Setting up an AIF outside traditional onshore jurisdictions often comes with complexities. However, GIFT City presents a compelling proposition, positioning itself as a gateway for both domestic and international investors looking to tap into diverse alternative asset classes. Here's why GIFT City stands out:

1. Tax Efficiency:

• Tax Exemptions: AIFs in GIFT City enjoy significant tax benefits, including exemption from Capital Gains Tax (CGT) on transfer of specified securities (subject to certain conditions).

• No Dividend Distribution Tax (DDT): Dividends distributed by GIFT City AIFs are exempt from DDT.

• GST Exemption: Services rendered by or to AIFs in GIFT City IFSC are largely exempt from GST.

• Lower MAT/AMT: Reduced Minimum Alternate Tax (MAT) / Alternate Minimum Tax (AMT) rates for units located in IFSC.

2. Regulatory Ease & Global Standards:

• SEBI (IFSC) Regulations: The Securities and Exchange Board of India (SEBI) has formulated a progressive regulatory framework specifically for IFSCs, aligning with global best practices. This provides a robust yet flexible environment for AIF operations.

• Single Window Clearance: GIFT City offers a streamlined "single window" clearance mechanism through the IFSC Authority (IFSCA) via its Single Window IT System (SWIT), simplifying approvals and reducing bureaucratic hurdles.

• International Arbitration: The presence of an international arbitration centre within GIFT City instills confidence for dispute resolution.

3. Access to a Wider Investor Base:

• Cross-Border Capital Flow: GIFT City facilitates easier inflow and outflow of foreign capital, enabling AIFs to attract investments from global institutions, family offices, and High Net Worth Individuals (HNIs).

• Familiar Regulatory Environment: For international investors, the English common law system and familiar regulatory approach in GIFT City offer comfort and predictability.

4. Cost Competitiveness:

• Lower Operating Costs: Compared to established financial hubs like Singapore, Dubai, or London, operating costs in GIFT City, including office rentals and human resources, are considerably lower.

• Incentives: Various incentives and subsidies are offered by the Gujarat government and the central government to encourage financial services in GIFT City.

5. Strategic Location & Talent Pool:

• Gateway to India: Situated strategically, GIFT City serves as an ideal base for funds looking to invest in the rapidly growing Indian economy.

• Skilled Workforce: Access to a burgeoning pool of financial talent within India.

IFSC Regulations broadly classify AIFs into three categories, similar to onshore AIFs, each catering to different investment strategies:

• Category I AIF: Invests in start-ups, early-stage ventures, social ventures, SMEs, infrastructure, or other sectors which the government or regulators consider as socially or economically desirable. Examples include Venture Capital Funds, Infrastructure Funds, and Social Venture Funds.

• Category II AIF: Does not fall under Category I or III and does not undertake leverage other than to meet day-to-day operational requirements. These funds invest in equity, debt, or other asset classes. Examples include Private Equity Funds and Debt Funds.

• Category III AIF: Employs diverse trading strategies and may undertake leverage. These funds typically invest in listed or unlisted derivatives, complex or structured products. Examples include Hedge Funds and Funds of Funds.

Setting up an AIF in GIFT City involves a structured process, requiring meticulous planning and adherence to regulatory guidelines. As an SEZ unit, there are specific sequential steps that need to be followed.

1. Feasibility Assessment & Structuring:

• Determine the most suitable AIF category (Cat I, II, or III) based on your investment strategy.

• Define the fund structure (Trust, LLP, Company) and assess minimum corpus and sponsor contribution requirements.

2. Procuring Office Space in GIFT SEZ & Provisional Letter of Allotment (PLOA):

• Mandatory Physical Presence: An AIF unit in GIFT City must have a physical office presence within the SEZ.

• Identify & Finalize Office Space: Select suitable commercial space (ready-to-move or shell-and-core) from SEZ developers in GIFT City.

• Obtain Provisional Letter of Allotment (PLOA): After finalizing the office space with a co-developer/developer, obtain a PLOA from them. This document earmarks and confirms the required premises in the SEZ and is a prerequisite for the next steps.

