Indian family offices weigh Gift City to invest overseas

Freedom to invest across asset classes, including overseas real estate, along with low compliance costs and numerous tax benefits, are prompting family offices to look towards Gift City, market participants said. Also, family offices based in Gift City are allowed to make leveraged investments.

Family offices are investment managers set up by ultra-wealthy individuals to invest and manage personal wealth. They typically work like any asset management company or money manager—the only difference is family offices have just one individual or a family as its investors.

In the recent past, RBI raised concerns over some entities that were buying foreign real estate through ODI. Similar reservations have been expressed in the context of Indian entities buying less than 10% in foreign unlisted startups. These restrictions don’t apply to entities based out of Gift City.

“There are a number of Indian family offices which are expressing interest in exploring the family office route in IFSC. The ability to invest and hold overseas real estate is very attractive. Moreover, the family office fund can also take leverage in IFSC or overseas to make such investments," said Suresh Swamy, partner at Price Waterhouse & Co. LLP.

Also, under new rules issued last year, if an entity is not engaged in financial services activity in India, it can make ODIs only if it has a profitability track record of three years. Family offices, however, are not considered to be engaged in financial services activity as per the rules and hence need a three-year profit record.

“Overseas Investment Rules, 2022 also make a carve-out for IFSC; hence, the three-year profitability condition does not apply. These changes have created a favourable regulatory environment for Indian residents’ entities to set up family offices in IFSC," Swamy added.

In recent years, Singapore has emerged as the top destination for family offices, with wealthy individuals across the Americas, Europe and Asia setting up their family offices there. The government of Singapore provides several sops for such family offices, including targeted financial incentives. Since Singapore is already a global hub for financial services, the jurisdiction also offers skilled human resources and established legal systems.

“In this context, the Indian family office regime has sought to offer comparable benefits to families looking to set up family offices in Gift City in terms of regulatory and investment flexibility, taxes and cost of set-up and administration. Further, especially in respect of families having Indian roots, this regime may offer additional benefits in terms of their succession planning as it allows family offices to be set up as trusts," said Kunal Savani, partner of Cyril Amarchand Mangaldas.

The IFSC Authority issued fund management regulations last year, which enable structures such as family offices to be set up in Gift City.

According to the new rules, wealthy individuals can now set up family offices as authorized fund management entities (FMEs) and utilize the corpus for investment outside India. Experts say Gift City offers an additional benefit that goes beyond Singapore—lower cost.

“As of now, setting up of family offices in Gift City is likely to prove more cost efficient for HNIs, as the administration cost, cost of setting up, cost of operations, etc. are likely to be much lower in comparison to comparable foreign jurisdictions," Savani of Cyril Amarchand Mangaldas said.