Startup Re-Domiciliation - Understanding The Reverse Flipping Phenomenon

Author: LawSphereX

Category: General Law

Published: 2026-08-23T21:08:46.127564+00:00

Updated: 2026-08-26T17:06:12.744+00:00

STARTUP RE-DOMICILIATION: UNDERSTANDING THE

REVERSE FLIPPING PHENOMENON

Sakshi Shetty, B.L.S. LL.B., Government Law College, Mumbai

ABSTRACT

The Indian startup ecosystem has seen an emergence in innovative start-ups. History shows how years ago India saw a rise in companies flipping abroad while substantially carrying out business activities in the Indian jurisdiction, raising serious concerns over India’s ease of doing business. However, the recent success stories of PhonePe and Zepto in redomiciling to India and several other prominent companies being in talks to follow this trend, throws light over the increasing phenomenon of re-domiciliation. This shift from global to local calls for an analysis of the rationale behind this emerging trend of reverse flipping in India. The author has approached this phenomenon in five ways.

Firstly, this article touches upon the basic understanding of ‘flipping’ and what made companies flip and then delves into the concept of ‘reverse flipping’ and the factors that influence the Indian start-ups to reverse flip. Secondly, it explains through illustrations the various modes of corporate restructuring which the companies primarily adopt to bring redomiciliation into effect. Thirdly it provides a macroscopic view of the legal framework surrounding it by covering the regulatory, foreign exchange, tax and other relevant compliances keeping in mind the latest amendments and relaxations. Fourthly, the author aims to recognize the emergence of GIFT City and explore the various advantages that positions GIFT City as a preferred destination for re-domiciliation.

To understand this phenomenon from a practical viewpoint, the author believes the need to study the several instances of reverse flipping in the Indian market across sectors and the modes of restructuring adopted by them to better understand the emerging trend. Lastly, to conclude, the author assesses whether this move of reverse flipping is a strategic shift for a long-term growth or merely a temporary trend and comments on the way forward.

I. Introduction

The year 2025 is reckoned to witness a soar in investments of about fifteen billion dollars in the Indian start-up sector. 1 India’s blooming entrepreneurial ecosystem makes it the third largest startup ecosystem at the global level. 2 India has further seen a rapid expansion in the number of companies emerging as unicorns and going public. 3 Amidst the increase in the number of innovative start-ups, the Indian startup community has witnessed a notable trend of reverse flipping back to their homeland i. e. India. In layman’s terms, reverse flipping is a process wherein an Indian startup company which originally registered itself as a foreign company, moves back to India to be an Indian registered company.

Initially, several Indian companies sought to flip overseas to tap into the global investment pool, however, over the course, companies have recognized the rapid growth that India has witnessed and are now on the move to capitalize on the benefits. History shows how companies like Pepperfry, PhonePe, Groww and Zepto have successfully redomiciled to India and with news flashes of other companies like Meesho and Flipkart being in talks to do so, it draws attention towards the increasing trend of reverse flipping and calls for understanding the various factors that influence this trend. From evolving regulatory landscape, investor friendly policies, strengthened domestic market to vast patronage, several aspects are shaping this trend. Apart from a business strategic viewpoint, the legal nuances also need to be taken into consideration by companies.

This article aims to cover the concept of re-domiciliation from the legal standpoint as well.

II. Understanding Flipping Vs. Reverse Flipping

The traditional approach of flipping or externalization refers to a business structure wherein the operations and businesses of Indian companies are headquartered in foreign countries under the holding of a foreign entity, making the Indian entity a wholly owned subsidiary of the foreign holding company. Data suggests that fifty-six % of hundred and eight Indian unicorn startups

1 Inc24 Datalabs, Indian Tech Startup Funding Report 2024, INC42 (Feb. 8, 2025, 10:12 AM),

https://inc42.com/reports/indian-tech-startup-funding-report-2024/. 2 Nine Years of Startup India, With 1.59 lakh startups, India is now world’s 3rd largest startup ecosystem, Press Information Bureau Delhi (Jan. 15, 2025) (Feb. 2, 2025, 12:01

