Extra startups operating to make India their home – Business Information

Although the process is a time-consuming and expensive one, many more startups are readying to return to India. After PhonePe, Groww and Pinelabs, online shopping platform Meesho, quick commerce firm Zepto, B2B trade platform Udaan and digital payments firm Razorpay have started work to shift their domicile to India. Of these, Razorpay is in the most advanced stage.

Flipping is essentially a move by a company, which is domiciled outside India, to shift its base back to the country. Analysts and venture capitalists say the ride back home is not an easy one. It typically takes 9-36 months, depending on the complexity of the group structuring, tax considerations, regulatory approvals, compliance issues and the sector the company operates in.

For instance, it has been more than one year since online stockbroker startup Groww initiated the process. But while the transfer of shareholding from a US unit to India entity is complete, some formalities such as tax computation are pending, according to industry sources.

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The costs relating to a reverse flip are high. In January last year, PhonePe’s Sameer Nigam said that the startup’s investors paid almost `8,000 crore in taxes to come back to India. “The US places an inversion tax on businesses looking to redomicile overseas. While there are mitigating measures, it’s still a significant uncertainty,” Siddarth Pai, founding partner, 3one4 Capital and co-chair, Regulatory Affairs Committee, IVCA, told FE.

Vivek Gupta, partner, Deloitte India, says the biggest challenge is planning and complying with the legal and tax friction efficiently which is inevitable when moving ownership structures. “This is because you are essentially moving value in an international transaction from one jurisdiction to another,” he told FE.

Gupta added that solutions are customised according to a particular startup. “For example, in some cases, we found that an inbound merger is the most efficient way to internalise. In other cases, it could be something else,” he said.

Startups also undergo tax-related complexities for aspects such as ESOPs. “There will be people to whom ESOPs would have been issued at the overseas level. In such cases, we need to check if any taxes should be paid upfront for those ESOP shareholders. Further, founders holding shares at the offshore entity level may be subject to Indian taxation,” Amarjeet Singh Makhija, partner, PwC India, said.

“If the process is a cross-border merger, then approvals are required from the National Company Law Tribunal and the local courts. If companies are regulated by financial services regulators, then their no objection certificate would also be needed,” added Pai.

Besides Singapore and the US, many Indian startups are headquartered in Mauritius, Cyprus, Luxembourg, the UK and a few other countries. Every jurisdiction comes with its own set of nuances. “When you have an offshore structure, the country where you have created value will demand its share of taxes when you move out. And, in certain situations, it can become direct taxes before even you have made any money through initial public offering (IPO) or monetisation within India,” Makhija said.

Further, such costs and taxes are commercially borne by the stakeholders in the company and division of the same can be time-consuming. Many investors may have invested at various price points and therefore, are subject to different taxes and economic stakes in the company.

“The difference in entry price point and economic shareholding means that the costs and taxes will be allocated amongst the investors in different proportions which will require a change in the commercial position and realignment of their effective interest in the company,” Manvinder Singh, partner, JSA Advocates and Solicitors, said. He added that there are complex rules in India for share swap, valuation and buyback that create significant complications in implementing reverse flip structures.