One of the most important considerations while evaluating GIFT City is the cost of setting up and operating within its framework. While the benefits of GIFT City—particularly under the IFSC regime—are widely discussed, the associated costs and ongoing commitments are often underestimated.
A realistic understanding of these costs is essential to determine whether GIFT City is commercially viable for a particular business or investment structure.
The cost of setting up in GIFT City is not a single figure. It comprises multiple components, including incorporation costs, regulatory approvals, infrastructure expenses, manpower costs, and ongoing compliance.
Further, the cost structure varies significantly depending on whether the entity is established in IFSC or SEZ.
Setting up in IFSC, particularly for financial services such as fund management or AIF structures, involves relatively higher initial and ongoing costs due to regulatory requirements and substance expectations.
The initial costs include incorporation of the entity, registration with the International Financial Services Centres Authority (IFSCA), and preparation of legal documentation such as fund documents and agreements. These costs can be significant, especially in the case of fund structures involving multiple stakeholders.
Infrastructure costs in IFSC are also a key consideration. Entities are required to maintain a physical presence in GIFT City, including office space and operational setup. The cost of leasing office space in GIFT City is generally higher than in traditional business locations, reflecting the premium infrastructure and ecosystem.
Manpower costs must also be factored in. Regulatory expectations require the presence of qualified personnel within IFSC, particularly for Fund Management Entities. This necessitates hiring experienced professionals, which adds to the overall cost.
Ongoing costs include regulatory compliance, audit, accounting, legal support, and administrative expenses. These costs are recurring and must be sustained over the life of the entity.
In addition to the above, setting up an AIF involves specific cost considerations.
The fund must meet minimum corpus requirements, typically around USD 5 million. While this is not a “cost” in the conventional sense, it represents a significant capital commitment.
Legal and documentation costs are also higher due to the complexity of fund structures, including preparation of private placement memorandum, trust deed, and investor agreements.
Further, operational expenses such as custodian fees, administrator fees, and compliance costs must be considered.
The cost of setting up in SEZ is relatively lower compared to IFSC, particularly for IT and service-oriented businesses.
Initial costs include incorporation of the entity, obtaining SEZ approval from the Development Commissioner, and execution of lease agreements with the SEZ developer.
Infrastructure costs are still significant, as businesses must operate within designated SEZ premises. However, these costs are generally more predictable and aligned with typical commercial leasing arrangements.
Manpower costs in SEZ depend on the scale of operations and the nature of services. Unlike IFSC, there is no strict requirement for specialized financial professionals, making it more flexible for service businesses.
Ongoing compliance costs include GST compliance, SEZ reporting (such as Annual Performance Report), and maintenance of export-related documentation.
From a practical perspective, IFSC structures are more capital-intensive and are typically suitable for larger businesses or investment platforms.
SEZ structures, on the other hand, are operationally driven and can be more cost-effective for export-oriented service providers.
The key difference lies not only in the quantum of cost but also in the nature of expenditure. IFSC requires investment in regulatory compliance and substance, whereas SEZ focuses on operational setup and export performance.
The decision to set up in GIFT City should not be based solely on cost.
In the case of IFSC, higher costs may be justified by tax incentives, regulatory flexibility, and access to global capital. For fund managers, the tax benefits under section 80LA can significantly offset the initial and ongoing costs.
In the case of SEZ, the primary benefit lies in indirect tax savings and improved cash flow. Businesses with significant export turnover and input costs may find these benefits sufficient to justify the setup.
However, for businesses with limited scale or domestic focus, the cost-benefit equation may not be favorable.
In addition to visible costs, businesses should also consider hidden or indirect costs.
These include the time required for regulatory approvals, the need for professional advisory support, and the internal resources required to manage compliance.
Further, scalability should be considered. A structure that is viable at a certain scale may become inefficient if the business expands or changes its focus.
The cost of setting up in GIFT City varies significantly depending on the chosen structure and the nature of the business. IFSC structures involve higher investment but offer substantial strategic and tax advantages, while SEZ structures provide operational efficiencies for export-oriented businesses.
A careful evaluation of costs in relation to expected benefits is essential before making a decision.
GIFT City should be approached not as a low-cost jurisdiction but as a strategic platform where the value lies in the overall ecosystem and long-term advantages.
At Brijesh Thakar & Associates, we assist clients in evaluating the cost-benefit of setting up in GIFT City, including detailed analysis of regulatory requirements, tax implications, and commercial viability. Our approach focuses on ensuring that the chosen structure is both efficient and sustainable.
The information contained in this article is for general informational purposes only and does not constitute legal, tax, or professional advice. Costs and requirements may vary depending on the specific facts and applicable regulations. Readers are advised to seek professional advice before taking any action.