GIFT City regulator halts approvals for local family offices to invest abroad over tax concerns: Report

Market regulators have stopped allowing local family offices to set up investment funds in its new finance hub. According to a Bloomberg report, they are concerned these arrangements may be used to evade taxes and capital controls. The regulator for Gujarat International Finance ­Tec (GIFT)-­City is halting approvals for family investment funds after feedback from the Reserve Bank of India (RBI).

The RBI is worried that loosening capital controls for such instruments could result in loopholes that may be exploited for money laundering. The move could damage GIFT City’s ambitions to be a one-stop shop for wealthy individuals seeking overseas investments. The finance hub in Gujarat was set up as a free-market pilot unhindered by local rules on taxes and capital flows.

Also Read: Mauritius keen to set up shop in GIFT City

In January, the special economic zone gave its first in-principal approval to billionaire Azim Premji’s family office to invest its capital overseas, Bloomberg News reported. This raised hopes of dozens of applications that were in the works. With no final approvals since then, family funds are now looking to set up investment offices in countries such as Singapore and Dubai, the people said.

India's current norms on moving funds abroad

India has strict controls on moving capital abroad. The foreign exchange regulations cap overseas investments for each resident at $250,000. According to the report, the limit includes purchasing property, investing in shares and securities, and setting up joint ventures or subsidiaries.

Also Read: Mint Explainer: Why Gift City is seeking tax parity with domestic mutual funds

Resident Indians can make overseas investments through instruments offered by global banks and wealth advisors, including HSBC Holdings Plc, 360 One WAM, and Nuvama Wealth Management, in GIFT City. The latest move is aimed at plugging the loophole that would have allowed resident Indians to transfer more than the permitted capital abroad, the people said.

It comes amid a wealth boom in the world’s fastest-growing major economy. According to a Knight Frank wealth report, the number of individuals with more than $30 million of assets is expected to grow by 50 per cent between 2023 and 2028. As they look to diversify investments, they have become prime targets for banks scouting for new money.