Singapore, US, UK and UAE are preferred due to stable regulations, subsidised tax rates and investor interest.
More Indian startups are incorporating their businesses overseas. Singapore, the United States, the United Kingdom, the Netherlands and the United Arab Emirates are being preferred due to stable regulations, subsidised tax rates, conducive public listing norms and increased global investor interest, according to founders, lawyers and tax experts. Some late-stage consumer internet and B2B startups are also evaluating flipping their parent companies abroad, a process that usually takes as long as one year, they told ET.
“There is a problem when large hedge funds and blue-chip private equity investors ask where the company is based before getting to the business model,” said a startup founder.
At least ten founders, who declined to be quoted by name, confirmed to ET that they were considering registering their firm in alternative markets.
“It (raising capital in India, and regulatory policies) is increasingly becoming a bottleneck,” a startup founder in the healthcare space said.
Companies such as Ola, Oyo, Curefit, Lenskart, Urban Company (previously UrbanClap) and Paytm First Games, which have an established presence in India, are also registering new investment units in Singapore or the United States to route their international forays.
“This also gives them an option to later on flip the entire entity to the overseas geography if required,” said an investor.
However, businesses in core financial services and real estate, where regulations demand an Indian registered entity, are the exceptions to this rule, the industry insiders said.
Although the government has put in place measures to encourage businesses to be based here, other nations continue to be a “tad ahead”, these people said.
“India still grapples with an obtuse tax administration, with GST being amongst the most complicated legislations in the world,” said Vatsal Gaur, Partner at HSL Legal.
“The ease of enforcing contracts, slower consumer cycles, lowering of capital in the system in general, tough laws with penal sanctions, all add to entrepreneurs wanting to shift business outside,” he added.
Lawyers and taxation experts told ET that Singapore and the UK provide better tax incentives to startups, especially those with research and development capabilities. The base corporate tax in Singapore is also lower than in India.
China is being preferred by the Indian pharmaceutical sector, while Indonesia is attracting Indian manufacturers to set up base.
UAE is taxfriendly for business and capital gains. Even Malta and Estonia have attracted startups in the cryptocurrency space, due to safe harbour laws.
“Digitization (for compliance procedures with respect to corporate as well as tax laws) can vastly improve the scenario… The government needs to press accelerators on institutionalising arbitration processes by creating and pushing bodies like what Singapore has done with SIAC (Singapore International Arbitration Centre),” said Dipti Lavya Swain, Partner at HSA Legal.
Lowering corporate taxes to 15% and implementing permanent establishment requirements on global businesses to set up a shop in India may help startups stay back, founders said.
Source - Economic Times