The Story: Why Were Indian Startups Registered Abroad in the First Place?

Over the past 10 years, many Indian startups like Razorpay, Groww, Meesho, and Pine Labs were not technically Indian companies. Their official parent companies were based in countries like Singapore or the US. This wasn’t a mistake — it was a strategy. Here's why:

1. To Raise Money More Easily

Imagine you are a startup founder in India. Global investors like Sequoia or Tiger Global are ready to fund you — but they are more comfortable investing in a US or Singapore company because of easier legal systems and tax rules there. So, many Indian founders created parent companies outside India just to get that funding.

2. Fewer Rules Outside India

Earlier, India had very strict rules under RBI and FEMA about how foreign money could come into Indian companies, how shares could be sold, and how founders could take money out. Places like Singapore were much simpler. That’s why companies flipped their structure — operations stayed in India, but the HQ was abroad.

3. Less Tax and Less Paperwork

Some foreign countries had lower tax rates and easier laws. Companies like Razorpay earned money in India through their Indian subsidiary and paid taxes on profits here, but since the parent company was based abroad, the major capital gains, ESOP payouts, and IPO exits benefited the foreign holding company. That means when the company was sold or listed, the government of Singapore or the US received the tax on gains, not India.

Example: Razorpay made most of its money from Indian merchants and paid corporate taxes on that income in India. Razorpay was originally flipped to Singapore around 2015–16 to raise global capital easily. However, sometime after its Series B round, Razorpay incorporated an entity in the U.S. as its ultimate holding company — this is quite common in startup structures.

When Razorpay eventually goes for an IPO or a large stake sale, the capital gains will occur at the US parent level, not in India. US will collect the tax on that gain. As a result, India — despite being the place where the business was built and scaled — doesn’t get a share of those capital gains taxes. Indian investors and the Indian government both lose out.

What Changed? Why Are They Coming Back to India?

Now, in 2024–25, the trend is reversing. Many startups are shifting their official base back to India. Here's why:

1. They Want to List in India

Companies like Razorpay, Groww, and Pine Labs are preparing for IPOs. And to be listed on Indian stock exchanges like NSE or BSE, the company must be registered in India. Foreign companies can't directly list in India. So, they are coming back.

2. High Taxes Abroad, While Business is in India

Most of their income is from Indian users, but they were paying crores of rupees in taxes abroad. For example, even though Razorpay makes most of its money from Indian merchants, the profits and exits were taxed in Singapore, where the parent entity is based. India lost out on that capital gains tax. By shifting back to India, they’ll pay taxes where the business is actually done — benefiting the Indian economy.

3. Indian Rules Are Easier Now

The Indian government has improved startup rules — like easier ESOP taxation, better FDI rules, and simpler IPO norms. India has also built amazing tech infrastructure like UPI, Aadhaar, ONDC, and GST. It’s now much easier to build and grow startups here.

4. Foreign Structures No Longer Have Big Advantages

Countries are tightening international tax rules. Global investors are now okay investing in Indian companies too. So, the earlier benefits of being based abroad are fading.

5. Higher Valuation Potential in Indian Markets

Another big reason is valuation. Startups expect better valuation multiples in the Indian market than they would get in the US or Singapore. Indian retail investors understand the scale and impact of these companies. A local listing often leads to better brand recognition and higher valuations — especially in sectors like fintech and consumer internet where growth visibility is strong.

What Does This Mean for You as an Unlisted Investor?

If you own shares in unlisted startups like Razorpay or Pine Labs, this is great news:

• The company is getting ready to list, which means a potential exit for you.

• Since they’re becoming Indian entities again, all legal and tax processes become simpler and local.

• A domestic listing means you’ll get Indian market valuation, not limited by foreign rules.

Remember Flipkart?

Flipkart was registered outside India. So when Walmart acquired it, most of the exit value stayed offshore. Indian retail investors missed the chance to participate in that massive growth story. Worse, the Indian government didn’t earn capital gains tax on that transaction, even though the value was built by Indian consumers and sellers.

Today’s founders don’t want that mistake repeated. They are choosing India over Delaware — and this could start a new wave of tech IPOs from Indian soil.

In Summary

Startups are shifting their base back to India because:

• They want to list here

• They’re paying unnecessary taxes abroad

• Indian rules are finally startup-friendly

• They expect better valuations in the Indian market

As an investor on UnlistedZone, keep an eye on such shifts. These often come just before IPOs or major value unlocks.