Indian crypto startups were hit hard when the Indian government tightened regulations in October last year.
While speaking to Inc42, Sanjeev Bhikchandani, ace investor and executive chairman, Info Edge said, “So you have a bunch of foreign investors who tell our best young startups that they will invest in their companies provided they shift their company domicile overseas. The reason being that they do not want to be subject to Indian laws, taxes and government rules except to the minimum extent required (because) they say they do not trust the Indian government and the legal system.”
Several Indian startups fled the country looking to find safer tax havens abroad. About 20 out of 108 Indian unicorns have their headquarters outside the country.
After PhonePe moved to India late last year, it sparked rumors that Flipkart was also considering to move its base to India. Which initiated a trend of reverse-flipping. Following which Razorpay and Groww also planned to move their headquarters back to India.
The most significant regulatory issue for Indian startups is the country’s complicated tax regime, which is hindering their ability to operate in India. PhonePe’s move to India resulted in a tax bill of $900 million for its investors, reflecting the difficulties of the country’s ESOPs taxation regime.
Moving their headquarters to India is considered a restructuring event that puts startups at risk of losing millions of dollars, as they cannot offset previous losses against profits. India’s tax and tax litigation system is like an obstacle for startups to move back to India. The collapse of Silicon Valley Bank (SVB) earlier this year trapped the funds of many startups in the bank.
The Indian government has taken initiatives in order to motivate these startups to set their base in India itself. According to the Economic survey 2022-2023, the report suggests six steps in order to accelerate this process of reverse flipping, easing ESOPs taxation, streamlining multiple layers of tax and tax litigation uncertainty.
The government has further eased the process for the grant of ‘inter-ministerial board (IMB) certification’ while simplifying process for investment flow with lesser restrictions.
The IFSCA (International Financial Services Centres Authority) had formed a panel in March, 2023, aiming to motivate reverse flipping of Indian startups, tasked with identifying challenges facing local startups based abroad and recommending measures to spur the development of GIFT City.
This trend of reverse flipping is slowly gaining traction. The government will have to further smoothen the processes for startups for them to set their base in the country itself.
