BENGALURU: 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 usual 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.
“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.
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 : PTI