India introduced the concept of International Financial Services Centre (“IFSC”) to develop the global competitive ecosystem within a country and to attract the international financial services and transactions which were previously carried outside India like Singapore, Dubai etc.

To regulate the IFSCs, and to develop financial products, financial services, and financial institutions operating in IFSCs, the Government established the International Financial Services Centres Authority (“IFSCA”) as a unified regulatory authority.

According to the regulatory framework, the Central government empowered to establish an IFSC within a Special Economic Zone (“SEZ”) under Section 18 of SEZ Act, 2005. With this, India’s first IFSC was established- Gujarat International Finance Tec-City (“GIFT City”), Gujarat under the SEZ.

GIFT-IFSC caters to both domestic and international markets as wells as in foreign currencies, but under the different regulatory framework altogether. However, GIFT-IFSC are expected to take up its activities outside the India rather than catering only into the domestic Indian market. In fact, the purpose of the GIFT-IFSC is to serve as an entry point into India for the global capital markets. 

This Article outlines the regulatory framework for the entities incorporated in IFSC, the range of regulated activities which can be carried out in the IFSC, procedures for incorporation of IFSC unit, and subsequent compliance requirements for such entities. Further, the Article identifies the compliance requirements under the Special Economic Zones Act, 2005 ("SEZ Act") and the Companies Act, 2013 ("Companies Act").

Regulatory framework governing IFSC

The governance of an IFSC unit is mainly regulated under the SEZ Act in line with the Special Economic Zones Rules, 2006, the International Financial Services Authority Act, 2019 (“IFSCA Act”) and the Companies Act.

It should be noted that while there is no specific regulation concerning IFSCs under the Companies Act, every IFSC unit is essentially formed under the Companies Act. Therefore, it becomes imperative for such companies to adhere to all the relevant provisions and compliances under the Companies Act, along with the regulations concerning IFSC and SEZs.

Regulated Activities within IFSC

The IFSCA regulates activities relating to banking, insurance, capital markets, fund management, fintech, aircraft leasing, Global In-House Centres (“GICs”) and other financial sector activities within the IFSC framework.

Procedure for Setting up an IFSC Unit in GIFT City

Step 1: Incorporation of the Company under the Companies Act

Incorporation of the company becomes the first step in the cases when the company is not yet incorporated. After that, the company will be able to make an application for the registration of its unit as an IFSC unit in GIFT City.

Step 2: Identification of Office Space in GIFT IFSC and obtain the Provisional Letter of Allotment (“PLOA”)

Post incorporation of the entity in line with the provisions under the Companies Act, it is important to identify the suitable office space in GIFT City. While choosing the office space, the applicant should consider the aspects like accessibility, type of operations, infrastructure compatibility and scalability. 

Upon finalization of the premises, the entity is required to enter into agreement with the Administrator (IFSCA) and obtain the Provisional Letter of Allotment (“PLOA”). 

Practical Insight: Where the promoters are uncertain whether the proposed business activities would qualify as regulated activities under the IFSCA framework, it is generally advisable to first obtain the PLOA and thereafter proceed with incorporation of the company with objects and business structure aligned to the proposed IFSC activities.

Step 3: Filing of application via Single Window IT System (“SWIT”): 

Following the issuance of PLOA, the subsequent step involves filing of an application in the prescribed Common Application Form (“CAF”) via SWIT portal for seeking regulatory approval from the IFSCA and the SEZ Letter of Approval.

Documents to be submitted with CAF:

• Certificate of incorporation or equivalent certificate in case of entity other than company
• Articles of Association and Memorandum of Association in case of company or any other equivalent documents in case of entity other than company
• PLOA
• Board resolution
• Ownership and Group Structure chart to ascertain Ultimate Beneficial Owner(s)
• Last three year Audited Financial statements. In case of branch, provide the Audited Financial statements of the parent entity
• Net worth certificate and personal tax returns
• Business plan
• Financial projection for next five years
• Permanent Account Number (PAN) or any other tax identification number
• Other supporting documents to be submitted as per the information entered in CAF.

It is to note that the further processing of the application for LOA approval is done in the SEZ Online portal only and not in the SWIT portal.

Further, there are very few activities which are mentioned below requiring IFSCA approval, which are not yet enabled under the SWIT portal:

• Delivering courses including research programmes in the permissible subject areas by international branch campuses and offshore education centres;
• Book-keeping, accounting, taxation and financial crime compliance services;
• Providing payment services;
• Bullion clearing, trading members and qualified jewellers;
• Activates undertaken by market infrastructure institutions.

The application for LOA for such activities is required to be filed in the SEZ portal directly in the Form -FA.

Step 4: Letter of Approval (“LOA”)

Upon submission of the application, the proposal is placed before the Unit Approval Committee (“UAC”) for review in its meeting. The applicant will also receive a communication from the Administrator (IFSCA) requiring an authorized representative to present (conducted in hybrid mode) the proposed business model and operational framework, demonstrating its alignment with the objectives and economic vision of the GIFT IFSC. 

If the UAC is satisfied with the proposal and supporting documents, the Administrator (IFSCA) grants the LOA thereby authorizing the entity to commence operations in GIFT IFSC. The LOA may thereafter be downloaded from the SEZ portal under the respective application request after logging into the portal.

It is important to note that the LOA shall remain valid for a period of one year from the dates of its issuance, within which the IFSC unit is required to commence its operations and intimate the date of commencement of operations to the Administrator (IFSCA).

The IFSC unit shall intimate the commencement of operations in the manner specified in step 7 below.

