Alternative Investment Fund -Operations and Legal Regime

REGULATORY FRAME WORK FOR ALTERNATIVE INVESTMENT FUNDS IN INDIA

1. What laws regulate the formation and operation of Alternative Investment Funds?

Registration Of Alternative investment funds ("AIFs") is regulated in India by the Securities and Exchange Board of India ("SEBI"), the country's securities market regulator, in accordance with the provisions of SEBI (Alternative Investment Funds) Regulations, 2012 ("AIF Regulations") and various notifications issued thereunder from time to time.

The AIF Regulations permits the formation of an AIF as a trust, a limited liability partnership (“LLP”), or a corporation. As a result, in addition to the AIF Regulations, the AIF registration will be subject to the following, depending on the type of establishment:

a. The provisions of the Indian Trusts Act, 1882 (“Trusts Act”) apply to private trusts;

b. The Limited Liability Partnership Act, 2008 (“LLP Act”) applies to LLPs; and

c. The Businesses Act, 2013 (“Companies Act”) applies to companies.

2. Are Alternative Investment Fund managers or advisers required to be licensed, authorised, or regulated by a regulatory body?

Alternative Investment Fund Registration process is governed by SEBI as per the provisions of AIF Regulations as explained in Question 3 below. SEBI regulates investment advisory and portfolio management activities in India under the SEBI (Investment Advisers) Regulations, 2013 (“IA Regulations”) and the SEBI (Portfolio Managers) Regulations, 2020 (“PMS Regulations”); however, the investment manager entity of an AIF is not required to register under these regulations and is instead governed by the AIF's existing provisions.

The AIF Regulations require the investment manager entity ("Manager") to have a key investment team with at least one key personnel with at least five years of experience:

a. in advising or managing pools of capital; in fund, asset, wealth, or portfolio management; or

b. in the business of buying, selling, and dealing in securities or other financial assets, and having a relevant professional qualification (in finance).

SEBI has the authority to inspect, request information from, and take disciplinary action against an AIF's Manager Company, among other things. Given the Manager's position in relation to an AIF and the monitoring that SEBI exerts on such a Manager, the Manager is thought to be Even though it is not individually registered/licensed with SEBI, it is controlled by SEBI under the AIF Regulations.

3. Is it necessary for Alternative Investment Funds to be licenced, authorised, or regulated by a regulatory body?

Yes, under the AIF Regulations, an entity that wishes to carry on the business activities as an AIF must first obtain an AIF Registration Online from SEBI. In general, as the AIF Regulations allow an AIF to be established as a trust, LLP, or corporation, in addition to SEBI, the process for AIF Registration may be subject to extra licencing as follows:

• There is no specific licencing or regulation for private trusts established under the Trust Acts; nonetheless, the document of the Trust Deed must be registered, as explained in question 5 below; and
• Incorporation under the Companies Act and the LLP Act, respectively, and regulation by the applicable Registrar of Companies (“RoC”) in the corresponding place of incorporation for companies and LLPs.

4. Is there a distinction between open-ended and closed-ended Alternative Investment Funds (or any other distinction between different types of funds or strategies (for example, private equity vs. hedge) under the regulatory regime? and, if so, in what way?

An AIF can be registered in one of three categories, according to the AIF Regulations:

a. Venture capital funds (including angel funds), small and medium enterprise funds, social venture funds, and infrastructure funds are all examples of Category I AIFs.

b. AIFs that do not fall under either Category I or Category III, such as private equity funds, debt funds, real estate funds, and other residual funds, are classified as Category II AIFs.

c. Hedge funds, public market funds, funds trading with the goal of making short-term returns, and other similar funds fall under this Category III.

The AIF's chosen category will establish the investing guidelines, diversification criteria, and other regulations that apply to it. Additionally, Category I and Category II AIFs must be closed-ended and have a minimum term of three years; however, a Category III AIF can be open-ended or closed-ended.