PM),

https://pib.gov.in/PressReleaseIframePage.aspx?PRID=2093125#:~:text=Key%20Milestones%20of%20Startup %20India&text=The%20number%20of%20DPIIT%2Drecognised,of%20women%20entrepreneurs%20in%20In dia. 3 TV Mohandas Pai, Nisha Holla, Startups are rewriting India’s economic roadmap, will lead India’s march to $5 trillion GDP, YourStory, (Oct. 16, 2019), https://yourstory.com/2019/10/startups-india-economy-five-trilliondollar-gdp.

have flipped and have set up foreign jurisdictions as their domicile. 4 This structure is preferred in order to reap several benefits that stem from it. Factors such as better intellectual property protection, access to global capital, flexible corporate structures, favorable tax and legal systems, growing market demands, etc. , have been a driving force in the past for Indian companies, especially start-ups, to shift their domicile from India to foreign jurisdictions. 5 Take for instance, companies like Zepto and Razorpay opted United States of America (“USA”) as its domicile in order to participate in incubation programs offered by YCombinator.

6 Additionally, in order to avoid losing out on potential investors, Indian companies have flipped to meet the investor specific preferences of the company being domiciled abroad rather than India due to the tax complexities, unfavorable foreign exchange regulations, market volatility, etc. Other obstacles such as India’s limited availability of domestic capital and high corporate tax rate as compared to other jurisdictions makes it difficult for startup businesses to flourish in the economy. 7 A 2022 study shows how India has become the largest country exporting its founders to USA. 8 Pursuant to these factors, Indian companies have set up their headquarters in countries like United Arab Emirates, the Cayman Islands, United Kingdom, USA, to name a few, considering the lucrative conditions they provide.

For instance, Singapore has been a popular destination for startups and investors due to its zero % capital gains tax,9 and fintech friendly policies. 10 On the other hand, USA has a well-established venture capital ecosystem and eased regulatory requirements, making it easy for startups to enter the foreign stock exchanges like National Association of Securities Dealers Automated Quotations (“NASDAQ”) and New York Stock Exchange. 11 4 International Financial Services Centres Authority, Onshoring the Indian Innovation to GIFT IFSC, (Aug. 2023), https://ifsca. gov. in/Document/ReportandPublication/onshore-the-indian-innovation-to-gift-ifsc-a4- 1327082023112304. pdf [hereinafter Onshoring the Indian Innovation to GIFT IFSC (IFSCA)].

5 Ministry of Finance, Economic Survey 2022-23 (Box XI.5: ‘Flipping and Reverse Flipping: the recent

developments in Start-ups), IndiaBudget (Jan. 2023), https://www.indiabudget.gov.in/economicsurvey/. 6 Chandra R Srikanth, Deepsekhar Choudhury, Budget may launch ghar wapsi scheme for Indian startups to flip to GIFT City, Money Control, (June 20, 2024), https://www.moneycontrol.com/technology/budget-may-launchghar-wapsi-scheme-for-indian-startups-to-flip-to-gift-city-article-12747675.html.

7 Onshoring the Indian Innovation to GIFT IFSC (IFSCA), supra note 4.

8 Id.

9Quick Chart on Capital gains tax rates, PriceWaterhouseCoopers, (May 30, 2024), https://taxsummaries.pwc.com/quick-charts/capital-gains-tax-cgtrates#:~:text=Capital%20gains%20are%20subject%20to%20the%20.

10 Onshoring the Indian Innovation to GIFT IFSC (IFSCA), supra note 4.

11 Id.

All these factors which encouraged companies back then to flip raised serious questions over India’s ease of doing business policies, legal frameworks and other initiatives. However, flipping has now seen a paradigm shift wherein such foreign domiciled companies are returning back to India to redomicile which process is nothing but widely known as reverse flipping or internalization or even re-domiciliation. Factors such as access to capital through the booming private equity and venture capital ecosystem, amended round tripping regulations, rationalization of corporate tax rates, burgeoning Indian capital markets, improved ease of doing business’,12 etc. have been the essential determinants for reverse flipping.

