Family offices can’t set up funds in GIFT City: report

Regulators have stepped in to block domestic family offices from setting up investment funds in finance hub Gujarat International Finance ­Tec-­City, or GIFT City, over money laundering concerns, Bloomberg reported, citing people familiar with the issue.

The GIFT City regulator has stopped approvals for family investment funds following feedback from the Reserve Bank of India (RBI), which is concerned that the arrangements may be used to evade taxes and skirt capital controls, the report said.

RBI is wary that loosening capital controls for such instruments could result in loopholes that may be exploited for money laundering, the report said, citing the people aware of the developments.

GIFT City, which was launched in 2011 by then Gujarat chief minister and now Prime Minister Narendra Modi in the western Indian state, has been built to rival regional financial centers such as Dubai.

The government had taken a slew of steps to boost activity at GIFT City, including allowing the listing of Indian firms and allowing the wealthy to open family investment funds.

However, the regulators’ latest move will be a setback for the special economic zone’s (SEZ’s) ambitions to be a one-stop shop used by wealthy individuals for overseas investments.

The SEZ gave its first nod to set up such a fund to Azim Premji’s family office to invest its capital overseas in January, Bloomberg had then reported.

As there were no more final approvals since then, family funds are looking elsewhere and have started exploring investment offices in countries such as Singapore and Dubai, report said.

Indian regulators restrict foreign investments by each resident at $250,000 annually, which includes purchase of property, investment in shares and securities, and setting up of joint ventures or subsidiaries

The latest move by the regulators is seen as being aimed at plugging the loophole, which would have allowed residents to transfer more than the permitted capital abroad.