5.  What is the authorization procedure/ AIF registration process, and how long does it take on average?

STEP1: Prior to applying for Alternate Investment fund registration, the vehicle that will apply for AIF Registration Certificate must be established. Depending on the structure chosen, this may entail the following:

a. appointing a trustee for a private trust by entering into an instrument of trust and registering the instrument in accordance with the terms of the Registration Act, 1908; and

b. incorporating companies and LLPs in accordance with the provisions of the Companies Act and the LLP Act, respectively.

For both businesses and LLPs, this could take three to six weeks.

STEP 2: To apply for AIF registration, the applicant must first obtain a Permanent Account Number (for tax purposes) for the entity applying for AIF Registration and submit an application fee for AIF Registration through the SEBI intermediary portal. SEBI would then grant access to the portal upon receipt of the application fee, and the proposed AIF would be required to complete the application there by submitting all of the required information, declarations, and documents as prescribed in the First Schedule to the AIF Regulations, which, among other things, include:

a) KYC and financial documentation relating to the AIF, its Manager, its sponsor, and so on;

b) the private placement memorandum (“PPM”) and the AIF's constitutive instrument, where applicable; and

c) disciplinary history declarations.

STEP 3: SEBI examines the information given in the application to see if the proposed AIF and its Manager/Sponsor meet the eligibility criteria and other conditions set forth in the AIF Regulations, and may request more information if necessary.

STEP 4: If SEBI is satisfied that the proposed AIF meets the required requirements established under the AIF Regulation, the final approval usually takes two to three months.

Following approval, the proposed AIF must pay the registration fee set forth in the Second Schedule of the AIF Regulations, in exchange for a certificate of registration from SEBI.

An AIF may create many schemes, each with its own investing objective/strategy, investor base, underlying investments, and so on.

6. What are the criteria for local residency, qualifications, or substance for AIF Registration, AIF Investment Manager, Sponsor of an AIF, Trustee of an AIF?

The AIF Regulations do not allow for the registration of funds that are not incorporated in India. An AIF's Manager entity must also be a company formed in India. An AIF can be sponsored by an Indian organisation or individual as well as a non-Indian entity or individual. There is no requirement in the AIF Regulations that a minimum number of Indian residents be on the team or that such team members of the Manager spend a minimum number of days in India.

It should be noted that if the Manager or Sponsor of an AIF is

a.  an entity that is not owned and controlled by resident Indian citizens, or

b. is owned or controlled by persons resident outside India; or

c.  is/are individuals other than resident Indian citizens,

Then the investment will be subject to the provisions of the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (“NDI Rules”). These indirect foreign investments must adhere to the NDI's rule sectoral caps, price restrictions, and other criteria that apply to foreign investments.

7. What kind of service providers are needed for an AIF to operate in a compliant manner?

The AIF Regulations require the following types of AIFs to appoint a custodian for the preservation of securities: (a) Category III AIFs; and (b) any Category I or Category II AIF having a corpus of more than INR 500 crores.

The AIF Regulations also necessitate an annual audit of the AIF's books of accounts by a competent auditor, as well as an annual or semi-annual valuation of the AIF's investment by an independent valuer, subject to investor approval.

Annual compliance with the conditions of the PPM must be audited by an internal or external auditor/legal professional.

Although the aforementioned engagements are regulatory in nature, there are a few typical engagements that are not mandated by law, such as the employment of legal and tax advisors.

If an AIF is set up as a trust, it must have a trustee in order to comply with the Indian Trusts Act of 1882.

The trust's affairs are administered by the trustee, who delegated the trust's powers and tasks to the Manager.

8. What are the requirements for Investment Managers of AIF from foreign countries and advisers from foreign countries who want to manage, advise, or otherwise run funds domiciled in your jurisdiction?

An AIF's Manager entity must be a company incorporated in India. Non-residents may, however, are allowed to establish a company in India (in accordance with the provisions of the Companies Act,  2013) to function as an AIF's manager. It's worth noting that, because the Manager of an AIF is thought to be regulated by SEBI, foreign investment in Managers of AIFs would be subject to the NDI Rules' automatic route, which is a streamlined process.

As discussed in question 6, the Manager's ownership and control may have an impact on how the AIF's investments are treated under the NDI Rules.