In addition to these, the Economic Survey 2022- 2023,13 highlights that the structural reforms in the field of ease of doing business and introduction of government initiatives such as Start-up India Initiative, National Initiative for Developing and Harnessing Innovations, Atal Innovation Mission, Business Reform Action Plan 2020, etc. aim to foster the growth of start-ups and encourage the entities to redomicile in India. The Economic Survey 2023-2024,14 also showcases how the implementation of the Patent Rules, 2024 has simplified patent acquisition and management, thereby providing better intellectual property incentives for the redomiciled entities. Historically, fundraising through the NASDAQ platform was lucrative which attracted the concept of flipping, however, over the years, this popularity saw a decline.

Several tech-based firms saw a limited growth of eleven % in their listings while the Indian Sensex grew by thirtythree %. 15 As per a 2024 investors’ survey, seventy-eight % of investors believe that the main driving factor of reverse flipping by start-ups is access to the Indian initial public offering (“IPO”) pathway16 and the technology and startup sector has seen a surge in successful IPOs. This IPO incentive has been a major driving force for entities like Zepto to redomicile as they are set to reap the benefits of the Indian equity market. 12 Ankur Modi, Ease of Doing Business now an impetus to India’s growth, Fortune India, (Oct. 7, 2024), https://www. fortuneindia. com/opinion/ease-of-doing-business-now-an-impetus-to-indias-growth/118664; See also, Ease of Doing Business rankings, World Bank Group, (May 2019), https://archive. doingbusiness. org/en/rankings.

13 Ministry of Finance, supra note 5.

14 Ministry of Finance, supra note 5 at Box X.11.

15 Pavan Burugula, Reverse flip rush of start-ups into India may lead to Rs 20,000-crore tax boost, Money Control, (Oct. 31, 2024), https://www.moneycontrol.com/news/business/reverse-flip-rush-of-start-ups-into-india-maylead-to-rs-20000-crore-tax-boost-12856077.html. 16 Amit Singh, Most Startup Investors See IPO Mania Fuelling Reverse Flipping Trend In 2025, Inc42, (Jan. 9, 2025), https://inc42.com/features/most-startup-investors-see-ipo-mania-fuelling-reverse-flipping-trend-in- 2025/#:~:text=26%25%20of%20investors%20surveyed%20by,of%20the%20reverse%20flipping%20trend.

III. Modes Of Reverse Flipping

Amongst the several ways in which a reverse flipping can be carried out, two of the most predominant ways are share swaps and inbound mergers. A. Share swap arrangement

Under this arrangement, the shareholders of the foreign domiciled entity will exchange or swap the shares they hold in such entity with the shares of the Indian entity.17 Let us consider an illustration, wherein there are investors or shareholders of an overseas holding company being domiciled in Singapore (“Overseas Hold Co.”) which has an Indian subsidiary (“India Co.”). These investors will set up a new Indian company (“N Ltd.”) and transfer their shareholding in Overseas Hold Co. to N Ltd. in exchange of which N Ltd. will issue shares to them. Post this, the Overseas Hold Co. is liquidated and its assets and liabilities are distributed amongst its existing shareholders i.e. N Ltd. The resultant structure is such that the investors hold shares of N Ltd., N Ltd. holds shares in Overseas Hold Co., which gets liquidated eventually), and

thereby N Ltd. indirectly holds shares in the India Co. This process essentially eliminates the foreign holding structure and usually takes about six to eight weeks to conclude depending upon the laws of the host jurisdiction. B. Inbound merger

In a restructuring process like inbound merger, the foreign entity merges with the Indian entity in a way that the resultant entity is owned and controlled by the Indian entity. For instance, the Overseas Hold Co. will undergo a merger with the India Co. under the fast-track route and the India Co. will issue shares to the existing shareholders of the Overseas Hold Co. in the form of consideration. An estimate timeline for this process if done via the regular route is about nine to twelve months, depending upon the applicable National Company Law Tribunal (“NCLT”) jurisdiction, while a fast-track merger takes about three to four months. 18 17 Ravi Sawana, Samyak Lohade and Pratyush Jain, The Reverse Flip Gambit: Legal And Tax Manoeuvres For Indian Startups Coming Home, Mondaq, (Feb. 11, 2025), https://www. mondaq.

com/india/shareholders/1481548/the-reverse-flip-gambit-legal-and-tax-manoeuvres-forindian-startups-coming-home. 18 Yashasvi Mohanram, Vaishnavi Sankar and Aayushi Jain, Trends In Inbound Mergers In India (2019-2024), Mondaq, (Feb. 11, 2025), https://www. mondaq. com/india/maprivate-equity/1560738/trends-in-inboundmergers-in-india-2019-2024.

