Understanding GIFT City: A Guide from CA Pradip K. Modi & Co.
Gain insights into GIFT City - Gujarat's International Finance Tech-City, with a focus on FEMA perspectives, IFSCA, and ICAI's FEMA certificate course. Learn more about this financial hub through an overview provided by CA Pradip K. Modi.
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GIFT CITY IFSCA FEMA PERSPECTIVES ICAI FEMA CERTIFICATE COURSE 02-01-2024 CA Pradip K. Modi P. K. Modi & Co. Ahmedabad +91 98240 14310 www.pkmodi.com
WHAT IS GIFT CITY ? (Gujarat International Finance Tech- City) AN OVERVIEW FOR GIFT CITY Click Here Karloi Consulting LLP 2
IFSCA (International Financial Services Centres Authority) TO KNOW MORE ABOUT IFSCA FUND REGIME IN GIFT CITY - Click Here FINTECH IN GIFT CITY - Click Here SHIP LEASING IN GIFT CITY Click Here Karloi Consulting LLP 3
POWERS OF UNIFIED REGULATOR IFSCA IFSCA ACT, 2019 Comprises of 34 Sections and 2 Schedules. Various Regulations are formulated for supervision and control purpose Karloi Consulting LLP 4
IFSCA Section : 3 of IFSCA 3. (1) In this Act, unless the context otherwise requires, (a) "appropriate regulator" means any financial sector regulator specified in the First Schedule to this Act; (c) "financial institution" means a unit set up in an International Financial Services Centre and which is engaged in rendering financial services in respect of any Karloi Consulting LLP 5
IFSCA Section : 3 of IFSCA 3. (1) In this Act, unless the context otherwise requires, (d) "financial product" means (i) securities; (ii) contracts of insurance; (iii) deposits; (iv) credit arrangements; (v) foreign currency contracts other than contracts to exchange one currency for another that are to be settled immediately; and (vi) any other product or instrument that may be notified by the Central Government from time to time. Karloi Consulting LLP 6
IFSCA Section : 3 of IFSCA 3. (1) In this Act, unless the context otherwise requires, (e) "financial service" means (i) buying, selling, or subscribing to a financial product or agreeing to do so; (ii) acceptance of deposits; (iii) safeguarding and administering assets consisting of financial products, belonging to another person, or agreeing to do so; (iv) effecting contracts of insurance; (v) offering, managing or agreeing to manage assets consisting of financial products belonging to another person; Karloi Consulting LLP 7
IFSCA Section : 3 of IFSCA 3. (1) In this Act, unless the context otherwise requires, (e) "financial service" means (vi) exercising any right associated with a financial product or financial service; (vii) establishing or operating an investment scheme; (viii) maintaining or transferring records of ownership of a financial product; (ix) underwriting the issuance or subscription of a financial product; (x) providing information about a person's financial standing or creditworthiness; (xi) selling, providing, or issuing stored value or payment instruments or providing payment services; Karloi Consulting LLP 8
IFSCA Section : 3 of IFSCA 3. (1) In this Act, unless the context otherwise requires, (e) "financial service" means (xii) making arrangements for carrying on any of the services in sub-clauses (i) to (xi); (xiii) rendering or agreeing to render advice on or soliciting for the purposes of (A) buying, selling, or subscribing to, a financial product; or (B) availing any of the services in sub-clauses (i) to (xi); or (C) exercising any right associated with a financial product or any of the services in clauses (i) to (xi); (xiv) any other service that may be notified by the Central Government from time to time; Karloi Consulting LLP 9
IFSCA Section : 12 of IFSCA (Power and Functions of Authority) 12. (1) Subject to the provisions of this Act, it shall be the duty of the Authority to develop and regulate the financial products, financial services and financial institutions in the International Financial Services Centres, by such measures as it deems fit. (2) Without prejudice to the generality of the provisions in sub-section (1), the powers and functions of the Authority shall include (a) regulating the financial products, financial services and financial institutions in an International Financial Services Centre which have been permitted, before the commencement of this Act, by any regulator for any International Financial Services Centre; Karloi Consulting LLP 10
IFSCA Section : 12 of IFSCA (Power and Functions of Authority) (b) regulating such other financial products, financial services or financial institutions in the International Financial Services Centres as may be notified by the Central Government from time to time; (c) recommending to the Central Government such other financial products, financial services and financial institutions which may be permitted in an International Financial Services Centre by the Central Government; (d) perform such other functions as may be prescribed. Karloi Consulting LLP 11
