GIFT City Aims to Capture Global Reinsurance With Tax Breaks, Regulatory Flexibility

India's ambition to transform Gujarat International Finance Tec-City (GIFT City) into a global reinsurance hub is gaining traction, with more than 10 international insurance offices now licensed for operations in the financial free zone. The initiative, which also has 13 potential applicants in the pipeline, offers tax holidays, reduced staffing requirements, and lighter regulatory oversight compared to onshore India. According to reports, the city must match the regulatory clarity and ease of compliance seen in global centers like London, Dubai, or Singapore to fully realize its potential.

The city's regulatory framework already has several advantages, including no capital injection requirements and a 10-year tax holiday for reinsurance businesses. Legal experts note these benefits make GIFT City more attractive than India's onshore market, where compliance demands are strict and staffing requirements are more onerous.

Still, some reinsurers have encountered friction in cross-border operations, particularly in anti-money laundering checks and documentation requirements that differ from initial expectations.

The city's potential is also drawing global attention, with firms like Berkley Insurance Asia beginning operations and expressing confidence in its long-term growth. The CEO of Berkley compared GIFT City's trajectory to Dubai's DIFC, where initial challenges gave way to a thriving financial hub. While the focus remains on attracting more players, the next step will be to measure success based on the volume of reinsurance transacted within the city rather than just the number of companies setting up shop.

Why the Standoff Happened

Despite early optimism, operational hurdles have emerged. Many insurers expected the IFSC to offer minimal documentation for cross-border transactions, but in practice, they face full anti-money laundering and counter-terror financing checks, even for small remittances. This has created confusion, especially around the legal status of firms operating in GIFT City as both non-residents and residents depending on the regulatory lens.

These complexities highlight a broader challenge in establishing a globally competitive financial hub. While India's regulatory framework has improved, it still lags in consistency and predictability compared to other IFSCs. Shashi Nair, CEO of Berkley Insurance Asia, acknowledged that building a successful financial center takes time and regulatory maturity. The early experience underscores the need for continued policy refinement to align with global standards.

What Analysts Are Watching

The push to make GIFT City a reinsurance hub is also prompting broader conversations about tax incentives and regulatory flexibility. A key development in this space is the State Bank of India's (SBI) request for an extension of its 10-year tax holiday, which is set to expire in 2026. SBI is not alone - several early entrants, including Bank of Baroda and Yes Bank, face the same issue. Without an extension, these firms risk losing their competitive edge, potentially driving business offshore.

Industry experts argue that a tax holiday extension is not just fair but necessary. Early movers in GIFT City faced higher costs and limited scale in the early years, and a longer tax break would help them build a sustainable business. Suresh Swamy of Price Waterhouse & Co-GIFT City noted that such an extension would acknowledge their contribution while ensuring parity with global peers. The government is reportedly considering the request, with a potential announcement expected in the upcoming budget.

Risks to the Outlook

The need for regulatory clarity is further underscored by the global competitive landscape. While GIFT City has seen strong growth in recent years, including $100 billion in foreign currency loans disbursed and a surge in foreign borrowing, it still lags behind leading IFSCs in terms of long-term tax incentives and compliance simplicity. Rajesh H Gandhi of Deloitte India pointed out that some global hubs offer significantly longer tax breaks, giving them a distinct advantage in attracting and retaining financial businesses.

Meanwhile, the city's regulatory body, the International Financial Services Centres Authority (IFSCA), has made progress in streamlining operations. It recently surpassed a milestone of registering over 1,000 entities across banking, reinsurance, and asset management. However, the regulatory environment remains a work in progress. For GIFT City to succeed, it must continue to refine its framework, reduce operational frictions, and align with international best practices.