new things to happen in this space. We will update you soon!