IFSCA Section : 13 of IFSCA (Power and Functions of Authority) 13. (1) Notwithstanding anything contained in any other law for the time being in force, all powers exercisable by an appropriate regulator, specified under column (2) of the First Schedule, under the respective Acts as specified in the corresponding entry under column (3) of the said Schedule shall, in the International Financial Services Centres, be exercised by the Authority in so far as it relates to the regulation of the financial products, financial services or financial institutions, as the case may be. (2) The Central Government may, by notification, amend the First Schedule by including therein any financial sector regulator and the law administered by it, or omitting therefrom any financial sector regulator or any law specified therein, and on the publication of such notification, such regulator and the law shall be deemed to be included in, or omitted from, the First Schedule. Karloi Consulting LLP 12
IFSCA Section : 13 of IFSCA (Power and Functions of Authority) (3) Every notification issued under sub-section (2) shall be laid before each House of Parliament. (4) For the purposes of sub-section (1), the provisions of the respective Acts specified under column (3) of the First Schedule relating to (a) the manner of filing an application for recognition or registration or withdrawal of recognition or registration or furnishing of information or reports; (b) the procedure of inspection, investigation or prosecution of offences, settlement of civil and administrative proceedings, compounding or adjudication of any offence or penalty, or actions to be taken in furtherance of such inspection, investigation, or adjudication or filing of appeals arising therefrom; Karloi Consulting LLP 13
IFSCA Section : 13 of IFSCA (Power and Functions of Authority) (c) the determination or settlement, as the case may be, of any fee or fine or penalty or any other sum of amount or punishment for the contravention of any provisions of respective Acts specified in the First Schedule and recovery of such fine or penalty, shall, mutatis mutandis, apply to financial products, financial services and financial institutions under this Act, as they apply to the financial products, financial services and financial institutions under such respective Acts. Karloi Consulting LLP 14
IFSCA Karloi Consulting LLP 15
IFSCA Karloi Consulting LLP 16
FEMA (Foreign Exchange Management Act) Section : 2 2 (e) In this Act, unless the context otherwise requires, (e) capital account transaction means a transaction which alters the assets or liabilities, including contingent liabilities, outside India of persons resident in India or assets or liabilities in India of persons resident outside India, and includes transactions referred to in sub-section (3) of section 6; 2 (j) current account transaction means a transaction other than a capital account transaction and without prejudice to the generality of the foregoing such transaction includes, (i) payments due in connection with foreign trade, other current business, services, and short- term banking and credit facilities in the ordinary course of business, (ii) payments due as interest on loans and as net income from investments, (iii) remittances for living expenses of parents, spouse and children residing abroad, and (iv) expenses in connection with foreign travel, education and medical care of parents, spouse and children; Karloi Consulting LLP 17
FEMA (Foreign Exchange Management Act) Section : 5 Current account transactions. Any person may sell or draw foreign exchange to or from an authorised person if such sale or drawal is a current account transaction: Provided that the Central Government may, in public interest and in consultation with the Reserve Bank, impose such reasonable restrictions for current account transactions as may be prescribed. Karloi Consulting LLP 18
FEMA (Foreign Exchange Management Act) Section : 6 Capital Account transactions (1) Subject to the provisions of sub-section (2), any person may sell or draw foreign exchange to or from an authorised person for a capital account transaction. (2) The Reserve Bank may, in consultation with the Central Government, specify 1[(a) any class or classes of capital account transactions which are permissible;] (b) the limit up to which foreign exchange shall be admissible for such transactions: 2[(c) any conditions which may be placed on such transactions;] 3[Provided that the Reserve Bank shall not impose any restriction on the drawal of foreign exchange for payments due on account of amortization of loans or not depreciation of direct investments in the ordinary course of business.] 1. Clause (a) shall stand substituted (date to be notified) by Act 20 of 2015, s. 139, to read as under: (a) any class or classes of capital account transactions, involving debt instruments, which are permissible;". 2. Clause (c) shall stand inserted (date to be notified) by s. 139, ibid. 3. The proviso shall stand substituted (date to be notified) by s. 139, ibid., to read as under: Karloi Consulting LLP 19
FEMA (Foreign Exchange Management Act) Section : 6 Capital Account transactions Provided that the Reserve Bank or the Central Government shall not impose any restrictions on the drawal of foreign exchange for payment due on account of amortisation of loans or for depreciation of direct investments in the ordinary course of business. . 1[(2A) The Central Government may, in consultation with the Reserve Bank, prescribe (a) any class or classes of capital account transactions, not involving debt instruments, which are permissible; (b) the limit up to which foreign exchange shall be admissible for such transactions; and (c) any conditions which may be placed on such transactions.] 2[(3) Without prejudice to the generality of the provisions of sub-section (2), the Reserve Bank may, by regulations prohibit, restrict or regulate the following: Karloi Consulting LLP 20
