International Financial Services Centers Authority Releases Framework for Vessel Leasing, Infra News, ET Infra
The International Financial Services Centers Authority (IFSCA) on Tuesday released the framework for registering entities under the Financial Companies Regulations to undertake vessel leasing transactions in International Financial Services Centers (IFSCs).
The framework aims to promote Gujarat International Finance Tec-City or GIFT IFSC as a hub for international ship leasing and finance business.
An entity intending to undertake vessel leasing in the IFSC must be registered as a finance company/unit in accordance with the IFSCA (Financial Company) Regulations, 2021.
The framework allows an entity to set up operations in the IFSC in the form of a company or limited liability partnership (LLP) or trust or branch. The framework requires that a vessel leasing transaction be classified as a lease so that it complies with Indian Accounting Standards (Ind AS 116) on leases.
In addition, the framework details required capital and prudential requirements depending on the nature of the lease undertaken by the entity, whether it is an operating lease or a lease for vessels or ocean-going vessels.
Entities established within the IFSC to carry out the permitted activities as contemplated in the framework must comply with all requirements, exceptions, regulations and conditions imposed by any applicable law, including the merchant navy, and must also include circulars and notifications issued by the competent authorities. authorities established under the Merchant Marine Act or other applicable laws, by the Ministry of Merchant Marine or the Director General of Merchant Marine.
A lessor in the IFSC will be authorized to enter into operating leases; asset management support services for assets owned or leased by the entity or its wholly owned subsidiary(ies) or a branch of its wholly owned subsidiary established in IFSCs in India; sale-leaseback, purchase, novation, transfer, disposal and any other similar transactions in connection with the leasing of vessels.
A lessor in the IFSC will be authorized to contract a financial lease; hybrid of financial leasing and operating.
A non-resident’s income from royalties and interest on the rental of a vessel by a unit of the International Financial Services Center (IFSC) will be exempt from tax, Finance Minister Nirmala Sitharaman said during the meeting. the presentation of the Union’s budget in February.
“Fostering the development of Vessel Leasing, Finance and Ownership within the IFSC will also serve as a foundation to unleash the employment and production multipliers on the shipping industry and the Indian economy,” according to a report submitted by a committee on the development of ship acquisition routes. , Financing and leasing activities of the International Financial Services Center (IFSC).
“Now is the time for India to seize the opportunities created also by the global crisis to promote a maritime ecosystem capable of creating and sustaining businesses that are compared to the best in the world and capable of competing and profiting by participating in the game. It is time to align Indian shipping industry with global hubs like Singapore, Hong Kong and Dubai and carve out a place in international trade besides leveraging and securing lucrative deals for It is proposed that the concept of IFSC, designed for financial services, be naturally extended to ship acquisition, financing and leasing (SAFAL) products and services on the model of the recent successful extension to acquisition, financing and leasing of aircraft,” the committee led, written by Vandana Aggarwal, the government’s former chief economic adviser in her report finalized in October 2021.
Among the other key considerations for giving a concerted push to the creation of a domestic leasing industry on the model of what has recently been successfully done for aircraft – another large mobile bankable asset – is that the shipbuilding industry holds the key to pushing the success of ‘Make in India’, due to the heavy reliance on connectivity and supply chain, with high production and employment multipliers for the Indian economy .
Furthermore, the market share in industry finance is currently held by foreign lessors and financiers, and lately by Chinese leasing and finance companies.
Vessel leasing financing is a very cost-effective avenue, and as shipping is the least polluting form of commercial transport, it is essential in decarbonization efforts. An efficient ship finance ecosystem with adequate risk capital can also be allowed to invest in tonnage in inland rate zones, ensuring adequate finance for the tonnage operating there, the group wrote in its report.
Indian agencies (banks, insurance companies, pension funds, alternative capital and others) lack exposure to maritime finance and insurance, and therefore tend not to take risks or impose lengthy procedures and time-consuming. Furthermore, India’s tax regimes are generally not supportive of the shipping industry in the same way as the tax regimes of Singapore, Malta, Cyprus and Panama, where most international ships are registered. The tax burden on seafarers sailing on foreign vessels is zero as they are exempt from income tax, while their counterparts on Indian vessels are obliged to pay all taxes. Similarly, GST provisions on shipbuilding, ship management, bunkering, repair (e.g. spare parts) are biased in favor of foreign entities, making Make-in-India unattractive .
Shipping as a global industry experiences cyclical ups and downs where asset value is tied to global charter rental rates. Indian entrepreneurs, in the context of other industries, have not viewed investment in the shipping sector as a safe haven. Therefore, India which has a huge import-export trade is a country of charterers and not of shipowners, resulting in substantial expenditure of about $75 billion per year for the chartering of foreign flagged vessels for India’s international trade.
“It is heartbreaking that when registering ships, the industry finds it easier and faster to use flags of convenience (Panama, Marshall Islands, Liberia, etc.) rather than flying the Indian flag. Through the development avenues of leasing, it is proposed to impart brand value to Indian flagged vessels,” the committee report adds.