9. What applicable agreements for cooperation or information exchange have been made with other governments or regulators?

10. What are the most common legal forms of entities for Registration of Alternative Investment Funds (AIFs)?

Trusts are by far the most common structure for AIFs (over 95% of AIFs are registered in the form of a trust) because they are highly flexible, have fewer compliance requirements than other structures, and ensure investor confidentiality because their information is not available in the public domain, unlike other AIF structures such as an LLP. In certain cases, an LLP structure may be considered because it may provide certain benefits, particularly in terms of taxation. Below is a comparison of the many legal structures that could be used

 

Criteria	Private Trust	LLP	PVT LTD
Key Parties	Settlor: The settlor signs the trust instrument and appoints the trustee. The Settlor must be a permanent resident of India. Trustee and Manager: The Trustee administers the trust (AIF) and, in turn, appoints the Manager to manage the trust assets, including the schemes launched under it (by completing an investment management agreement).	Designated partners and Manager: Designated partners are in charge of the LLP's affairs (AIF). In practise, the chosen partners can delegate LLP management to the Manager by signing an investment management agreement. At least two designated partners who are people (whether operating in their individual capacity or as a nominee of a body corporate) and at least one of whom is a resident of India are required for an LLP.	Directors and Managers: Directors are responsible for the administration of the company (AIF) and have a fiduciary duty to the company in relation to the powers granted to them. In effect, by completing an investment management agreement on behalf of the firm, the directors can outsource the company's management to the Manager. A private corporation would need a minimum of two directors, with one of them staying in India for at least 182 days during the financial year.
Compliance	Low	Moderate	High
Confidentiality	High	Low	Moderate
Ease of Operation	High	Low	Moderate
Reporting Requirement	Low	Moderate	Low
Taxation effect	Moderate	Moderate	High
Acceptability with investors and distributors	High	Moderate	Low

 

11. Please explain how investors' liability is limited in different legal structures and fund types (e.g., PE funds and LPACs).

Because an AIF might be set up in a variety of legal structures, the governing legislation of those legal structures will be crucial in establishing the scope of an investor's liability:

a) Company: According to the Companies Act, a shareholder's obligation is restricted to the amount of unpaid share capital.

b) LLP: Under the LLP Act, a partner's liability for the LLP's debts and obligations is limited to the unpaid capital it has promised to provide to the LLP in accordance with the LLP agreement's conditions.

c) Trust: There is no legislative restriction on the liability of a trust beneficiary, and any limitations would be contractually agreed upon with the beneficiary.

While certain statutory restrictions of liability apply to corporations and limited liability partnerships, the typical practise among AIFs is to limit the liability of any investor to the amount of the investor's capital commitment or distributions received from the AIF.

Members of LPACs have no fiduciary responsibility to the AIF's investors and are given contractual safeguards to that effect in the AIF documents.

12. What are the most common legal structures utilised by Alternative Investment Fund managers and advisers?

The most common legal arrangements for AIF managers are LLPs and corporations. The following is a generalised outline of significant considerations to consider while determining which structure to pursue:

a. Limited Liability Partnerships (LLPs): Distributions are not taxed in the hands of the partners; higher tax rate compared to a Company; may be chosen where the Manager's stakeholders seek to extract accrued profits on a regular basis because money received by an LLP's partners is tax-free in their hands.

b. Companies: Relatively greater compliance requirements; lower corporation tax rate than an LLP; may be desirable where the Manager's stakeholders do not want to extract accrued income/dividends on a regular basis because the dividend is taxable in the hands of recipient shareholders.

13. Are there any restrictions on the manager's authority to prohibit open-ended fund redemptions or open-ended or closed-ended fund transfers?

Suspension of redemption in open-ended Category III AIFs is only justified in extraordinary circumstances, according to SEBI, if the suspension is solely in the best interests of the AIF's investors or if the suspension is mandated by the AIF Regulations or SEBI.