C. Alternative structures

a) Setting up new entities Entities can also pursue other structures for carrying out a reverse flip. One of these is setting up of a completely new structure which involves two stages i. e. firstly, the shareholders of the Overseas Hold Co. incorporate a new India Co. (“New India Co. ”) while India Co. incorporates a new Overseas Hold Co. (“New Overseas Hold Co. ”) and secondly, the existing Overseas Hold Co. and India Co. will transfer its assets and liabilities to the newly set up companies by way of a slump sale. Resultantly, the existing shareholders hold shares in New India Co. and New Overseas Hold Co. 19 b) Liquidation of Overseas Hold Co. Under this method, the Overseas Hold Co.

undergoes voluntary liquidation in accordance with the laws of the overseas jurisdiction and distributes its assets and liabilities amongst the existing shareholders, thereby making them shareholders of the India Co. The timeline for this process depends upon the procedural laws of the overseas jurisdiction. 20 c) Transfer by way of dividend declaration or capital reduction by Overseas Hold Co. The Overseas Hold Co. transfers its shareholding in India Co. to the shareholders and undertakes capital reduction or declaration of dividend by setting off against the consideration so receivable from the said transfer of shares. This process would usually take four to six weeks to conclude. 21 While broadly the structuring mechanics are similar in various reverse flipping procedures, the intricacies and specifics would depend on a case-to-case basis.

The key factors to determine a viable structure would depend upon the business sector, stage of operations, extent of expected disruption to the business, and overseas and Indian tax and legal considerations. 19 CA Pankaj Agarwal, [Analysis] Reverse Flipping – Why Global Companies are Returning to India, Taxmann, (Sept. 23, 2024), https://www. taxmann. com/post/blog/analysis-reverse-flipping-why-global-companies-arereturning-to-india#6.

20 Id.

21 Id.

IV. Viewing Reverse Flipping Through The Legal Lens

While reverse flipping acts as a boon for the startup ecosystem in several ways, it is pertinent to understand the legality surrounding it, which in certain cases acts as a deterrent for the investors due to its complexity. Below is a macroscopic view of the legal framework and compliances governing the process of reverse flipping. A. Regulatory compliances

The approval stage for an inbound merger is two-fold i. e. i. e. firstly the country where the foreign entity is incorporated and secondly India where the Indian subsidiary of such foreign entity is established. In India, mergers are usually subject to the approval of NCLT under the Indian Companies Act, 2013. 22 Prior to any amendments, the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 (“Merger Rules”) burdened the obligations of the foreign companies merging with Indian entities to seek approval from both the NCLT and RBI, thereby making it a time-consuming process. To fast-track this approval process and facilitate reverse flipping specifically pertaining to mergers and amalgamations of an Overseas Hold Co.

with its Indian wholly owned subsidiary (“Indian WOS”), the Ministry of Corporate Affairs on 9 September, 2024 notified an amendment to Rule 25A of the Merger Rules. The amended rule now requires both the Overseas Hold Co. and its Indian WOS to only obtain the prior approval of the Reserve Bank of India (“RBI”), while only the Indian WOS i. e. the transferee company has to get a green light from the Central Government through the fast-track merger route under Section 233 of the Indian Companies Act, 2013. This is a laudable move since it does away with the arduous approval procedure from the already burdened NCLT, reducing the burden of compliance for foreign companies and promoting a cost effective and speedy corporate restructuring mechanism. On the other hand, the relevant regulatory compliances of the Overseas Hold Co.

