Gift IFSC Exchange – All that you should know about direct listing for companies

A lot has been said and heard about the newly developed GIFT City in Gujarat. It is India’s first operational greenfield smart city and international financial services center located in Gandhinagar Gujarat. The latest feather in its cap is the direction from the Finance Minister for the direct listing of companies on the GIFT IFSC Exchange. Know all about this latest development and its overall impact in this blog. 

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What is GIFT IFSC Exchange?

The GIFT IFSC Exchange operates within the GIFT City in Gujarat, India—a global financial hub facilitating international financial services for both local and global investors. This specialized stock exchange offers platform for trading equities, commodities, currency derivatives, and more. It leverages its IFSC location to provide tax benefits, regulatory advantages, and an inviting business environment. The exchange’s global accessibility, 24×7 trading, diverse instrument range, efficient clearing processes, integrated services, and efforts to establish international connections collectively enhance India’s financial market influence.

Who are the regulatory bodies in the GIFT IFSC?

Various financial services are overseen by distinct regulatory bodies in India. These include the Reserve Bank of India (RBI) for banking, the Insurance Regulatory and Development Authority of India (IRDAI) for insurance, and the Securities and Exchange Board of India (SEBI) for capital markets and asset management.

What are the benefits of direct listing on GIFT IFSC Exchange?

On 28 July 2023, the Finance Minister unveiled a new announcement allowing Indian companies to make listings on the IFSC Exchange. This decision grants Indian companies the opportunity to be listed on this exchange, regardless of their presence on any domestic exchanges in the country.

This move will provide many benefits for the companies and the exchange as a whole. These benefits are explained below.

Transformation of GIFT City and Access to Global Capital

The recent decision, announced by the Finance Minister on July 28th, is aimed at accelerating the evolution of GIFT City in Gujarat into a dynamic global financial hub. This move offers Indian companies the opportunity to list on the IFSC Exchange, irrespective of their presence on domestic exchanges, thus enabling access to global capital and potentially enhancing their valuations.

Significance of the Indian Equity Market and Encouraging Foreign Listings

India’s equity market boasts an impressive market capitalization of over US$ 3.8 trillion, primarily attributed to India-incorporated companies. This move will further encourage foreign companies to list in India as their secondary listing platform.

What is the MAT on companies in IFSC?

MAT (Minimum Alternate Tax) or AMT (Alternate Minimum Tax) is set at 9 percent of book profits, specifically applicable to entities, including companies, established within the IFSC. However, companies operating within the IFSC and choosing the new tax regime are exempt from MAT.

Impact on Company Headquarters and Reverse Flipping

Notably, GIFT IFSC has triggered instances of reverse flipping, as evidenced by companies like Phonepe relocating their headquarters from Singapore to India. This phenomenon reinforces the potential for further reverse flipping and could attract companies with overseas parentage, especially in the startup sector, to establish their base in India, albeit with potential tax implications.

Comparability to International Exchanges and Potential Cost Savings

A company listing on IFSC will be akin to listing on renowned international exchanges like NYSE/Nasdaq. A structural shift might facilitate currently foreign-listed Indian companies to transition from global exchanges to GIFT IFSC, possibly yielding cost savings associated with maintaining global listings.

Beneficial Change for Corporates with Large Equity Needs

The proposed announcement is welcomed by corporates requiring substantial equity resources. Given the global significance of several Indian companies in terms of size and scale, this change enables them to attract capital from deep-pocketed global markets, align equity valuation with global benchmarks, and fund growth effectively.

Evolving Rationale and Flexibility in Listing Choices

While the argument for listing outside India has traditionally been driven by valuation differentials, this gap is progressively narrowing. Indian domestic markets now exhibit good depth, and offering companies flexibility in choosing listing platforms becomes crucial. This decision empowers companies to realize their inherent value and secure significant capital for their future expansion.

What does direct listing on IFSc Exchange benefit investors ?

GIFT City presents a range of advantages for investors including simplified regulations, tax incentives, trading in dollars, and tailored benefits for entities like family offices. Businesses established in GIFT City can benefit from a 10-year income tax holiday. Previously, products like SGX Nifty had higher turnovers on international exchanges due to lower taxes and incentives. Now, GIFT Nifty attracts global traders, driving increased trading volumes within India. Direct listings in GIFT City will offer foreign investors convenient access to both listed and unlisted Indian companies. At the same time, trading in dollars will eliminate the need for currency conversion and reduces hedging costs, enhancing investor returns.

Is GST applicable to investors on transactions conducted in IFSC Exchanges?

No, transactions executed within IFSC exchanges will be exempt from the imposition of GST on investors.

What are the measures provided under Finance Act 2023 to promote growth in GIFT City IFSC?

Finance Act 2023 includes many measures to promote growth in the Gift City IFSC. Some of these measures are provided hereunder.

• The definition of ‘original fund’ is being modified to streamline the tax-neutral relocation of offshore funds fully owned and controlled by the Abu Dhabi Investment Authority and the Government of Dubai to the IFSC
• AIFs established within the IFSC will be exempted from angel tax on shares issued by unlisted Indian companies, encouraging investment in this sphere.
• The tax holiday for Offshore Banking Units (OBUs) in the IFSC is amplified to 100 percent for the assessment year commencing on April 1, 2023.
• Dividend distributions by IFSC units will now incur a lower tax rate of 10 percent (contrasting the 20 percent rate for non-IFSC Indian companies), potentially fostering non-resident investments within the IFSC.
• Non-residents earning interest income from long-term or rupee-denominated bonds listed on IFSC stock exchanges will benefit from a concessional withholding tax rate. This aims to attract non-resident investments in such bonds within the IFSC.
• The tax benefit period for relocating AIFs to a new location within GIFT City-IFSC is prolonged until March 31, 2025, as opposed to the prior deadline of March 31, 2023.

What is the income tax holiday available for businesses set up in GIFT City?

The income tax holiday available for businesses set up in GIFT City is for 10 continuous years.

Conclusion

The emergence of GIFT IFSC is set to change the global financial landscape and has seen significant interest from major companies like Google which intends to set up operations in GIFT City. The Finance Minister also mentioned setting up data embassies will also offer infrastructure in the legal, regulatory, and digital capacity to countries that are seeking digital continuity solutions. This latest move by the government is set further create a favourable atmosphere for Indian companies and in turn the economy as a whole.

Also read..

• Gift tax – A guide
• India’s Gateway to Global Investments: GIFT Nifty
• Fisdom Weekly Update (Issue #36): Consider this as our gift for your Dad!
• Major Stock Exchanges in India