The following items can be included in the AIF documents:

1. lock-in periods;
2. Provisions to suspend redemptions (circumstances for delay/suspension of redemption, as well as the procedure to be followed if this occurs, must be revealed); and
3. Provisions to suspend redemptions
4. Redemption gating based on the number of redemption requests received.

In both open-ended and closed-ended funds, the Manager has the ability to place limitations on transfers.

14. Are there any legislative restrictions on transfers of investors’ interests in Alternative Investment Funds?

There are no legislative restrictions on the transfer of an investor’s interest in the AIF prescribed under the AIF Regulations, except that the transferee should not hold a capital commitment of less than INR 10,000,000 and the transferor should either transfer its entire interest in the AIF or continue to hold a capital commitment of at least INR 10,000,000 even post such a transfer.

15. Are there any other constraints on a fund manager's capacity to handle its assets (for example, diversification requirements or asset stripping rules)?

A Category I AIF or a Category II AIF's manager cannot invest more than 25% of the AIF's investible funds in a single portfolio entity (the limit is 10 percent in case of a Category III AIF).

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MARKETING

1. What laws govern the creation and distribution of marketing materials?

The AIF Regulations control the creation of the PPM, which is used by the Manager to solicit investor interest in the AIF as a marketing/commercial cum regulatory document.

According to the AIF Regulations, any placement of AIF units must be done only on a private placement basis, and any marketing material for the AIF (including any investor pitchbook) must include the necessary disclaimers to that effect. There can't be more than 1,000 investors in an AIF.

2. What are the most important content requirements for marketing communications, whether they are legal or just good practise?

The PPM contains material facts and information that an investor should be aware of before investing in the AIF. SEBI has also produced standardised PPM templates for several types of AIFs, which specify the minimal standard of disclosures required under the PPM, including, among other things: a) The AIF's investment objective and investing procedure.

b) The method by which investment proceeds are distributed to investors.

c) The investor's contractual conditions, including any fees or expenditures that will be levied.

d) The Manager's and key personnel's track records.

e) Conflicts of interest and methods for resolving them.

f) The AIF's core constituents' disciplinary histories.

b) The risks and legal ramifications of investing in the AIF.

       3. Is it necessary to register or have the marketing or legal documents approved by the local regulator?

When seeking for AIF registration, the PPM is submitted to SEBI and scrutinised. Any changes to the PPM must be disclosed to SEBI and investors on a regular basis, and substantial changes must have prior investor approval (based on the statutory thresholds) as well as SEBI approval (in certain circumstances).

4. What limitations apply to the promotion of Alternative Investment Funds?

AIFs can only raise funds through a private placement, and the Manager is not allowed to publicise the investment offering.

5. Is the term "pre-marketing" (or something similar) recognised in your jurisdiction? If that's the case, how has it been defined (by law or by practise)?

It is possible to apply for an AIF's in-principle permission; but, in most cases, this path is less efficient than seeking for a licence up front. This should not be confused with "pre-marketing" in other countries, such as the European Union. In reality, in India, pre-marketing is done by including proper disclaimers in pre-marketing pitch books/presentations.

6. Alternative Investment Funds (AIFs) can be sold to individual investors.

AIFs are considered non-retail products by SEBI, and any fund solicitation must be done through a private placement. However, except from the requirements described in question 3.7 below, SEBI does not identify any other criterion for investors.

7. What standards must prospective investors meet in terms of qualification?

For most types of AIFs, there are no qualifying requirements for investors; nevertheless, each investor must commit a minimum of INR 10,000,000. Angel funds are an exception to the aforementioned regulation, as they require a lower minimum investment of INR 250,000 per investor; nonetheless, investors in an angel fund must meet certain criteria to qualify as "angel investors."

8. Are there any extra limits on marketing to government entities, such as pension funds?

There are no further limitations.

9. Are there any limits on certain categories of investors (whether as sponsors or investors) participating in Alternative Investment Funds?