3. Incorporation of Entities:

• Investment Manager/Sponsor Entity: Incorporate a legal entity (Company or LLP) in GIFT City to act as the Investment Manager/Sponsor of the AIF. This entity will be responsible for managing the fund's investments.

• AIF Entity: Incorporate the AIF itself as a Trust, Company, or LLP in GIFT City, as determined in the structuring phase. (For Trusts, registration of the Trust Deed is required).

4. Application for SEZ Unit Approval (LOA) & IFSCA Authorization via SWIT Portal:

• Consolidated Application: Submit a comprehensive application through IFSCA's Single Window IT System (SWIT Portal). This application typically covers two key approvals:

• SEZ Unit Approval (Form F): Application to the Development Commissioner of the SEZ for approval to operate as a unit within the SEZ. The PLOA is a crucial document for this application.

• IFSCA Authorization/Registration: Application for the AIF and its Manager to be registered/authorized by the International Financial Services Centres Authority (IFSCA) under the SEBI (IFSC) Regulations. This involves submitting detailed information about the fund's investment strategy, offering document (Private Placement Memorandum - PPM), key personnel, risk management framework, and compliance procedures.

• Detailed Project Report (DPR): A comprehensive DPR outlining business plan, investment and employment details, and financial projections for the AIF and its manager.

5. Regulatory Review and Approvals:

• Unit Approval Committee (UAC): The SEZ Unit approval is reviewed by the Unit Approval Committee.

• IFSCA Scrutiny: IFSCA rigorously examines the AIF registration application, which may involve queries, clarifications, and presentations.

• Provisional / In-Principle Approval: Upon satisfaction, IFSCA may grant an in-principle approval.

6. Execute Lease Deed & Other Registrations:

• Lease Deed: Once SEZ Unit approval (Letter of Approval - LOA) is received and IFSCA has given in-principle approval, execute the formal Lease Deed with the SEZ developer for the allotted office space.

• Other Registrations: Obtain necessary registrations such as GST, IEC (Import-Export Code), and other applicable tax registrations.

7. Banking, Custodial & Other Operational Setups:

• Bank Accounts: Open bank accounts (including foreign currency accounts) in an IFSC Banking Unit (IBU) within GIFT City.

• Custodial Services: Appoint a custodian for the safekeeping of the fund's assets.

• Auditors, Legal Counsel, etc.: Engage other necessary service providers.

8. Final IFSCA Registration / Commencement of Business:

• Upon fulfilling all conditions, including finalization of office space and other operational setups, the AIF will receive its final registration from IFSCA, allowing it to formally commence operations and invite subscriptions.

• Continuous Compliance: Post-registration, AIFs and their managers in GIFT City must adhere to ongoing compliance obligations under IFSCA regulations and SEZ rules along with other domestic rules and regulations as may be applicable.

• Expertise is Key: The process involves intricate regulatory steps and detailed documentation

Setting up an AIF, particularly within a specialized zone like GIFT City, involves intricate regulatory steps and detailed documentation. At Pulkit Kinkhabwala & Associates, our role as Practicing Company Secretaries is to help simplify this complexity. With a deep understanding of corporate law, SEBI regulations, and the unique operational aspects of IFSCs, we aim to provide comprehensive support by:

• Clarifying Your Path: Assisting in assessing eligibility, optimal structuring, and outlining the phased approach for your AIF.

• Facilitating Presence: Guiding you through the process of securing office space in the SEZ and managing related approvals like PLOA and LOA.

• Ensuring Proper Establishment: Supporting the seamless incorporation of all necessary entities in GIFT City.

• Streamlining Regulatory Filings: Meticulously preparing and submitting AIF and Manager registration applications with IFSCA.

• Crafting Essential Documentation: Assisting in drafting the Private Placement Memorandum (PPM), Investment Management Agreement (IMA), and other critical legal instruments.

• Supporting Ongoing Compliance: Offering insights and guidance on post-registration compliance and navigating regulatory changes in GIFT City.

• Coordinating with Authorities: Utilizing our experience to help you coordinate effectively with IFSCA and other relevant bodies through the SWIT Portal.