Transcription
International Financial ServiceCentreFrequently asked questions by offshoreinvestors23 February 2018
IndexSr. No.1QuestionPage no.Big Picture1.1What is International Financial Service Centre (‘IFSC’)?41.2What are the advantages for FPIs/ EFIs in trading through the stock exchange in theIFSC?42Eligibility criteria2.1Who is a foreign portfolio investor (‘FPI’)?42.2Who is an eligible foreign investor (‘EFI’)?42.3Can an FPIs/ EFIs invest in securities transacted on a stock exchange in the IFSC?42.4Is prior approval required for an FPI to trade in the IFSC?42.5Are non-resident Indians (NRIs) permitted to invest in securities transacted on astock exchange in IFSC?42.6Can an entity with NRIs as beneficial owners invest on IFSC stock exchange?42.7Does FPIs/EFIs need physical presence in the IFSC Gift City?53Operational3.1What products are available for FPIs/ EFIs to trade on the stock exchange in theIFSC?53.2Can FPIs/ EFIs trade in commodity derivatives?53.3Is a currency derivative with an INR pair available?53.4Are FPIs/ EFIs required to appoint local custodians in the IFSC?53.5Can an existing Indian local custodian of an FPI clear trade executed on the IFSCstock exchange?53.6Do FPIs have to open a bank account in the IFSC?53.7Do FPIs have to open a custody account in the IFSC?53.8Does the IFSC provide the facility of direct market access (‘DMA’)/ co-location?53.9How do FPIs remit margin money to trading members?53.10Is there any capital account restriction in the IFSC for an FPI?53.11Can the margin money on the main stock exchange and IFSC stock exchange benetted-off?6IFSC – FAQ by offshore investorsPwCPage 2 of 15
3.12Can a fund manager be based in the IFSC?63.13Can one FPI transact on the main stock exchange as well as on the IFSC stockexchange?63.14How many settlement cycles are there in the IFSC stock exchange?63.15What is the current daily average turnover in the IFSC stock exchange?63.16Can an FPI use a main stock exchange broker, who has a subsidiary in the IFSC, totrade on the IFSC without separate registration?63.17What is the position limit of IFSC stock exchanges?64Taxation4.1Is it required to obtain a permanent account number (‘PAN’)?64.2What is the characterization of income from an IFSC transaction – is it capital gainsor business income?64.3Will income earned by FPIs in the IFSC stock exchange be mandatorily classified ascapital gains?74.4Will income earned by EFIs in the IFSC stock exchange be mandatorily characterisedas capital gains?74.5Is a DTAA accessible to FPIs transacting in the IFSC stock exchange?74.6What are the tax rates on capital gains?74.7Are brokers required to withhold tax before remittance?74.8Are FPIs transacting through the IFSC stock exchange required to file the annualreturn?74.9Is the set-off of capital loss from a derivative on the IFSC available with capital gainsfrom equity shares on the main stock exchange?74.10Can capital gains/ loss from transactions on the Singapore Stock Exchange (‘SGX’)be clubbed/ set-off with capital gains from the IFSC?74.11Is minimum alternate tax (‘MAT’) leviable on FPIs/ EFIs that are corporate entities?75Others5.1Can an Indian resident buy and sell derivatives in the IFSC under the LiberalizedRemittance Scheme (‘LRS’)?75.2Can P-notes be issued against securities on IFSC stock exchanges?85.3Which is the international arbitration entity at the IFSC for arbitration and relateddispute resolution services?8IFSC – FAQ by offshore investorsPwCPage 3 of 15
Sr. no.11.1QuestionAnswerBig PictureWhat is InternationalFinancial Service Centre(‘IFSC’)?IFSC is set-up to undertake financial services transactions that arecurrently carried on outside India by overseas financial institutionsand overseas branches / subsidiaries of Indian financial institutions(IFSC unit is treated as a non-resident under RBI regulations)An IFSC caters to customers outside the jurisdiction of the domesticeconomy. Such centers deal with the flow of finance, financialproducts and services across borders1.22What are the advantages forFPIs/ EFIs in trading throughthe stock exchange in theIFSC?The advantages in trading through the National Stock ExchangeIFSC (‘NSE IFSC’) and India International Exchange (‘INX’);together referred to as the ‘IFSC stock exchange’, are as