The minimum investment parameters that apply to an AIF investor were discussed in detail in response to question 3.7. The AIF Regulations additionally require that a person or company be named as an AIF's "sponsor" (the term "sponsor" refers to a person or organisation who was instrumental in the formation of the AIF). The manager can also fulfil his or her responsibilities as a sponsor. The sponsor must pledge as a continuous interest to the AIF, which is 2.5 percent of the corpus or INR 50,000,000, whichever is lower, for Category I and Category II AIFs, and 5 percent of the corpus or INR 100,000,000, whichever is lower, for Category III AIFs. While granting registration to the AIF, SEBI reviews the sponsor's credentials, and the sponsor is subject to SEBI's control and has some additional requirements (other than maintaining the continuing interest). Citizens or entities incorporated in Bangladesh or Pakistan are not permitted to invest in AIFs under the NDI Rules.

India has put various restrictions on foreign investment coming in, directly or indirectly, from a country that shares a land border with India as of May 2020, and such investments may require the approval of the Indian government.

10. Are there any limitations on the use of middlemen to help with fundraising?

1. Are there any limitations on the types of investment activity that Alternative Investment Funds can engage in?

AIFs are allowed to invest primarily in Indian assets. The Securities Contracts (Regulation) Act, 1956 (“SCRA”) provides a broad definition of “securities,” which includes a wide range of equity and debt instruments (compulsorily/optionally/partially/non convertible), derivatives, mutual fund units, and so on.

In general, a wide range of investing activities are allowed, and most commercial requirements can be arranged suitably.

2. Are there any restrictions on the types of investments that can be included in the portfolio of an Alternative Investment Fund, whether for diversity or other reasons?

Depending on the category in which an AIF registers, the AIF Regulations prescribe different investing norms.

A venture capital fund, for example, must invest at least two-thirds of its investible funds in unlisted equity shares or equity-linked instruments of a venture capital undertaking (which are unlisted operating Indian companies) or in companies listed or proposed to be listed on a SME exchange or SME segment of an exchange, among other things.

Category II AIFs have more flexibility than Category I AIFs because the only investment requirement is that they invest at least 50% of their investible funds in unlisted Indian stocks. While the investment strategy may fit into one of the sub-categories of Category I AIFs, in some cases it may make sense to apply for a Category II AIF licence because of the additional flexibility it provides, such as the ability to invest in a mix of unlisted and listed securities and the lack of rules requiring a break-up between equity and debt instruments.

AIFs in Category III are appropriate for AIFs that plan to invest primarily in listed securities (although the option to participate in unlisted securities may be kept). Similarly, a Category III AIF licence may be appropriate if the intention is to invest in derivatives (the only legal derivative contracts in India are those that qualify as a security and are traded on a recognised market) and ask for investor information. and/or take advantage of leverage (Category I and II AIFs only allow borrowing to cover temporary finance needs and do not allow leverage).

AIFs can only invest in "associates" with the permission of 75% of the AIF's investors (by value of their investment) (with the exception of angel funds, which are not allowed to participate in associates).

3. Are are any local regulatory restrictions for investing in certain types of investments (for example, derivatives or loans)?

According to the SCRA, AIFs are allowed to invest in securities.

Because loans are not securities, they are not permissible for AIFs to grant. This can be avoided by structuring the transaction as a lawful security, such as a debenture or another lending instrument that meets the definition of "securities." If the Manager or sponsor is owned or controlled by a foreign entity, the AIF's downstream investment may be subject to additional rules. In this case, the NDI Rules may impose extra regulatory restrictions on equities and certain types of equity-linked investments, such as sectoral caps, pricing standards, and so on.

Furthermore, if a Category III AIF accepts any foreign investment, it must invest exclusively in assets or instruments that a foreign portfolio investor is entitled to participate in under the NDI Rules.

4. Are there any limitations on the Alternative Investment Fund's borrowing?

Category I and II AIFs are not allowed to borrow for anything other than meeting temporary funding needs for no more than 30 days, four times per year, and no more than 10% of their investible capital.

1. What information must the Alternative Investment Fund or its manager provide to potential investors, investors, regulators, and others?

In addition to the disclosures required in the PPM, the Manager and sponsor are required to disclose their: I investment in the AIF to the investors; and (ii) all conflicts of interest to the investors.

