As India establishes itself to become a global business hub, many startups are increasingly encouraged to re-domicile back to India. The country's dynamic M&A ecosystem sets the stage for cross-border transactions and deals resulting in mutual gains for the parties involved. However, continuous changes in the regulatory and tax framework would be required to make reverse flipping more pragmatic and business friendly.
Encouraging startups to re-domicile in India
With better connectivity to the world, along with readily available pool of talents and tax benefits many start-ups picked jurisdictions such as the U.S.A., the Republic of Singapore, and the Republic of Mauritius for incorporating their holding companies outside of India. However, with the evolving global vis-à-vis capital market scenario, investors' comfort of investing into India has changed and a lot of PEs/VCs prefer investing in India, making it more favourable for companies to operate within the country. The trend of reverse flipping has further enhanced due to better valuation in Indian markets and increasing support from Indian authorities.
Investors' confidence in India's startup has been rising, and this is evident in the country's dynamic M&A ecosystem. Over the last few years, there have been several instances of cross-border transactions, with many overseas investors keen to participate in India's growth story.
Challenges in the regulatory and tax framework
Despite the favourable ecosystem, there are certain regulatory and tax-related challenges that need to be addressed. Reverse flipping, or the process of re-domiciling companies back to India, may require approval from the regulatory authority in certain scenarios and may attract tax implications in India, both on the company and on the investors.
For instance, startups that re-domicile back to India are required to comply with additional rules say regulations specified under Indian corporate law and exchange control regulations that do not apply when they operate overseas. This can often be a cumbersome process, which can lead to delays and additional costs, thereby discouraging cross-border transactions.
Furthermore, the tax implications of re-domiciling back to India can be challenging, leading to tax cost outflow both in the hands of the company and its investors.Investors' confidence in India's startup has been rising, and this is evident in the country's dynamic M&A ecosystem. Over the last few years, there have been several instances of cross-border transactions, with many overseas investors keen to participate in India's growth story.
Making reverse flipping pragmatic and business-friendly
To encourage cross-border transactions and deals, the Indian government is actively seeking to address these regulatory and tax-related challenges. The government has launched several initiatives, such as the Startup India and the Make in India campaigns, to develop the startup ecosystem and make it more favourable for companies to operate in India. Additionally, the Ministry of Corporate Affairs has recently issued a notification exempting start-ups to seek clearance from NCLT for amalgamations, speeding up the overall reverse flipping process1.
The Union Budget 2024 has abolished angel tax for all categories of investors, providing a much-needed breather to the Indian start-up ecosystem and an impetus towards a fresh inflow of capital in the economy. Moreover, the government has taken other measures such as reducing the corporate tax rate, which is attracting foreign investors to invest in India.Investors' confidence in India's startup has been rising, and this is evident in the country's dynamic M&A ecosystem. Over the last few years, there have been several instances of cross-border transactions, with many overseas investors keen to participate in India's growth story.
Challenges in the regulatory and tax framework
Despite the favourable ecosystem, there are certain regulatory and tax-related challenges that need to be addressed. Reverse flipping, or the process of re-domiciling companies back to India, may require approval from the regulatory authority in certain scenarios and may attract tax implications in India, both on the company and on the investors.
For instance, startups that re-domicile back to India are required to comply with additional rules say regulations specified under Indian corporate law and exchange control regulations that do not apply when they operate overseas. This can often be a cumbersome process, which can lead to delays and additional costs, thereby discouraging cross-border transactions.
Furthermore, the tax implications of re-domiciling back to India can be challenging, leading to tax cost outflow both in the hands of the company and its investors.Investors' confidence in India's startup has been rising, and this is evident in the country's dynamic M&A ecosystem. Over the last few years, there have been several instances of cross-border transactions, with many overseas investors keen to participate in India's growth story.
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