In this article, we will explain two heated topics of current news. First, the decision of RazorPay and PhonePe to return to India. Second, some key reasons for the registration of Indian startups in foreign countries (Why do Indian Startups register abroad?).
The Story So Far
Recently, you must have heard the term “Reverse Flip” in business news headlines. To the uninitiated, let me explain it in simple terms. Reverse flip refers to the process of shifting the domicile of Indian companies that had flipped earlier to foreign countries. Coming back to the point, our fintech unicorn Razorpay is planning to return to India from the US. This announcement came shortly after PhonePe shifted its domicile from Singapore to India in January. Although PhonePe took this action ahead of its IPO. RazorPay announced its reverse flip at a crucial time. Currently, our government has set up an expert committee to encourage startups domiciled abroad to “GIFT City.” That is Gujarat International Finance Tec-City’s IFSC. The committee comprises representatives from the central bank, fintech founders, IFSCA, and venture capital investors.
From the above discussion, we can see that those entities are returning by sensing the lucrative advantages that our government will offer soon. But why did they leave India in the first place? As per the Y-combinator-backed Razorpay domiciled itself in the US to raise funds from Silicon Valley. Is funding the only reason for this? Of course not! You will get to know all about it in the upcoming sections.
Indian Startup Ecosystem: A Brief Overview
Can you guess our ranking in terms of the startup ecosystem? It holds the 3rd spot in the world’s startup ecosystem with over 115 unicorns. We have witnessed a consistent annual growth rate of 12-15%. According to IFSCA (International Financial Services Centres Authority), a high number of Indian unicorns are registered abroad. Do you know what the shocking fact is? They are incorporated out of India despite having a majority of their market, workforce, and target audience based in India. RazorPay and PhonePe were no different either! Some other names are-
- Fractal Analytics
So, what are the reasons behind it? Go through the next section to find out!
Why do Indian Startups Register Abroad?
The fondness of our startups to establish their bases in foreign countries is unbeatable. Can you guess those countries? Well, the most anticipated ones are the US and Singapore. If your target audience is Indians, then won’t it be beneficial to establish your business in India itself? The process is not as simple as it sounds. Okay. Then, why do numerous startups establish their base in a foreign land? You may ask. Some of the key reasons are-
As you know, “funding” is the essence of survival for any startup. You can’t expect high profits in the initial phase of any business. They need to pour a lot of money into the inventory, R&D, marketing, employees, etc. Where does this chunk of money come from? Obviously, not from the personal pocket of the founders. It comes from the investments made by Venture Capitalists! The more VCs a nation has, the more powerful the land’s entrepreneurship base. It’s a crystal clear fact. You can quickly raise money from venture capital firms based in Silicon Valley or other tech hubs. But that may not be the same in India. So, it is much easier to receive funds when you set up your startup in an entrepreneurial country!
Thus, some Indian startups register abroad to access a wider range of funding options. Foreign investors, venture capital firms, and angel investors may be more inclined to invest in startups registered in their own jurisdictions. This can provide startups with greater financial resources to fuel their growth.
2. Taxation & Regulatory Advantages
You may find the taxation and business environment in other countries more favorable than in India. Really? Don’t we want to boost the “self-reliant India” campaign? Yes, we do but it is a complicated process. We will explain it later. For now, let’s compare the corporate tax of some startup-friendly countries with that of India-
|Name of the Country||Corporate Tax (%)|
|USA (United Nations of America)||21%|
|UK (United Kingdom)||19%|
|UAE (United Arab Emirates)||9%|
So, what did you infer from the above table? Our country tops the chart when it comes to the amount of corporate tax an entrepreneur has to pay! Although it is better than Comoros and Puerto Rico where the corporate taxes are sky high- 50% and 37.5% respectively. As you know, entrepreneurship accelerates economic growth, that’s why India is accelerating the campaign of “Self-Reliant India.” Being common folk, we cannot challenge our government directly. The whole process of lowering the corporate tax in India like other entrepreneurial countries will take time.
Thus, Indian Startups may opt for registering abroad to take advantage of favorable regulatory frameworks. Some countries offer more flexible regulations, tax incentives, and supportive business environments that can be beneficial for startups, especially in terms of ease of doing business and compliance requirements.
3. Larger Markets
If you locate your business outside India, you may have access to larger markets with highly advanced economies. Registering abroad allows startups to establish a presence in international markets and access a broader customer base. It can facilitate expansion and help in building relationships with global clients and partners.
Let’s say you are given a choice of setting up your startups in your motherland with few VCs interested in your business.
4. Branding and Perception
Registering abroad can enhance the brand image and credibility of your startup. It may create an impression of being an international company, even if it is not! This factor proves to be advantageous for attracting customers, investors, and partners who value global perspectives and associations.
5. Talent Acquisition
The above reason i.e. “Branding and Perception” is somewhat related to “Talent Acquisition” too! Let me explain! The perception of Indians regarding foreign brands is quite positive even if that brand is facing tremendous losses. So our domestic startups find it quite challenging to attract and retain their top talents due to competition from foreign companies. Also, we have a limited pool of skilled workers.
Registering abroad can help startups attract and retain talent from around the world. It can be easier to hire international employees and offer them attractive incentives and benefits. Such as stock options, in a jurisdiction where they are more comfortable and have fewer legal constraints.
It’s time to wrap up! Let’s summarize the write-up. Recently, two key Indian unicorns have planned to head back to India. Those are RazorPay and PhonePe. Both are fintech platforms that provide payment services to merchants and the public. Their decision came after the Indian government announced certain measures to encourage local fintech domiciled abroad to return to India. The returned startups will be relocated to Gujarat IFSC.
You have read various reasons that answers your query- Why do Indian startups register abroad? It’s important to note that numerous Indian startups choose to register abroad due to the lucrative benefits discussed above. The decision to register abroad depends on the specific circumstances, growth strategies, and goals of each startup. Thankfully, many others prefer to remain registered in India and operate domestically. The domestically registered startups are the fuel of our “Self-reliant India” campaign. Despite facing tough competition, they are successfully operating in India!