2. Is it necessary to provide information about participants (whether owners, controllers, or investors) in Alternative Investment Funds or managers established in your jurisdiction (including information about investors) to any local regulator or record-keeping agency, for example, for the purposes of a public (or non-public) register of beneficial owners?

While SEBI has the authority to request any information about an AIF or its Manager, they rarely do so in practise.

There is no necessity to publish beneficiary information if an AIF is set up as a trust, which is the most common and widely used structure in India.

If the AIF is organised as a corporation, the names of the shareholders and directors must be filed with the RoC.

The details of designated partners and partners must also be disclosed with the RoC if an AIF is formed as an LLP.

The RoC allows for online access to such information.

If an investor is a non-resident, he or she must provide specific information to the Reserve Bank of India. In an unusual case, other regulators may ask the Manager for information on specific investors (or their underlying beneficial owners/ controllers) in accordance with Indian anti-money laundering, taxation, and other laws.

3. What are the rules for reporting Alternative Investment Funds or their managers to investors or regulators?

The following are some of the most important investor reporting requirements:

1. An annual report to investors that includes, among other things, financial information from investee companies.
2. Consolidated reporting of any modifications to the PPM every six months.
3. Periodic reporting of:
   1. complete information about fund investments;
   2. any fees paid to the Manager or sponsor; and
   3. any fees levied to the AIF or any investee firm by a Manager or sponsor's associate. Additionally, Category III AIFs would be required to provide information on leverage usage on a regular basis.
4. As and when they arise:
   1. any regulatory inquiries or legal actions in any jurisdiction;
   2. any material liability arising during the AIF's tenure;
   3. any breach of the PPM or other fund documents;
   4. any change in control of the Manager, sponsor, or investee company; and
   5. any significant change in the key investment team.

For Category I and II AIFs, a quarterly report is required; for Category III AIFs, a monthly report is required. Consolidated reporting of any modifications to the PPM every six months. Any AIF Regulations infractions.  The findings of the yearly audit of the PPM, as well as any corrective actions taken, if any.

Additional reporting under the NDI Rules will be required upon receipt of any foreign investment or if the AIF's investments are to be classified as indirect foreign investments due to the Manager's or sponsor's ownership.

4. Is it possible to use side letters?

1. What are the main types of Alternative Investment Funds and how are they taxed?

AIFs in categories I and II

A tax pass through status has been granted to Category I and II AIFs under the Indian Income Tax Act, 1961 (“ITA”), for any gains/income (other than “business income”) earned by them, which will be exempt from tax in the hands of such Category I or II AIF and taxed directly in the hands of the investors. Furthermore, any loss sustained by the AIF (other than a "business loss") may be passed on to the investors under specific conditions. If the AIF's revenue is classified as business income, income in the form of business profits and gains would be taxed at the AIF level at the applicable maximum marginal rate, but would be tax-free in the hands of the investors.

An AIF would be required to deduct tax at a rate of 10% on any income that it is eligible for tax pass through at the time of crediting or paying such income in the name of resident investors. Non-resident investors, on the other hand, should be compelled by the AIF to deduct tax at ‘current rates' on any non-business income given to/credited in their name.

AIFs in Category III

Although Category III AIFs do not have a pass-through status under the law, it may be possible to structure closed-ended Category III AIFs as a determinate private trust and achieve a simulated pass-through status (in which case taxation would be similar to that of Category I and II AIFs as discussed above). The taxation of Category III AIFs is complicated and may necessitate specialised guidance.

2. What are the tax implications of the various types of investment managers/advisers?

The Manager's taxation would be determined by the form of the revenue stream in question.

The management fees or carried interest are, in general, the principal sources of revenue. A goods and services tax (GST) of 18 percent would be applied on management fees. In practise, the Fund is responsible for this. Furthermore, because the management fee is an income for the Manager, it is subject to income tax under the ITA.