FEMA (Foreign Exchange Management Act) Section : 6 Capital Account transactions a) transfer or issue of any foreign security by a person resident in India; (b) transfer or issue of any security by a person resident outside India; (c) transfer or issue of any security or foreign security by any branch, office or agency in India of a person resident outside India; (d) any borrowing or lending in foreign exchange in whatever form or by whatever name called; (e) any borrowing or lending in rupees in whatever form or by whatever name called between a person resident in India and a person resident outside India; (f) deposits between persons resident in India and persons resident outside India; (g) export, import or holding of currency or currency notes; (h) transfer of immovable property outside India, other than a lease not exceeding five years, by a person resident in India; (i) acquisition or transfer of immovable property in India, other than a lease not exceeding five years, by a person resident outside India; (j) giving of a guarantee or surety in respect of any debt, obligation or other liability incurred (i) by a person resident in India and owed to a person resident outside India; or (ii) by a person resident outside India.] Karloi Consulting LLP 21
FEMA (Foreign Exchange Management Act) Section : 6 Capital Account transactions (4) A person resident in India may hold, own, transfer or invest in foreign currency, foreign security or any immovable property situated outside India if such currency, security or property was acquired, held or owned by such person when he was resident outside India or inherited from a person who was resident outside India. (5) A person resident outside India may hold, own, transfer or invest in Indian currency, security or any immovable property situated in India if such currency, security or property was acquired, held or owned by such person when he was resident in India or inherited from a person who was resident in India. (6) Without prejudice to the provisions of this section, the Reserve Bank may, by regulation, prohibit, restrict, or regulate establishment in India of a branch, office or other place of business by a person resident outside India, for carrying on any activity relating to such branch, office or other place of business. [(7) For the purposes of this section, the term debtinstruments shall mean, such instruments as may be determined by the Central Government in consultation with the Reserve Bank.] Karloi Consulting LLP 22
OI RULES Overseas Investment Rules, 2022 Rule 2(g) financial service regulator means a financial service regulator established under any law in force in India and include the Reserve Bank, the Securities and Exchange Board of India, the Insurance Regulatory and Development Authority and the Pension Fund Regulatory and Development Authority; Rule 2(j) Indianentity means (i) a company defined under the Companies Act, 2013 (18 of 2013); (ii) a body corporate incorporated by any law for the time being in force; (iii) a Limited Liability Partnership duly formed and incorporated under the Limited Liability Partnership Act, 2008 (6 of 2009); and (iv) a partnership firm registered under the Indian Partnership Act, 1932 ( 9 of 1932). Karloi Consulting LLP 23
OI RULES Overseas Investment Rules, 2022 Rule 2(k) International Financial Services Centre or IFSC" shall have the same meaning as assigned to it in clause (g) of section 3 of the International Financial Services Centres Authority Act, 2019 ( 50 of 2019); Rule 2(q) Overseas Direct Investment or ODI means investment by way of acquisition of unlisted equity capital of a foreign entity, or subscription as a part of the memorandum of association of a foreign entity, or investment in ten per cent, or more of the paid-up equity capital of a listed foreign entity or investment with control where investment is less than ten per cent. of the paid-up equity capital of a listed foreign entity; Karloi Consulting LLP 24
OI RULES Overseas Investment Rules, 2022 Rule 2(q) (continued ) Explanation. For the purposes of this clause, where an investment by a person resident in India in the equity capital of a foreign entity is classified as ODI, such investment shall continue to be treated as ODI even if the investment falls to a level below ten per cent. of the paid-up equity capital or such person loses control in the foreign entity; Rule 2 (r) OverseasInvestment or OI means financial commitment and Overseas Portfolio Investment by a person resident in India; Karloi Consulting LLP 25
OI RULES Overseas Investment Rules, 2022 Rule 2 (s) Overseas Portfolio Investment or OPI means investment, other than ODI, in foreign securities, but not in any unlisted debt instruments or any security issued by a person resident in India who is not in an IFSC: Provided that OPI by a person resident in India in the equity capital of a listed entity, even after its delisting shall continue to be treated as OPI until any further investment is made in the entity. Explanation. For the purposes of this clause, the expression debtinstruments means the instruments specified as such in clause (A) of rule 5; Karloi Consulting LLP 26
