Foreign investment into IFSC entities

Why it is not ordinary FDI

Regulation 3 of the FEMA (International Financial Services Centre) Regulations, 2015 treats a financial institution or its branch set up in an IFSC, and permitted or recognised by the Government or a regulator, as a person resident outside India. When a foreign investor subscribes for shares in such an entity, the investor and the investee are both non-residents for FEMA, and the capital comes in foreign currency, which is the currency the entity must do business in (regulation 4). For the same reason, a non-resident Indian's contribution to an IFSC fund is not a remittance under the Liberalised Remittance Scheme. See NRI and OCI investment.

The status is specific to the IFSC entity. A company in the GIFT City domestic tariff area, outside the IFSC, is an ordinary Indian resident and foreign investment into it follows the FDI rules. See GIFT domestic zone.

What still applies

• Company law. An IFSC subsidiary is incorporated under the Companies Act, 2013; a branch of a foreign company follows the Companies Act rules for foreign companies (see foreign branches). See incorporation.
• IFSCA ownership rules. Controlling shareholders must be fit and proper at all times, and a change in control generally needs IFSCA's prior approval. For a fund management entity these are regulations 9 and 125 of the Fund Management Regulations, 2025. See fit-and-proper requirements.
• SEZ approval for a change in shareholding pattern or directors, through the Unit Approval Committee.
• Beneficial ownership. Under the IFSCA AML/CFT/KYC Guidelines, 2022, the beneficial owner of a corporate customer is the natural person who has a controlling ownership interest (more than ten per cent of shares, capital or profits) or who exercises control by other means.
• Onward investment into India. Because the IFSC entity is non-resident, any investment it makes into an Indian company outside the IFSC is foreign investment in that company, tested under the Non-Debt Instruments Rules, 2019.

Countries sharing a land border with India

Press Note 3 (2020), as revised by DPIIT's Press Note No. 2 (2026 Series) of 15 March 2026, now reads in paragraph 3.1.1 of the FDI Policy:

• an entity or citizen of a country sharing a land border with India, or an investment whose beneficial owner is a citizen of such a country, may invest only under the Government route;
• a later transfer that brings beneficial ownership within that restriction needs prior Government approval;
• "beneficial owner" takes the meaning in section 2(1)(fa) of the Prevention of Money-laundering Act, 2002, determined under rule 9(3) of the PML (Maintenance of Records) Rules, 2005, and is tested at the level of the investor entity. Beneficial ownership is treated as vested in a land-border country where its citizens or entities hold rights above the rule 9(3) thresholds, control the investor entity, or can exercise ultimate effective control over the investee;
• investments from investor entities with any land-border ownership that do not need approval are reported under DPIIT's standard operating procedure.

Press Note 2 states that it takes effect from the date of the corresponding FEMA notification. Confirm that the amendment to the Non-Debt Instruments Rules is in force before relying on the revised text.

The IFSC framework applies the land-border rule expressly in one place: direct listing of Indian public companies on the IFSC exchanges. Under clause 2 of Schedule XI to the Non-Debt Instruments Rules, a holder who is a citizen of, or entity incorporated in, a land-border country, or whose beneficial owner is from one, may hold such shares only with Central Government approval. IFSCA's circular of 9 February 2024 requires broker-dealers, depository participants and custodians to list such clients, take declarations from all clients, and block acquisitions without approval. See direct listing.

For capital investment into IFSC entities generally, we have not found an equally express provision. Our booklets advise treating the land-border check as the first screening point for any IFSC structure that touches such a country, not the last.

Before you rely on this

1. Confirm the investee is an IFSC entity permitted or recognised by IFSCA, not a domestic tariff area company.
2. Trace ownership and control of every investor to natural persons, using the IFSCA and PML Rules thresholds.
3. Test each person in the chain for a land-border connection. If there is one, take advice on Government approval before signing.
4. Run IFSCA's fit-and-proper test on controllers, and plan the IFSCA and SEZ approvals for any change in control.
5. Screen investors against sanctions lists. See sanctions and AML.
6. If the IFSC entity will invest onward into India, apply the FDI rules at that level as well.