In contrast to other countries, Indian taxation rules do not recognise "carried interest" as a specialised source of revenue. As a result, "carried interest" would be taxed under one of the other available revenue streams. In general, managers structure their revenue from "carried interest" as a return on their continuing interest investment kept in the AIF in order to qualify it as capital gains (at a rate of up to 23.296 percent). Tax authorities, on the other hand, may contest such a claim and attempt to categorise "carried interest" as fee income, subjecting it to harsher taxation than management fees.

It should be noted that, in lieu of a "carried interest," Category III AIFs frequently charge a performance fee, which is taxed similarly to management fees

3. Are there any taxes imposed on an investor's participation in an Alternative Investment Fund or on the transfer of the investor's interest?

In India, there is no concept of an establishment tax for AIFs. A transfer of an investor's stake would be considered a "capital asset" and could be liable to capital gains tax.

4. What is the local tax treatment of alternative investment fund investors who are (a) residents, (b) non-residents, and (c) pension fund investors (or any other typical investor type)?

Capital Gain

Long-term assets (“LTA”) and short-term assets (“STA”) are classified as long-term assets (“LTA”) and short-term assets (“STA”), respectively, based on the period of holding these assets from the date of acquisition to the date of transfer, and the gains may be taxable as short-term capital gains (“STCG”) or long-term capital gains (“LTCG”).

Benefits of Tax Treaties

According to Section 90(2) of the ITA, the ITA's provisions apply to the extent that they are more beneficial than the provisions of the Double Taxation Avoidance Agreement (“DTAA”) between India and the offshore investor's country of residence, to the extent that DTAA benefits are available to the offshore investor.

The investor would have to provide the necessary information and documents, including a tax residency certificate.

5. Is obtaining a tax ruling from the tax or regulatory authorities required or advisable before forming an Alternative Investment Fund?

Obtaining a tax ruling is not required.

6. What actions have been made, or are being done, to put the US Foreign Account and Tax Compliance Act of 2010 (FATCA) and other similar information-reporting regimes, such as the OECD's Common Reporting Standard, into effect?

According to the Inter-Governmental Agreement between the United States and the United Kingdom,  Foreigners in the United States and India are required to comply with FATCA regulations. In India, financial organisations are required to report tax data to the Indian government regarding US account holders FATCA rules have been established by the Indian government.

In India, reporting It is necessary to provide a statement. Every calendar year, by the 31st of May, fill out Form 61B online the International Telecommunications Union (ITA). The Reporting Financial Institution (including an AIF) is responsible for keeping track of and reporting the required data for each reportable account. Furthermore, specific instructions for doing due diligence on reportable accounts, such as US reportable accounts and other reportable accounts, are available. SEBI also mandates that all AIFs comply with FATCA regulations.

7.What steps are being taken to implement the OECD's Action Plan on Base Erosion and Profit Shifting (BEPS), particularly Actions 2 (hybrids) (for example, ATAD I and II), 6 (prevention of treaty abuse) (for example, the MLI), and 7 (permanent establishments), insofar as they affect the operations of Alternative Investment Funds?

Under section 90(1) of the ITA, India has notified the provisions of the BEPS Multilateral Instrument, with the date of entry into effect set for October 1, 2019.

8. Are there any asset classes or structures that are tax-advantaged? What is the extent of their use?

1. What reforms (if any) are suggested in the Alternative Investment Funds space?

In March of 2015, SEBI established a standing body called the "Alternative Investment Policy Advisory Committee" ("AIPAC"). Since then, AIPAC has submitted a number of suggestions to SEBI, some of which have already been enacted. In Gujarat, the Gandhinagar Fin-Tech City (“GIFT City”) was notified as India's first international financial services centre (“IFSC”), welcoming the establishment of offshore, India-focused pooling vehicles on Indian soil as an alternative to traditional offshore jurisdictions such as Mauritius and Singapore. Several tax reforms and regulatory adjustments have been proposed in the past, and more are now being considered in order to make the IFSC more appealing to managers and foreign investors. To speed up the development of GIFT City, the Central Government has announced the creation of an uniform regulator, the International Financial Services Centre Authority.

SEBI has also proposed governance reforms, stating that AIFs investing in listed securities will be required to adopt a Stewardship Code in the future.