OI RULES Overseas Investment Rules, 2022 Rule 4 Non-applicability of rules and regulations relating thereto in certain cases. Nothing in these rules or the Foreign Exchange Management (Overseas Investment) Regulations, 2022 shall apply to (a) any investment made outside India by a financial institution in an IFSC; Karloi Consulting LLP 27
OI RULES Overseas Investment Rules, 2022 Rule 8 Prohibition on investment outside India. Save as otherwise provided in the Act or these rules or the regulations made or directions issued under the Act, no person resident in India shall make or transfer any investment or financial commitment outside India. Rule 9 Overseas Investment (2) (ii) the Reserve Bank may, on an application made to it through the designated AD bank and for sufficient reasons, permit a person resident in India to make or transfer any investment or financial commitment outside India subject to such conditions as may be laid down by it: Karloi Consulting LLP 28
OI RULES Overseas Investment Rules, 2022 11. Manner of making Overseas Direct Investment by Indian entity. An Indian entity may make Overseas Direct Investment in the manner and subject to the terms and conditions prescribed in Schedule I. 12. Manner of making Overseas Portfolio Investment by an Indian entity. An Indian entity may make Overseas Portfolio Investment in the manner and subject to the terms and conditions prescribed in Schedule II. 13. Manner of making Overseas Investment by resident individual. A resident individual may make Overseas Investment in the manner and subject to the terms and conditions prescribed in Schedule III. 14. Overseas Investment by person resident in India other than Indian entity and resident Individual. A person resident in India, other than an Indian entity and a resident individual, may make Overseas Investment in the manner and subject to the terms and conditions prescribed in Schedule IV. Karloi Consulting LLP 29
OI RULES Overseas Investment Rules, 2022 15. Overseas Investment in IFSC by person resident in India. A person resident in India may make Overseas Investment in an IFSC in India in the manner and subject to the terms and conditions prescribed in Schedule V. Karloi Consulting LLP 30
OI RULES Overseas Investment Rules, 2022 Rule 21 Restriction on acquisition or transfer of immovable property outside India. (1) Save as otherwise provided in the Act or this rule, no person resident in India shall acquire or transfer any immovable property situated outside India without general or special permission of the Reserve Bank : Provided that nothing contained in this rule shall apply to a property (i) held by a person resident in India who is a national of a foreign State; (ii) acquired by a person resident in India on or before the 8th day of July, 1947 and continued to be held by such person with the permission of the Reserve Bank; (iii) acquired by a person resident in India on a lease not exceeding five years. Karloi Consulting LLP 31
OI RULES Overseas Investment Rules, 2022 Rule 21 Restriction on acquisition or transfer of immovable property outside India. (2) Notwithstanding anything contained in sub-rule (1) (i) a person resident in India may acquire immovable property outside India by way of inheritance or gift or purchase from a person resident in India who has acquired such property as per the foreign exchange provisions in force at the time of such acquisition; (ii) a person resident in India may acquire immovable property outside India from a person resident outside India (a) by way of inheritance; (b) by way of purchase out of foreign exchange held in RFC account; (c) by way of purchase out of the remittances sent under the Liberalised Remittance Scheme instituted by the Reserve Bank: Karloi Consulting LLP 32
OI RULES Overseas Investment Rules, 2022 Rule 21 Restriction on acquisition or transfer of immovable property outside India. Provided that such remittances under the Liberalised Remittance Scheme may be consolidated in respect of relatives if such relatives, being persons resident in India, comply with the terms and conditions of the Scheme; (d) jointly with a relative who is a person resident outside India; (e) out of the income or sale proceeds of the assets, other than ODI, acquired overseas under the provisions of the Act; (iii) an Indian entity having an overseas office may acquire immovable property outside India for the business and residential purposes of its staff, as per the directions issued by the Reserve Bank from time to time; Karloi Consulting LLP 33
OI RULES Overseas Investment Rules, 2022 Rule 21 Restriction on acquisition or transfer of immovable property outside India. (iv) a person resident in India who has acquired any immovable property outside India in accordance with the foreign exchange provisions in force at the time of such acquisition may (a) transfer such property by way of gift to a person resident in India who is eligible to acquire such property under these rules or by way of sale; (b) create a charge on such property in accordance with the Act or the rules or regulations made thereunder or directions issued by the Reserve Bank from time to time. (3) The holding of any investment in immovable property or transfer thereof in any manner shall not be permitted if the initial investment in immovable property was not permitted under the Act. Karloi Consulting LLP 34
