IFSCA's Aircraft Leasing Framework: Empowering Aviation Finance via IFSC GIFT CITY

The IFSCA Official has introduced a comprehensive framework for aircraft leasing to position India as a global hub for aviation leasing and financing.

This initiative is part of the broader aim to make IFSCs competitive with other global jurisdictions by offering simplified processes and regulatory support. Below, we unpack the key elements of the updated circular as of October 30, 2024, highlighting the applicability, eligibility criteria, and permissible activities for aircraft leasing entities.

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1. Introduction to Aircraft Leasing in IFSCs

Aircraft leasing involves operating leases, financial leases, or a hybrid of both, allowing companies to manage aviation assets more efficiently.

• Government of India Notifications: Aircraft leasing was notified as a financial product under the IFSCA Act, 2019 through Gazette Notifications in 2020 and 2021, which included operating leases, financial leases, and hybrid leases of aircraft, helicopters, and related components.
• This framework supports Finance Companies (FCs) or Finance Units (FUs) registered in IFSCs to conduct such transactions.

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2. Key Definitions and Scope

The framework includes provisions for:

• Aircraft Ground Support Equipment (AGSE): Mobile equipment for servicing aircraft, as per IATA standards and equipment used for providing services necessary for ramp handling.
• Aviation Training Simulation Devices: Devices essential for aviation training.
• Lessor: Entities registered in IFSCs that provide leases for aircraft, helicopters, engines, or AGSE under operating, financial, or hybrid leases.

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Permissible Activities Include:

Operating Lease

A Lessor shall be permitted to undertake all or any of the following activities:

• Operating lease for an aircraft lease arrangement.
• Operating lease for an aircraft ground support equipment.
• Operating lease for an aviation training simulation device.
• Asset Management Support Services for assets owned or leased out by the entity or by any of its Group Entities set up in IFSCs in India Sale and
• Lease back, purchase, novation, transfer, assignment, and such other similar transactions in relation to permitted activities specified in (i) to (iii) above. any other related activity with the prior approval of the IFSCA

Financial Lease

A Lessor shall be permitted to undertake all or any of the following activities:

• Financial lease or a hybrid of financial and operating lease for an aircraft lease arrangement.
• Financial lease or any hybrid of financial and operating lease for an aircraft ground support equipment.
• Financial lease or any hybrid of financial and operating lease for an aviation training simulation device.
• Sale and lease back, purchase, novation, transfer, assignment, and such other similar transactions in relation to permitted activities specified in (i) to (iii) above, subject to such restriction as specified in clause O.2;
• Permitted activities as stated above at clause 5 (E) of this framework; and (vi) any other related activity with the prior approval of the IFSCA.]

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Eligibility Criteria for Registration

Entities intending to register as Lessors must meet the following requirements:

• Structure: Operate as a Company, LLP, Trust, or another form specified by the IFSCA.
• Promoters or Partners: Should be based in FATF-compliant jurisdictions.

Networth Requirement

• Operating Lease: USD 200,000.
• Financial Lease: USD 3 million.

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FEES IFSCA Fees

The registration process is streamlined through the Single Window IT System (SWITS).

• Application Fee: USD 1,000.
• Registration Fee: USD 12,500.
• Annual Fee: USD 5,000 for Operating Lease & For Finance Lease it is USD 12,500.

?Capital and Prudential Requirements

For operating and financial leases, the framework mandates:

• Maintenance of minimum owned funds.
• Additional capital requirements based on risk management and business scale.
• Compliance with KYC, AML, and Corporate Governance norms.

Key Points About Disposal of Assets to Aircraft Leasing Companies

General Restriction:

Indian residents are not allowed to sell, transfer, lease, or dispose of assets to a finance company (engaged in aircraft leasing) if those assets:

• Will be used only by Indian residents, or
• Will be used to provide services only to Indian residents after the transfer.

Exceptions to the Restriction:

The above restriction does not apply if:

• The sale or transfer is made to a Lessor that is not a related group company of the seller, OR
• The sale or transfer is part of a sale and leaseback deal for assets that are being imported into India for the first time.

Tax Benefits

Entities in GIFT City IFSC enjoy substantial tax incentives:

• 100% Tax Exemption: Business profits are fully exempt for 10 years out of the first 15 years of operation.
• Minimum Alternate Tax (MAT): Reduced MAT rate of 9% for IFSC units.

For more details, you can refer to Gaurav Kanudawala's LinkedIn article on tax benefits in GIFT IFSC.

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Future Prospects

This robust framework is expected to attract global players to India's IFSCs, fostering growth in aviation leasing and financing. By aligning with international standards, India is well-positioned to emerge as a preferred jurisdiction for these activities.

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