’s host country needs to be adhered to, which differs on a case-to-case basis. For instance, in USA, prior board and shareholder approval of the amalgamating companies is mandated under the Delaware General Corporate Law. 23 The laws of Cayman Islands lay down certain prerequisites which the dissolving company must satisfy such as the merger scheme being in consonance with the

22 The Companies Act, 2013, § 230 and 234, No. 18, Acts of Parliament, 2013 (India).

23 Delaware General Corporate Law, § 251 and 252, Title 8, (Delaware, USA).

charter documents, no pending winding up or liquidation proceeding against the dissolving company except for the purposes of the merger, relevant board approvals of the merger plan and application for striking off the entity’s name from the records.24 In-bound mergers are therefore a heavy compliance driven procedure and have uncertain timelines due to its dual nature of compliances in two jurisdictions. B. Compliances under the exchange control laws

In relation to issuance or transfer of securities to persons residing outside India which formulates a part of inbound mergers, the provisions of the Foreign Exchange Management (Cross Border Merger) Regulations, 2018 (“Cross Border Regulations”) are applicable, which mandates such transactions to be in line with the pricing guidelines, sectoral caps, entry routes, form filings, reporting requirements, etc. as per the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (“NDI Rules”) and Foreign Exchange Management (Overseas Investment) Rules, 2022 (“OI Rules”). 25 The Cross Border Regulations require the resultant entity in an inbound merger to ensure they comply with the external commercial borrowing or trade norms in case any outstanding guarantees or borrowings are transferred in its name.

26 Additionally, the resultant entity is permitted to hold and freely transfer foreign assets or securities as far as it is in compliance with the Foreign Exchange Management Act, 1999 and rules thereunder and any non-permitted holdings by the resultant entity must be sold within two years from NCLT’s sanctioning of the scheme. 27 A share swap transaction is also subject to compliance with the NDI Rules, OI Rules and allied

laws, which allows for issue of equities to person resident outside India by way of a share swap depending on the industry sector. With the rising trend in foreign companies returning back to India and re-domiciling, the Indian government has streamlined the regulatory frameworks to ensure easy and quicker compliance for companies undergoing such restructuring processes. On 16 August 2024, the Union Budget 2023-2024 brought about amendments to the NDI Rules in order to simplify cross border share swaps28. Prior to the amendment, share swaps between

24 Companies Act (2021 Revision), § 233, 237(7), 237(8) and 237(10), (Cayman Islands).

25 Foreign Exchange Management (Cross Border Merger) Regulations, 2018, Reserve Bank of India, Reg. 4(1), (Mar. 20, 2018).

26 Id, Reg. 4(3).

27 Id, Reg, 4(4) and 4(5).

28 Rules for cross-border share swaps simplified to facilitate foreign direct investment, Deloitte India, (Sept. 17, 2024), https://www.taxathand.com/article/35888/India/2024/Rules-for-cross-border-share-swaps-simplified-tofacilitate-foreign-direct-investment.

equity instruments of an Indian company as against equity capital of a foreign company was subject to RBI’s approval. The amendment now permits transfers by way of such share swaps without the approval. Additionally, issuance of equity by way of such share swaps is also permitted subject to compliance with the OI Rules, sectoral cap and permissible routes as per India’s FDI policy.29

C. Employee Stock Option Plans (“ESOPs”)

Before proceeding with any of the reverse flipping restructurings, entities also need to pay heed to the possible consequences that their most valuable asset i. e. employees will be subjected to. The erstwhile ESOPs granted to the employees pre-internalization need to be restructured in accordance with the Indian laws for those employees who wish to continue their employment post internalization. Eventually, the Indian entity will be required to roll out new ESOPs by complying with the sectoral caps, entry routes, pricing guidelines, reporting requirements and other restrictions as per the NDI Rules. Indian laws mandate a minimum cliff period, i. e. the period between the grant of options and vesting of options, of one year when it comes to issuance of ESOPs.

30 Internalization will lead to issuance of new ESOPs which would reset this cliff period back to square one and subject the employees to an additional waiting period of one year, thereby forbidding the employees to exercise their rights until the statutory requirements are met with. While the entity could receive a backlash by the erstwhile option holders due to this, it would not jeopardise the structuring as a whole and internalization would eventually bear fruits for the employees. D. Tax considerations

An inbound merger is not taxable if it falls within the ambit of an amalgamation under the Indian Income Tax Act, 1961 (“IT Act”).31 It allows companies to claim a capital gains tax exemption.32 However, if taxable, the tax burden falls on the foreign entity i.e. the holding company and the shareholders, which may at times hamper the decision of the foreign investors

29 Foreign Exchange Management (Non-debt Instruments) (Fourth Amendment) Rules, 2024; See also

Department of Economic Affairs amends Foreign Exchange Management (Non-debt Instruments) Rules, 2019 in pursuance of Union Budget 2024-25 announcement, Press Information Bureau Delhi, (Aug. 16, 2024), https://pib.gov.in/PressReleasePage.aspx?PRID=2046086. 30 Companies (Share Capital and Debentures) Rules 2014, Gazette of India, Rule 12(6)(a), (Mar. 31, 2014).