OI RULES Overseas Investment Rules, 2022 SCHEDULE 1 ODI in financial services activity (1) An Indian entity engaged in financial services activity in India may make ODI in a foreign entity, which is directly or indirectly engaged in financial services activity, subject to the following conditions, namely:-- (i) the Indian entity has posted net profits during the preceding three financial years; (ii) the Indian entity is registered with or regulated by a financial services regulator in India; (iii) the Indian entity has obtained approval as may be required from the regulators of such financial services activity, both in India and the host country or host jurisdiction, as the case may be, for engaging in such financial services: (2) An Indian entity not engaged in financial services activity in India may make ODI in a foreign entity, which is directly or indirectly engaged in financial services activity, except banking or insurance, subject to the condition that such Indian entity has posted net profits during the preceding three financial years: Karloi Consulting LLP 35
OI RULES Overseas Investment Rules, 2022 Continue SCHEDULE 1 ODI in financial services activity Provided that an Indian entity not engaged in the insurance sector may make ODI in general and health insurance where such insurance business is supporting the core activity undertaken overseas by such an Indian entity. (3) If an Indian entity does not meet the net profits required under sub paragraph (1) & (2) of this paragraph due to the impact of Covid-19 during the period from 2020-2021 to 2021-2022, then the financial results of such period may be excluded for considering the profitability period of three years: Provided that such period may be extended by the Reserve Bank in consultation with the Central Government, as it may deem necessary: (4) Notwithstanding anything contained in this paragraph, Overseas Investment by banks and non-banking financial institutions regulated by the Reserve Bank shall be subject to the conditions laid down by the Reserve Bank under applicable laws in this regard. Karloi Consulting LLP 36
OI RULES Overseas Investment Rules, 2022 Schedule : 2 Manner of making Overseas Portfolio Investment by an Indian entity 1. OPI by an Indian entity. (1) An Indian entity may make OPI which shall not exceed fifty percent of its net worth as on the date of its last audited balance sheet, in the manner and subject to the conditions laid down in this Schedule. (2) A listed Indian company may make OPI including by way of reinvestment. (3) An unlisted Indian entity may make OPI only under clauses (iii), (iv), (v) and (vi) of sub- paragraph (2) of paragraph 1 of Schedule I. Karloi Consulting LLP 37
OI RULES Overseas Investment Rules, 2022 Schedule : 5 Overseas Investment in IFSC by person resident in India Overseas Investment in IFSC by person resident in India. (1) Subject to the provisions of these rules and the Foreign Exchange Management (Overseas Investment) Regulations, 2022, a person resident in India may make Overseas Investment in an IFSC in India within the limits provided in these rules . 1. (2) A person resident in India may make Overseas Investment in an IFSC in the manner as laid down in Schedule I or Schedule II or Schedule III or Schedule IV: Provided that (i) in the case of an ODI made in an IFSC, the approval by the financial services regulator concerned, wherever applicable, shall be decided within forty-five days from the date of application complete in all respects failing which it shall be deemed to be approved; Karloi Consulting LLP 38
OI RULES Overseas Investment Rules, 2022 Schedule : 5 Overseas Investment in IFSC by person resident in India (ii) an Indian entity not engaged in financial services activity in India, making ODI in a foreign entity, which is directly or indirectly engaged in financial services activity, except banking or insurance, who does not meet the net profit condition as required under these rules, may make ODI in an IFSC. (iii) a person resident in India may make contribution to an investment fund or vehicle set up in an IFSC as OPI; (iv) a resident individual may make ODI in a foreign entity, including an entity engaged in financial services activity, (except in banking and insurance), in IFSC if such entity does not have subsidiary or step down subsidiary outside IFSC where the resident individual has control in the foreign entity. (3) A recognised stock exchange in the IFSC shall be treated as a recognised stock exchange outside India for the purpose of these rules. Karloi Consulting LLP 39
Important Web links https://www.ifsca.gov.in/ https://www.giftgujarat.in/ https://www.indiacode.nic.in/handle/123456789/1988?sam_handle=123456789/1362 https://pib.gov.in/PressReleasePage.aspx?PRID=1853679 https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=12380&Mode=0 https://rbi.org.in/Scripts/NotificationUser.aspx?Id=12381&Mode=0 Karloi Consulting LLP 40
ThankYou Questions?? This views expressed in this presentation are personal views of the author. This presentation has been prepared for general guidance on matters of interest only and does not constitute professional advice. You should not act upon the information contained in this presentation without obtaining specific professional advice. The presentation should not be reproduced, in part or in whole, in any manner of form, without the author spermission. Karloi Consulting LLP
