GIFT City (Gujarat International Finance Tec-City) has emerged as India's premier International Financial Services Centre (IFSC), offering a compelling tax and regulatory regime for fund managers and investment funds. The GST treatment of fund structures in GIFT City is significantly more favourable than domestic structures, making it an attractive destination for onshoring fund management activities.
This article examines the GST implications of GIFT City IFSC fund structures.
GST Exemption for Fund Management Entities
One of the most significant advantages of GIFT City is the GST exemption on fund management fees and carried interest for Fund Management Entities (FMEs) operating in the IFSC. Unlike domestic fund managers, who charge 18% GST on management fees, GIFT City FMEs are exempt from GST on these services.
This exemption applies to:
- Management fees charged to funds in IFSC.
- Performance fees and carried interest.
- Investment advisory fees.
Fund Structures in GIFT City
GIFT City offers several fund structuring options:
- Category I, II, and III AIFs: Registered with IFSCA.
- Variable Capital Companies (VCCs): A proposed legal vehicle for fund management activities, similar to Singapore's VCC framework.
- Family Investment Funds (FIFs): For single-family pooling of investments.
- Fund Management Entities (FMEs): Entities registered with IFSCA to manage funds.
Tax Benefits Beyond GST
GIFT City offers additional tax benefits:
- Tax holiday: Fund managers benefit from tax exemption on income for any 10 consecutive years within a 15-year window.
- No STT/CTT: No Securities Transaction Tax or Commodity Transaction Tax on IFSC exchange trades.
- No stamp duty: Exemption from stamp duty on transactions.
- Withholding tax exemption: CBDT has notified exemption from withholding tax on specified payments to IFSC units.
GST on Services Between IFSC Units and Domestic Entities
Services provided by an IFSC unit to offshore clients are treated as zero-rated exports . Services received from domestic entities (DTA) are subject to GST, but the IFSC unit may be eligible for refunds.
Compliance for GIFT City Fund Managers
- Register with IFSCA as an FME.
- Comply with IFSCA Fund Management Regulations.
- File GST returns if applicable.
- Maintain proper documentation for GST-exempt services.
- Review VCC structuring options.
Conclusion
GIFT City offers a significantly more favourable GST regime for fund managers compared to domestic structures. The GST exemption on management fees and carried interest, combined with tax holidays and other benefits, makes GIFT City an attractive destination for onshoring fund management activities.
At Anuj Desai & Associates, we provide expert advisory services on GIFT City fund structuring, GST exemptions, and IFSCA compliance. Our team can help you establish and manage fund structures in GIFT City.
For a confidential consultation, contact us at office@anujdesaiassociates.com or call 9619456656. Visit our website at https://anujdesaiassociates.com or connect with our founder on LinkedIn at linkedin.com/in/ca-anuj-desai-122547230.