Razorpay to reverse flip its domicile back to India

May 10, 2023

Razorpay has joined a list of startups reverse flipping its country of domicile from foreign jurisdictions such as the US to India, even as they face large tax bills in the process. Experts that FE spoke with said that Razorpay will face multiple challenges including personal taxes in the hands of investors on account of indirect transfer provisions, cap table structuring and other RBI compliances.

The reverse-flipping process may also require moving the funds and intellectual properties (IPs) back to India in addition to tax and regulatory challenges, experts pointed out. To start with, to flip the holding structure back to India, one is required to comply with various regulations including exchange control (FEMA) regulations, corporate laws and taxation laws, said Rohit Jain, managing partner, Singhania & Co.

There can be different ways in which a reverse flip can be achieved and depending upon the preferred alternative, there would be tax and regulatory implications. Bajaj pointed out that in most cases, where the holding structure is outside India, there is an overseas entity holding shares of the Indian startup where the actual business operations are carried out.

“One simple way of flipping the holding structure back to India would be to transfer the shares of an Indian operating company to another Indian entity however, that would involve huge income tax implications in the hands of investors and particularly in the hands of founders,” he added.