Business & Investment

FPI calls for clarification of taxation on constant capital companies in financial centers

Foreign securities investor (FPI) was recently proposed Variable capital company Structure of financial centers such as (VCC) Gujarat International Finance Tech City (Gift City).

Among other benefits, the VCC structure allows funds to make concessions from short-term and long-term capital gains taxes on equity returns. According to the standard VCC structure, tax obligations are imposed on investors in these entities.

Committee established by International Financial Services Center In a recent report, GIFT Citi’s (IFSC) recommended the adaptation of “VCC-like” legal structures within various financial centers.

Following the Commission’s recommendations, many investors contacted advisors to clarify tax issues.

“In many countries, VCC is given tax pass-through status and even investors are not taxed in countries where VCC is set. If India provides tax exemption for VCC and its investors. It could significantly facilitate the move of India-focused funds from offshore jurisdiction to GIFT City and new funds in GIFT City. ” Deloitte india..

Globally, the VCC structure is tax exempt and only the final investor is taxed in their home country.

Therefore, UK investors investing in Singapore’s VCC through Luxembourg will be taxed in the UK.

Many FPIs and large funds operating in a VCC structure from Singapore will consider options to move to GIFT City if this is allowed. Currently, only Alternative Investment Fund (AIF) structures are allowed within financial centers.

Taxes are a big attraction, but industry trackers say VCC may be a better option for some investors, even if they don’t.

Benefits of the VCC structure include flexibility such as umbrella structure, single investor structure, ring fences for each subfund and legal entity, and conditions at the umbrella level.

“Indian law today does not allow a comprehensive structure, and if you want to introduce a VCC-type structure, you need to change the corporate, tax and trust laws to make VCC a reality in India.” Said Yashesh Ashar, a partner of Bhuta Shah & Co, a tax accountant corporation.

VCC has several other advantages over AIF. “VCC enables the ability to build a fund vehicle as a company, have a self-managed fund, pay dividends from capital, separate subfunds with a ring fence of assets and liabilities, and more. To what extent global regulation is embedded in the Indian context, “said Deloitte Gandhi.

The Commission’s full report has not yet been published and there is no tax clarity.

Many investors, FPIs, and their advisors have also contacted GIFT City officials on the matter, according to people familiar with the matter.

Currently, funds in GIFT City can only invest in certain securities, but they can invest in liabilities.

According to experts, AIF-3 may be the most appropriate structure that could benefit most, given current regulations.

The Minister of Finance for the 2021-22 budget has announced that it will provide tax incentives for foreign funds transferred to IFSCs, including GIFT Citi.

FPI calls for clarification of taxation on constant capital companies in financial centers FPI calls for clarification of taxation on constant capital companies in financial centers

Back to top button