IFSCA Report on Non-Resident Business Development & Registration Simplification

Insurance Sector

Capital Market

5 million before the scheme can start investing, causing delays in deploying funds and missed market opportunities for investors.

• IFSCA to amend Regulation 35 of the FM Regulations to permit funds with a strategy of investing in listed securities without the minimum corpus requirement.
• Alternatively, allow the fund managers to wind up the fund in case they do not meet the minimum threshold criteria within six months.

to allow FIFs to obtain registration/ certificate under sub-category of Category I, II, or III AIF based on their investment strategy.

Business” and “Capital Gains”

• Amend the definition of “Specified fund” under the Income Tax Act, 1961, to include Retail Schemes, ensuring taxation parity with Category III AIFs and providing specific exemptions for non- resident unit holders under Section 10(23FBC) to prevent double taxation.
• Alternatively, to streamline the taxation structure, focus should be made on having a single-tier taxation at the Scheme level while concurrently providing a specific exemption for unit holders and extending PAN relaxation to foreign unit holders in Retail Schemes.
• The third alternative proposal includes aligning the taxation of Retail Schemes with SEBI- registered Mutual Funds. Allowing Retail Scheme to deduct tax at the time of distribution or redemption and at the same time exempting investors from obtaining PAN and filing income returns in India.

General Recommendations

• To promote and attract more investor pool and customers to GIFT IFSC, IFSCA should launch comprehensive awareness campaigns to inform and educate overseas investors on GIFT IFSC, in general.
• To promote greater product / service offerings by GIFT IFSC entities: IFSCA should strategically and actively empower registered entities within GIFT IFSC to broaden their product and service offerings by:

a) Issuing specific letters to these registered entities, providing detailed information on the array of products and services enabled within the GIFT IFSC; and

b) Sending out a questionnaire to registered entities, seeking insights into the products and services currently offered, their plans for future offerings and any obstacles or challenges hindering the enablement of certain products and services.

Ease of Onboarding and KYC

• Annexure II of the AML Guidelines and Annexure 1 of PMLA Rules, 2005 should be amended to allow for digital / video KYCs for low and medium risk NRs and NRIs which do not require their physical presence in GIFT IFSC. This includes amending Annexure II of AML Guidelines to include geotagging for location confirmation of NR and NRIs outside India, and removal of V-CIP block for NR and NRIs onboarding, allowing secure video conferencing options.
• IFSCA to implement clear digital/NFTF CDD guidelines, incorporating data security measures and testing protocols.
• IFSCA to categorize digital identity systems as standard or low risk for CDD, fostering confidence and efficiency in the digital onboarding process.

Department of Revenue, Government of India

(i) another GIFT IFSC RE;

(ii) the overseas branch / parent of the GIFT IFSC RE (due to lack of awareness); and / or

(iii) the Indian branch/parent of the GIFT IFSC RE

• Reliance on Indian or overseas parent / subsidiary branch of GIFT IFSC RE: As per Clause 6.2 of the AML Guidelines, REs are permitted to rely on a third party to perform CDD measures, subject to the conditions specified therein. For this purpose, RE’s branches, subsidiaries, parent entity and other related corporations (Related Entities”) are considered to be third parties. However, it is not clear whether an overseas Related Entity is required to undertaken a fresh verification of CDD documents or whether the GIFT IFSC RE can open a new account based on the CDD undertaken by its Related Entity at the time the customer first opened his / her account with the overseas Related Entity. Accordingly, the Working Group recommends that IFSCA should issue clarification that no fresh CDD is required, and that so long as the information with the Related Entity is up to date (as per its own AML requirements) no further CDD needs to be undertaken for account opening by the GIFT IFSC RE.
• Reliance on Primary RE: IFSCA to require each GIFT IFSC RE (Primary RE) to share verified KYC details of a customer which they have already onboarded with another GIFT IFSC RE (“Secondary RE”) who intends to onboard the same customer, subject to such customer’s consent. Accordingly, AML Guidelines should be amended to expand the definition of third-party reliance and IFSCA should issue a clarification that no further CDD needs to be undertaken by the Secondary RE.
• GIFT IFSC Repository: For ease of onboarding of customer who have already been onboarded by other GIFT IFSC REs, a centralized KYC repository for GIFT IFSC should be created. Customer KYC details would be added to this repository with the consent of relevant customer. This would allow REs across all sectors to have access to verified KYC details, thereby eliminating the need for full-fledged CDD.
• Link with CKYC: For ease of onboarding NRIs who already have accounts open in mainland India, IFSCA should tie up with CKYC to allow GIFT IFSC REs access to the verified KYC details of such NRIs.

• Expand the list of acceptable OVDs for medium-risk customers under normal CDD to include documents allowed for low-risk customers in the Simplified CDD process.
• Additionally, consider accepting Overseas Citizens of India cards and Overseas Rent Agreements as valid OVDs for low and medium-risk customers.
• Establish procedures for regular assessment and revisions of the OVD list to adapt to legal changes, technological advancements and evolving NRI needs.