follows: No capital gain tax No securities transaction tax (‘STT’) No commodity transaction tax (‘CTT’) No goods and service tax (‘GST’) No stamp duty No currency risk (as transactions and settlements are in USD) Longer trading hoursEligibility criteria2.1Who is a foreign portfolioinvestor (‘FPI’)?A person who satisfies the eligibility criteria of and is registered asan FPI under the Securities and Exchange Board of India (ForeignPortfolio Investor) Regulations, 2014.2.2Who is an eligible foreigninvestor (‘EFI’)?A foreign entity that is not registered as an FPI with the Securitiesand Exchange Board of India (‘SEBI’).2.3Can an FPIs/ EFIs invest insecurities transacted on astock exchange in the IFSC?Yes. FPIs and EFIs can invest in securities transacted on a stockexchange located in the IFSC.2.4Is prior approval required foran FPI to trade in the IFSC?No. Prior approvals are not required by FPIs to trade in IFSC stockexchanges. Members of the IFSC stock exchange are required toupload the unique client code (‘UCC’) of FPIs before FPIs executetransactions.2.5Are non-resident Indians(NRIs) permitted to invest insecurities transacted on astock exchange in IFSC?Clarity is awaited whether NRIs can invest as EFIs. They cannot asFPIs.2.6Can an entity with NRIs asbeneficial owner invest on theIFSC stock exchange?Entity with substantial NRI holding may not be permitted to investon the IFSC stock exchange.IFSC – FAQ by offshore investorsPwCPage 4 of 15
Sr. no.2.733.1QuestionAnswerDoes FPIs/EFIs need physicalpresence in the IFSC GiftCity?No. FPIs/EFIs need not have physical presence in the IFSC Gift City.OperationalWhat products are availablefor FPIs/ EFIs to trade on thestock exchange in the IFSC?FPIs can trade in the following securities on the IFSC stockexchange: Equity index futures and options (refer Annexure 1) Single stock future and options (refer Annexure 1) Commodity future (refer Annexure 1) Currency future and options (refer Annexure 1)3.2Can FPIs/ EFIs trade incommodity derivatives?Yes. FPIs/EFIs are allowed to trade in commodity derivatives.3.3Is a currency derivative withan INR pair available?No. Presently, there are no currency derivatives with an INR pair.3.4Are FPIs/ EFIs required toappoint local custodians inthe IFSC?The appointment of a local custodian in the IFSC is:3.5Can an existing Indian localcustodian of an FPI cleartrade executed on the IFSCstock exchange?Clearing members of the IFSC stock exchange will settle thederivative trades. Hence, a local custodian of the FPI is not requiredto clear the trade. FPIs are required to keep local custodiansinformed about their participation in the IFSC, as their role is tomonitor compliance.3.6Do FPIs have to open a bankaccount in the IFSC?FPIs are not required to open a bank account in the IFSC.3.7Do FPIs have to open acustody account in the IFSC?Presently, only derivative products are traded in the IFSC stockexchange, and hence there is no requirement of opening a custodyaccount. Upon listing of products such as bonds and depositoryreceipts, a custody account may be required.3.8Does the IFSC provide thefacility of direct market access(‘DMA’)/ co-location?Yes. IFSC stock exchanges provide the DMA and co-locationfacilities.3.9How do FPIs remit marginmoney to trading members?Margin money can be remitted through the FPI’s offshore bankaccounts via SWIFT.3.10Is there any capital accountrestriction in the IFSC for anFPI?Capital account restrictions are not applicable at exchangesoperating in the IFSC.IFSC – FAQ by offshore investorsPwC Not required for derivative transactions, but Required for other securities such as rupee denominatedbonds, American Depository Receipts (ADRs), GlobalDepository Receipts (GDRs) and Foreign CurrencyConvertible Bonds (FCCB).Page 5 of 15