31 Income Tax Act, 1961, § 2(1B), No. 43, Acts of Parliament, 1961 (India).

32 Id, § 47(vi) and 47(vii).

to opt for internalization given the tax burden and complex tax regime. Reverse flipping through a share swap arrangement ultimately amounts to a transfer under the IT Act,33 and is therefore taxable as capital gains tax,34 unless done through a merger or demerger and in compliance with other conditions under the taxing statutes. With the increasing trend in such reverse flipping, the Indian tax department is likely to see an increased revenue. 35 PhonePe, a Walmart backed major company, successfully reverse flipped to India by way of share swap, wherein the transaction was taxed to the tune of Rupees eight thousand crores36. Despite the exorbitant tax amount, PhonePe may make good this tax loss by achieving a projected IPO valuation of fifteen billion dollars as it sets to re-enter the Indian market.

37 Ultimately taxation is subject to the tax treaties that India has entered into with the foreign countries. For instance, the Double Taxation Avoidance Agreement between India and Singapore ensures that investments made by a Singaporean entity in an Indian entity before 1 April 2017 is free from capital gains tax, while any such investment post 1 April 2017 would be taxable. 38Further tax considerations may also arise in case of an investor’s exit when the entity goes public. Entities also need to take into account the tax implications prevailing in the foreign entity’s host country.

E. Other Compliances

When it comes to Foreign Direct Investment (“FDI”) in a listed or unlisted Indian entity, the framework under the Consolidated FDI Policy becomes applicable, which in certain cases mandates the prior approval of the Indian government or the relevant regulatory authority, depending upon the percentage of proposed investment and the sector under which it falls. While most of the sectors permit one hundred % FDI, certain sectors such as private security agencies have a FDI cap, while in sectors like lottery business and real estate, FDI is completely

33 Id, § 2(47)(i).

34 Id, § 9(1).

35 Pavan Burugula, Reverse flip rush of start-ups into India may lead to Rs 20,000-crore tax boost, Money Control, (Oct. 31, 2024), https://www.moneycontrol.com/news/business/reverse-flip-rush-of-start-ups-into-india-maylead-to-rs-20000-crore-tax-boost-12856077.html.

36 Id.

37 PhonePe IPO | Walmart-backed PhonePe appoints four merchant bankers for upcoming public issue: Report, Livemint, (Feb. 27, 2025), https://www.livemint.com/market/ipo/phonepe-ipo-walmart-backed-phonepeappoints-four-merchant-bankers-for-upcoming-public-issue-report-11740648635070.html. 38 Agreement For Avoidance of Double Taxation and Prevention of Fiscal Evasion with Foreign Countries - Singapore (1994), Article 13.

prohibited. 39 The introduction of Press Note 3 in 2020 imposes additional compliance for investing entities incorporated in any of the countries bordering India, by mandating government approval for all investments made by it in India or where the beneficial owner of such investment is a citizen or resident of these nations. 40 It is pertinent to note that there is ambiguity over the extent and scope of beneficial ownership of such investments and timeline for seeking such approvals. In furtherance to this, if an individual being a national of any of the India bordering nations, is appointed as a director in an Indian entity, such an individual must seek security clearance from the Ministry of Home Affairs prior to taking up the directorship. 41 Apart from this, additional approvals may be required depending upon the regulatory authority involved.

For instance, RBI’s approval is required if the investment leads to any change in control of non-banking finance companies,42 and housing finance companies. 43 Similarly, compliances with the Competition Commission of India also becomes relevant if the entities in question meet the prescribed assets and turnover thresholds,44 and if the deal value threshold45 for mandatory notification is met with.

