ALB ASIA JULY AUGUST 2024 (INDIA EDITION)

10 ASIAN LEGAL BUSINESS – INDIA E-MAGAZINE JULY-AUGUST 2024 The Reserve Bank of India has recently expanded the scope of remittances to International Financial Services Centres (IFSCs), permitting Indian residents to open foreign currency accounts in the country’s first IFSC, Gujarat International Finance Tec-City, also known as GIFT City. Resident Indians are now permitted to open foreign currency accounts (FCA) in dollars in a bank account at GIFT IFSC. This money can be used for overseas portfolio investments, buying international real estate, insurance, sending gifts to friends abroad, maintenance of relatives abroad, making fixed deposits, paying education loans, and funding overseas travel. Previously, LRS remittances to IFSCs were restricted to investments in IFSC securities (excluding those from entities outside the IFSC) and education fees for foreign universities or institutions in IFSCs. Namita Das, a corporate partner at Dentons Link Legal, says the move increases the attractiveness of GIFT City as a financial centre and incentivises increased domestic participation, particularly from high net-worth individuals (HNWIs). The move is also expected to create a thriving private client practice in GIFT City, as law firms increase their presence in the region to serve the growing demands of HNWIs to avail the increased access to foreign markets and better manage their wealth portfolios. HOW DOES THIS IMPACT THE ABILITY OF HNWIs TO MANAGE THEIR INVESTMENTS? The liberalisation of the LRS regulations allows resident individuals to open FCAs in IFSCs for various purposes, offering greater flexibility for Indian residents to manage their foreign exchange transactions and facilitate seamless remittances. They enable HNWIs to manage their wealth more strategically as it simplifies cross-border transactions within the existing LRS limit of $250,000. “By allowing fixed deposits in foreign currencies like the US Dollar at GIFT IFSC, HNWIs can hedge against inflation and currency depreciation, protecting their wealth from rupee volatility while potentially achieving higher returns. Additionally, the ability to conduct transactions in foreign jurisdictions through FCAs at IFSCs offers greater flexibility and control over global investments, facilitating diversification and access to a wider range of financial products,” Das says. HOW IS THIS EXPECTED TO IMPACT GIFT CITY? The change is also expected to enhance the attractiveness of GIFT City as a financial hub, aligning it with global standards to allow it to better compete with other IFSCs around the globe. Das points out that allowing resident individuals to access global markets and manage foreign currency assets directly from GIFT IFSC will strengthen GIFT City’s role as a gateway for cross-border investments and financial diversification. “Previously, the regulatory complexities and inconsistencies between GIFT City and other global financial hubs deterred investors accustomed to more streamlined processes. The recent changes address this issue by enhancing the ease of transactions and broadening investment opportunities within GIFT City. This alignment with other global financial hubs positions GIFT City as a competitive, integrated UNPACKING THE GIFT CITY REMITTANCE REGIME BY NIMITT DIXIT Explainer financial ecosystem that meets international standards, making it more attractive to global investors and HNWIs,” Das explains. WHAT DOES THIS MEAN FOR THE LEGAL INDUSTRY? With more investments likely to come in from Indian residents, the expanded scheme creates demand for private client practice (PCP) lawyers to serve clients on foreign exchange management regulations under the Foreign Exchange Management Act (FEMA), increased tax and compliance work, and deal structuring. Das explains that lawyers can assist clients investing in GIFT City under the LRS by ensuring compliance with regulatory frameworks like FEMA, advising on tax implications, and structuring investments appropriately. More work will also come from advising clients on the complexities of GIFT City regulations, including Special Economic Zone benefits, and from assisting in obtaining necessary approvals. Legal experts also conduct due diligence, mitigate risks, and manage cross-border issues, including repatriation of funds and ongoing compliance with evolving regulations, ensuring that investments are both legally sound and optimised for maximum benefit. “The new framework elevates private client practice, requiring lawyers to offer sophisticated guidance on global wealth management, cross-border transactions, regulatory compliance, and estate planning through GIFT City,” Das says. “With increased access to global markets and foreign currency accounts, clients face more complex legal challenges, demanding a deeper understanding of international financial instruments within Indian law. This shift makes private client practice more specialised and globally focused, tailored to HNWIs leveraging GIFT City’s expanded financial landscape,” she explains. u u u

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