Sr. no.QuestionAnswer3.11Can the margin money on themain stock exchange andIFSC stock exchange benetted-off?No. The margin money on the main stock exchange & the IFSC stockexchange cannot be netted off as the main stock exchange and IFSCstock exchange are separate entities.3.12Can a fund manager be basedin the IFSC?Yes. A fund manager can be based in the IFSC.3.13Can one FPI transact on themain stock exchange as wellas on the IFSC stockexchange?Yes. FPIs can transact on the main stock exchange as well as on theIFSC stock exchange. However, FPIs are required to ensure clearsegregation of funds and securities.3.14How many settlement cyclesare there in the IFSC stockexchange?The settlement happens in two cycles as follows:NSE IFSC Trading Session 1 – 8:00 to 17:00 hours – Settlement on thenext working day by 9:00 hours Trading Session 2 – 17.30 to 23.30 hours – Settlement on thenext working day by 19:00 hoursIndia INX3.15What is the current dailyaverage turnover in the IFSCstock exchange? Trading Session 1 – 04:30 to 17.00 hours – Settlement on thenext working day by 08.00 hours Trading Session 2 – 17:00:01 to 02:30:00 hours – Settlementon the same day by 16:30 hoursCurrently, the daily average turnover is as follows:NSE IFSC – USD 76 million (as on 31st Jan 2018)India INX – USD 242.63 million (as on 2nd Feb 2018)3.16Can an FPI use a main stockexchange broker, who has asubsidiary in the IFSC, totrade on the IFSC withoutseparate registration?No. Broking entities on the main stock exchange and IFSC stockexchange are separate entities. IFSC broking entity also needs to onboard FPIs separately. However, the on-boarding process is simpleas mentioned above.3.17What is the position limit ofIFSC stock exchanges?Position limits of India INX and NSE IFSC are listed in Annexure 2.4Taxation4.1Is it required to obtain apermanent account number(‘PAN’)?Yes. PAN must be obtained before commencement of activities inIFSC stock exchange.4.2What is the characterizationof income from an IFSCtransaction – is it capitalgains or business income?If securities are held as capital assets, gains arising from sale wouldbe characterized as capital gains.IFSC – FAQ by offshore investorsPwCIf securities are held as trading assets, gains arising from sale wouldbe characterized as business income.Page 6 of 15
Sr. no.QuestionAnswer4.3Will income earned by FPIs inthe IFSC stock exchange bemandatorily classified ascapital gains?Yes. Gains are likely to be characterized as capital gains.4.4Will income earned by EFIsin the IFSC stock exchange bemandatorily characterised ascapital gains?No. Current law does not provide for mandatory characterisation.4.5Is a DTAA accessible to FPIsand EFIs transacting in theIFSC stock exchange?Yes. The DTAA is accessible to FPIs and EFIs transacting in theIFSC stock exchange.4.6What are the tax rates oncapital gains?Capital gains on transfer of 1) derivatives 2) ADR/GDR/FCCB and3) Dollar denominated bond listed on IFSC are exempt from tax.4.7Are brokers required towithhold tax beforeremittance?Since income from above transactions are not taxable, brokers areunlikely to withhold tax.4.8Are FPIs transacting throughthe IFSC stock exchangerequired to file the annualreturn?Yes. FPIs/ EFIs transacting on the IFSC stock exchange are requiredto file annual tax return.4.9Is the set-off of capital lossfrom a derivative on the IFSCavailable with capital gainsfrom equity shares on themain stock exchange?No. As capital gains from derivatives transacted on the IFSC stockexchange is exempt from tax, such capital loss cannot be set-offagainst capital gains from equity shares.4.10Can capital gains/ loss fromtransactions on the SingaporeStock Exchange (‘SGX’) beclubbed/ set-off with capitalgains from the IFSC?No. Capital gains/ loss from SGX cannot be clubbed/ set-off with/against capital gains from transaction on the IFSC stock exchange.4.11Is minimum alternate tax(‘MAT’) leviable on FPIs/EFIs that are corporateentities?Generally, foreign corporates are not liable to MAT if they do nothave a permanent establishment (‘PE’) in India or are not requiredto register with the registrar of companies in India.55.1OthersCan an Indian resident buyand sell derivatives in theIFSC under the LiberalizedRemittance Scheme (‘LRS’)?IFSC – FAQ by offshore investorsPwCNo. Indian residents are not allowed to carry out derivativetransactions under the LRS scheme.Page 7 of 15
Sr. no.QuestionAnswer5.2Can P-notes be issued againstsecurities on IFSC stockexchanges?Clarity is awaited on whether p-notes can be issued againstsecurities on IFSC stock exchange. Presently, for FPIs trading in themain stock exchange, SEBI has prohibited issuance of P-notesagainst derivatives, except for the purpose of hedging.5.3Which is the internationalarbitration entity at the IFSCfor arbitration and relateddispute resolution services?The Singapore International Arbitration Centre is the arbitrationentity at the IFSC.IFSC – FAQ by offshore investorsPwCPage 8 of 15