V. Gift City: A Strategic Hub For Reverse Flipping

A. The rise of Gujarat International Finance Tech City (“GIFT City”)

In the year 2015, India witnessed the establishment of its first ever International Financial Services Centre (“IFSC”) in Gujarat, namely GIFT City.46 It positions itself to be an enabler of regulating and developing inflow and outflow of global investments in India and is a home to about five hundred plus entities across various industries such as banking, capital markets, insurance, fintech, etc. The Global Financial Centres Index, London in its 2024 report ranked 39 Department for Promotion of Industry and Internal Trade, Government of India, Consolidated FDI Policy Circular, Ministry of Commerce and Industry, (Oct. 15, 2020), https://dpiit.gov.in/sites/default/files/FDI- PolicyCircular-2020-29October2020_0.pdf. 40 Department for Promotion of Industry and Internal Trade, Press Note 3 (2020) – Review of Foreign Direct Investment

(FDI)

Policy, Ministry of Commerce and Industry, (Apr. 17, 2020) 44 The Competition Act, 2002, § 6(2), No. 12, Acts of Parliament, 2003 (India).

45 The Competition (Amendment) Act, 2023, § 6 and 7, No. 9, Acts of Parliament, 2023 (India).

46 Gujarat International Finance Tec-City Company Ltd, Gujarat International Finance Tec-City,

https://giftgujarat.in/downloads/Doing%20business%20at%20GIFT%20IFSC_booklet.pdf.

GIFT City as one of the top international specialist centres.47 GIFT City, also known as a fintech hub, has been an attractive destination for companies seeking to redomicile due to the several benefits that it offers. Recently in 2023, Alchemy Investment Management LLP became the first one to relocate its offshore fund from Mauritius to GIFT City,48 which acts a testament to the blooming opportunities that GIFT City has to offer. B. GIFT City’s competitive edge in reverse flipping strategies

Over the years, GIFT City has positioned itself as an attractive destination for internalization pursuant to the several benefits that it brings to the table. Every entity registered with GIFT City receives a non-resident status under the foreign exchange regulations,49 which allows eased foreign exchange transactions and a hassle-free capital flow, thereby attracting foreign investors. It also promotes ease of doing business by inculcating business friendly regulatory frameworks keeping in mind the best global practices. The Union Budget of 2023-2024 introduced a single window clearance mechanism for all regulatory approvals, making it a simplified procedure for the entities.

50 In addition to these, there are several tax incentives such as exemption from corporate tax, goods and services tax and stamp duty on transactions via IFSC exchange along with other grants and subsidies which makes GIFT City a tax friendly environment. 51 GIFT City is reported to have around 128 registered fund management entities and has rolled out 168 funding schemes,52 thereby providing the entities access to the vast private equity and venture capital ecosystem. It also fosters several incubators and mentorship programmes which provides for a supportive ecosystem for fintech companies to flourish. 53 47 Mike Wardle and Professor Michael Mainelli, The Global Financial Centres Index 36, Z/Yen, (September 2024), https://www. longfinance. net/media/documents/GFCI_36_Report_2024. 09. 24_v1. 1. pdf.

48 Navdeep Singh, Hiren Ved-led Alchemy one of the first PMS to migrate to GIFT IFSC, Indian Express, (May 3, 2023), https://economictimes. indiatimes. com/markets/stocks/news/hiren-ved-led-alchemy-one-of-the-firstpms-to-migrate-to-gift-ifsc/articleshow/99964412. cms? from=mdr. 49 Foreign Exchange Management (International Financial Services Centre) Regulations, 2015, Reserve Bank of India, Reg. 3, (March 2, 2015). 50 Budget 2023-24, Speech of Nirmala Sitharaman, Minister Of Finance, Government of India, (Feb. 1, 2023), https://www. indiabudget. gov. in/budget2023-24/doc/Budget_Speech. pdf. 51 Book-keeping, Accounting, Taxation and Financial Crime Compliance Services Regulations in GIFT IFSC, https://api. giftgujarat. in/public/downloads/ifsc/BATF-Regulations. pdf; See also Tax Incentives for IFSC Unit, https://giftsez. com/ifsc-units. aspx.