Upon the receipt of the above-mentioned intimation and the same being recorded by the Administrator (IFSCA), then the validity period of the LOA will automatically be extended by five more years from the date of commencing operations. Once this period has elapsed, then the LOA must be renewed once again for a further period of five years.

Step 5: Bond Cum Legal Undertaking (“BLUT”)

After obtaining the LOA, the applicant must prepare BLUT in Form-H with regard to its obligations and compliances under the SEZ Act/ Rules which is required to be executed on a non-judicial stamp paper of INR 100/-, notarized by a notary public registered only in Gujrat.

Once executed, the physical copy of BLUT is required to be submitted to the office of Administrator (IFSCA) by post with a covering letter addressed to the Administrator (IFSCA). After verification of the BLUT along with the documents required, the BLUT is forwarded to the Specified Officer of Customs for approval. After the approval of Specified Officer, the BLUT is finally approved by the Administrator (IFSCA), the pdf copy of the approved BLUT is sent to the unit by email along with an Eligibility Certificate.

The documentary requirements for submitting with BLUT are as follows: 

• Name and SEZ address of the unit shall be mentioned properly in the BLUT without any errors;
• Letter by IFSC unit accepting the LOA
• Bond value calculation sheet
• Board resolution authorizing the obligor to execute and submit the BLUT
• Signatures of obligor and witnesses affixed on the BLUT along with their name and address mentioned therein.
• Passport size photographs of obligor pasted on the BLUT
• KYC documents, whether Aadhar card or PAN card of the obligor and witnesses attached to BLUT.

After the approval of the physical BLUT, the unit is required to file a ‘New LUT’ request in the portal, attaching the pdf copy of the approved BLUT as a supporting document. Once the ‘New LUT’ request is filed, the same is approved by Specified Officer and Administrator (IFSCA) in the SEZ Online portal.

Step 6: Lease Deed Execution

After approval of BLUT in SEZ Portal, the entity is required to finalize the lease agreement of premises in GIFT City ensuring all terms are aligned with GIFT City’s regulations. This deed must be submitted to the Administrator (IFSCA) within six months of receiving the LOA. The documents required for executing the lease deed are:

• Valid LOA: As per Rule 18(2) SEZ Rules, 2006, the Administrator (IFSCA) shall enter into the lease agreement with the unit only after the issuance of LOA.
• Eligibility Certificate (“EC”): Under Gujrat SEZ Act/ Rules, the EC issued by the administrator (IFSCA) is necessary to claim state tax exemptions such as stamp duty. The EC will be issued to the unit along with approved copy of BLUT.

Step 7: Final Registration with IFSCA

After all the compliance mentioned above, the applicant must submit the Free Form-Unit- Intimation of DCP on SEZ Portal to intimate the Commencement of Business after considering the same the letter for approval of the Commencement is issued in the portal.

The documents to be submitted along with the Free Form-Unit- Intimation of DCP:

• Documents showing proof of Commencement 
• Copy of the IFSCA Letter of Authorisation (or) Certificate of Registration/Recognition (or) approval in any other form. 
• Copy of the registered Lease Deed. 

Following the above elaborated procedures, the companies will enable to undergo registration in the GIFT City seamlessly along with compliance of laws and regulations, and at the same time enjoy the favourable tax and infrastructural advantages of the GIFT City.

Post Incorporation Compliances

• Importer-Exporter Code (“IEC”):All the GIFT-IFSCunits must apply to Directorate General of Foreign Trade (DGFT) and obtain an IEC.
• Registration-Cum-Membership Certificate (RCMC):RCMC means membership certificate issued by Export Promotion Council for Export Oriented Units and Special Economic Zones.All the IFSC units must obtain a RCMC for availing exemptions, drawbacks and concessions by applying on DGFT website.
• SEZ ID cards: All the GIFT-IFSCunits is also required to apply to the office of Developer Commissioner of SEZ area for SEZ ID cards for their employees.

Reporting requirements for GIFT-IFSC units under SEZ Act and Companies Act

• Monthly Performance Report (MPR): MPR is a snapshot of the units’ data such as Employment, Investments, etc. for each month and is required to be submitted every month in the SEZ Online portal.
• Service Exports Reporting Form (SERF): SERF is the summary of details of invoices generated/issued by the unit in a particular month and is required to be submitted every month in the SEZ Online portal.
• Annual Performance Report (APR): GIFT-IFSCmust submit APR in the Form-I to the Administrator (IFSCA) in the SEZ portal. It is to be noted that the information given in the formats for APR should be authenticated by the authorised signatory of the unit and duly certified by an independent Chartered Accountant (or) Cost Accountant.
• Financial Reporting: Annual financial statement preparation and reporting for same is mandatory for GIFT-IFSC. This may be done using either Ind AS or IFRS as per guidelines laid down.
• Audit: Provision for appointment of statutory auditors, audit period and limitations, auditor’s duties and responsibilities and related reporting are applicable.
• Corporate Governance: Rules regarding board meetings, committees, directors’ duties, etc., continue to be relevant unless otherwise excluded.
• Filings and Returns: Annual return and audited accounts will be filed by companies with RoC along with sector-specific reports with IFSCA.

Conclusion

Establishing an IFSC in GIFT City provides organizations the chance to work in a competitive global market regulated by the financial world. Although the procedures involve many aspects of regulatory approvals, the efficient process for approval along with the conducive atmosphere prevailing in GIFT IFSC makes it an ideal choice for organizations looking forward to carrying out the financial operations and other related operations.  

This content is first publish at: https://www.ahlawatassociates.com/blog/gift-city-ifsc-registration