Annexure 1 – Equity index futuresand optionsIndia INXIndian equity derivativesACC LtdCoal India LtdICICI Bank LtdAdani PortsColgate Palmolive Ind LtdIdea Cellular LtdAmbuja Cements LtdContainer Corporation Of IndiaIDFC Bank LtdApollo Hospitals Enterprise LtdCummins India LtdIndiabulls Housing Fin LtdAshok Leyland LtdDabur India LtdIndian Oil Corp LtdAsian Paints LtdDivis Laboratories LtdIndusind Bank LtdAurobindo Pharma LtdDLF LtdInfosys LtdAxis Bank LtdDr Reddys Laboratories LtdInterglobe Aviation LimitedBajaj Auto LtdEicher Motors LtdITC LtdBajaj Finance LtdExide Industries LtdJSW Steel LtdBajaj Finserv LtdGail India LtdKotak Mahindra Bank LtdBank of BarodaGlenmark Pharmaceuticals LtdLarsen And ToubroBharat Electronics LtdGodrej Consumer Products LtdLIC Housing Finance LtdBharat Forge LtdGrasim Industries LtdLupin LtdBharat Heavy Electricals LtdHavells India LtdM&M FinancialBharat Petroleum Corp LtdHCL Technologies LtdMahindra & Mahindra LtdBharti Airtel LtdHDFC Bank LtdMarico LtdBharti Infratel LtdHero Motocorp LtdMaruti Suzuki India LtdBosch LtdHindalco Industries LtdMotherson Sumi Systems LtdBritannia Industries LtdHindustan Petroleum CorporationMRF LtdCadila Healthcare LtdHindustan Unilever LtdNestle India LtdCanara BankHindustan Zinc LtdNHPC LtdCipla LtdHousing Dev Finance CoNMDC LtdIFSC – FAQ by offshore investorsPwCPage 9 of 15
NTPC LtdShree Cement LtdTCS LtdOil and Natural Gas CorpShriram Transport Fin ColTech Mahindra LtdOil India LtdSiemens LtdTitan Co LtdOracle Fin Services SoftState Bank of IndiaTorrent Pharmaceuticals LtdPetronet LNG LtdSteel Authority of India LtdUltra Tech Cement LtdPidilite Industries LtdSun Pharmaceutical IndUnited Breweries LtdPiramal Enterprises LtdSun TV Network LtdUnited Spirits LtdPower Finance Corp LtdTata Chemicals LtdUPL LimitedPower Grid Corp of India LtdTata Global Beverages LimitedVedanta LimitedPunjab National BankTata Motors Ltd DVRWipro LtdReliance Industries LtdTata Power Co LtdYes Bank LtdReliance Infrastructure LtdTata Steel LtdZee Entertainment LtdRural Electrification CorpTata Motors LtdGlobal equity futuresCommodity futuresGlobal currency derivativesAlphabet INC (Google)Brent crude oilEUR-USD currency pairApple INCCopperGBP-USD currency pairFacebook INCGoldJPY-USD currency pairJ.P Morgan ChaseGold KGMicrosoft CorporationSilverIndex derivativesSensexSensex 50NSE IFSCIndian equity derivativesACC LimitedAshok Leyland LimitedAxis Bank LimitedAdani Ports and Special Economic ZoneLimitedAsian Paints LimitedBajaj Auto LimitedAmbuja Cements LimitedAurobindo Pharma LimitedBajaj Finance LimitedIFSC – FAQ by offshore investorsPwCPage 10 of 15
Bajaj Finserv LimitedGodrej Consumer ProductsLimitedKarnataka Bank LimitedBank of BarodaGrasim Industries LimitedKotak Mahindra Bank LimitedBharat Electronics LimitedHavells India LimitedKPIT Technologies LimitedBharat Heavy Electricals LimitedHCL Technologies LimitedLarsen & Toubro LimitedBharat Petroleum Corporation LimitedHDFC Bank LimitedLIC Housing Finance LimitedBharti Airtel LimitedHero MotoCorp LimitedLupin LimitedBharti Infratel LimitedHindalco Industries LimitedMahindra & Mahindra LimitedBosch LimitedHindustan PetroleumCorporation LimitedMarico LimitedBritannia Industries LimitedHindustan Unilever LimitedMaruti Suzuki India LimitedCadila Healthcare LimitedHindustan Zinc LimitedMindTree LimitedCanara BankHousing Development FinanceCorporation LimitedMotherson Sumi Systems LimitedCipla LimitedI T C LimitedMRF LimitedCoal India LimitedICICI Bank LimitedNHPC LimitedColgate Palmolive (India) LimitedICICI Prudential Life InsuranceCompany LimitedNMDC LimitedContainer Corporation Of India LimitedIdea Cellular LimitedNTPC LimitedCummins India LimitedIDFC Bank LimitedOil & Natural Gas CorporationLimitedDabur India LimitedIndiabulls Housing FinanceLimitedOil India LimitedDivi's Laboratories LimitedIndian Oil Corporation LimitedOracle Financial Services SoftwareLimitedDLF LimitedIndusInd Bank LimitedPetronet LNG LimitedDr. Reddy's Laboratories LimitedInfibeam IncorporationLimitedPidilite Industries LimitedEicher Motors LimitedInfosys LimitedPiramal Enterprises LimitedFederal Bank LimitedInterglobe Aviation LimitedPower Finance CorporationLimitedGAIL (India) LimitedJSW Steel LimitedPower Grid Corporation of IndiaLimitedGlenmark Pharmaceuticals LimitedJustdial LimitedPunjab National BankIFSC – FAQ by offshore investorsPwCPage 11 of 15
