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.
“Digitisation (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.
8 Comments on this Story
Singh346 days ago
Six years Modi has not taken any significant step to revamp the outdated educational system and change the labor laws, Company law, tax regulations which are strangulating growth. All problems a legacy of the Congress rule. Abrogation of article 370 and the GST were steps in the right direction. Other than this Modi government has been dragging its feet dwelling on failed issues such as the Hindu language being made universal instead of introducing laws to attract investments in the industrial sector,research and development and make in India policy
Raghuram Chadalavada346 days ago
Reading this article, it looks very amusing while the government looks at every opportunity to waive farmers loans and not doing anything real to make their life better. On the other hand they keep finding one reason or another to harass the businesses that bring employment and wealth in to the country.
Ruchir Goyal347 days ago
India is missing Arun Jaitely as FM... Things were going much better earlier during Jaitely… Sitharaman definitely needs to be replaced... Piyush Goyal is the best choice..