RBL Bank LimitedSun TV Network LimitedUltra Tech Cement LimitedReliance Industries LimitedTata Consultancy ServicesLimitedUnited Breweries LimitedRural Electrification CorporationLimitedTata Elxsi LimitedUnited Spirits LimitedShree Cement LimitedTata Motors LimitedUPL LimitedShriram Transport Finance Co. LimitedTata Motors Limited DVRVedanta LimitedSiemens LimitedTata Power Company LimitedWipro LimitedSouth Indian Bank LimitedTata Steel LimitedYes Bank LimitedState Bank of IndiaTech Mahindra LimitedZee Entertainment EnterprisesLimitedSteel Authority of India LimitedTitan Company LimitedSun Pharmaceutical Industries LimitedTorrent PharmaceuticalsLimitedGlobal equity futuresAlphabet Inc.Exxon Mobil CorporationAlibaba Group Holding LimitedAmazon.com, Inc.General Electric CompanyAT&T Inc.China Mobile LimitedJ P Morgan Chase & CoBank of America CorporationFacebook, Inc.Johnson & JohnsonProcter & Gamble CompanyMicrosoft CorporationWells Fargo & CompanyGlobal currency derivativesCommodity derivativesIndex derivativesAUD-USD currency pairLBMA Gold Price (PM) - 995finenessNifty 50 IndexCHF-USD currency pairLBMA Silver Price (Grade 999,fineness 999)Nifty Bank IndexEuro-USD currency pairNifty IT IndexGBP-USD currency pairJPY-USD currency pairIFSC – FAQ by offshore investorsPwCPage 12 of 15
Annexure 2 – Position limitParticularsNSE IFSCIndia INXIndex futureHigher of USD 250 million or 15% ofopen interest (‘OI’)Open position across all contractsshall not exceed 3,000,000 contractsIndex optionsHigher of USD 250 million or 15% ofOIOpen position across all contractsshall not exceed 3,000,000 contractsStock (Indian equity shares)Higher of 1% of the free-float marketcap or 5% of the OIHigher of 1% of the free-float marketcap or 5% of OICommodityGold – Higher of USD 450 million or15% of OIGold – Higher of 50,000 contractsor 10% of OISilver – Higher of USD 300 millionor 15% of OISilver – Higher of 33,000 contractsor 10% of OICopper – Higher of 70,000 contractsor 10% of OIBrent crude oil – Higher of 40,000contracts or 10% of OICurrencyIFSC – FAQ by offshore investorsPwCHigher of USD 1 billion or 15% of OIHigher of USD 1 billion or 15% of OIPage 13 of 15
ContactsBhavin ShahSunil GidwaniPartner, Financial Services TaxLeaderPartner, Financial ServicesDirect: 91 22 6689 1122Mobile: 91 98675 56600Direct: 91 22 6119 8052Mobile: 91 98211 31945E mail: sunil.gidwani@pwc.comE mail: bhavin.shah@pwc.comSuresh V. SwamyNehal D. SampatPartner, Financial ServicesExecutive Director, Financial ServicesDirect: 91 22 6119 8053Direct: 91 22 6119 8567Mobile: 91 9930 148 175Mobile: 91 99875 29708Email: suresh.v.swamy@pwc.comE mail: nehal.d.sampat@pwc.comIFSC – FAQ by offshore investorsPwCPage 14 of 15
Thank youThese FAQs has been prepared for general guidance on matters of interest only and do not constitute professional advice. Youshould not act upon the information contained in this publication without obtaining specific professional advice. Norepresentation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in thispublication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do notaccept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining toact, in reliance on the information contained in this publication or for any decision based on it. 2018 PricewaterhouseCoopers Private Limited. All rights reserved. In this document, “PwC” refers toPricewaterhouseCoopers Private Limited (a limited liability company in India having Corporate Identity Number or CIN :U74140WB1983PTC036093), which is a member firm of PricewaterhouseCoopers International Limited (PwCIL), each memberfirm of which is a separate legal entity.MB/February2018-12090
next working day by 9:00 hours Trading Session 2 - 17.30 to 23.30 hours - Settlement on the next working day by 19:00 hours India INX Trading Session 1 - 04:30 to 17.00 hours - Settlement on the next working day by 08.00 hours Trading Session 2 - 17:00:01 to 02:30:00 hours - Settlement on the same day by 16:30 hours