52 International Financial Services Centres Authority, IFSCA Bulletin, (July - September 2024),

https://ifsca.gov.in/Document/ReportandPublication/ifsca-bulletin-jul-sep-202411112024032809.pdf.

53 Onshoring the Indian Innovation to GIFT IFSC (IFSCA), supra note 4.

C. International Financial Services Centres Authority’s (“IFSCA”) vision for reverse

flipping With the introduction of investor friendly regulatory framework, tax regimes and increased focus on the ease of doing business, GIFT City has seen a blooming growth of about three hundred % in terms of the number of entities that have registered with it. 54 To further enhance the growth and encourage re-domiciliation in GIFT City, IFSCA’s expert committee studied the Indian market vis-à-vis the reverse flipping phenomenon and recommended fundamental changes in the regulatory and tax frameworks. It calls for changes such as relaxation in the taxing statutes by providing neutral treatments to redomiciled entities, rationalization of tax rates for the relocated holding company in GIFT City, enhanced tax exemptions, simplified procedures for incorporation of foreign holding companies, increased limit of overseas investment and stronger intellectual property protection.

55 While these recommendations are commendable, the true essence of these would be in their effective implementation and hence it is imperative that the these recommendations are taken in account by the Indian government while framing policies and legal frameworks to boost reverse flipping.

VI. Homecoming Stories

The fintech industry has been one of the most trending sectors which has seen a boost in internalization, especially when PhonePe, a fintech unicorn successfully moved from Singapore to India in October 2022 by way of a share transfer transaction. It firstly transferred all of its business from the Singaporean entity to its Indian entity and rolled out a new ESOP and moved all employees to the Indian entity.56 The major driving factor for PhonePe was the better access to the large pool of customers of over five hundred and seventy five million registered userbase and merchant network of more than forty million.57 To hop on the bandwagon, Groww, another prominent fintech startup, redomiciled from USA to India in March 2024.58 They adopted an inbound merger approach which led to a one-time tax payment of Rupees one thousand three

54 Id.

55 Id.

56 Peerzada Abrar, Why startups are flipping back to India in spite of the hefty tax bill, Business Standard, (Feb. 8, 2024), https://www.business-standard.com/companies/start-ups/why-startups-are-flipping-back-to-india-inspite-of-the-hefty-tax-bill-124020801808_1.html.

57 Amit Singh, supra note 16.

58 Peerzada Abrar, Financial services startup Groww moves domicile to India from the US, Business Standard, (May 4, 2024), https://www.business-standard.com/companies/start-ups/financial-services-startup-growwmoves-domicile-to-india-from-the-us-124051000028_1.html.

hundred and forty crores. 59 Additionally, Pine Labs also received the nod from the Singapore court to shift its domicile to India. 60 In addition to fintech, other sectors such as e-commerce, edtech and quick commerce have also witnessed cases of reverse flipping. For instance, Pepperfry, the online furniture marketplace, shifted its domicile from Mauritius to India in 2024. Pepperfry went through two stages of redomiciliation. Prior to redomiciling, the Pepperfry group had a three-layer structuring wherein the ultimate holding company was domiciled in Cayman Islands and the intermediate holding company in Cyprus which had three Indian subsidiaries, one of them being Pepperfry. 61 The first stage involved the re-domiciliation of the intermediate holding company from Cyprus to Mauritius in order to capitalize on the eased regulatory framework that Mauritius offers.

62 The second stage was the amalgamation of the ultimate holding company, the newly redomiciled intermediate holding company and one of the fellow subsidiaries, with Pepperfry. They therefore adopted an inbound merger approach which required compliances with several jurisdictions in order to successfully flip back to India as they plan for a potential IPO launch. 63 In January 2025, Zepto took to the media the news of successfully completing the fastest cross border merger from Singapore to India. Zepto too saw India as an opportunity for access to large userbase of over fifteen million which led to a revenue generation of Rupees four thousand four hundred and fifty-four crores. 64 In the words of Zepto’s Chief Financial Officer, this “ghar wapasi” move seeks to streamline the startup ecosystem into the Indian capital market.

65 The e-commerce sector is further anticipated to witness internalization with companies like Meesho

59 Groww pays R. 1,340 cr. Tax to move domicile to India, Fortune India, (Oct. 21, 2024),

https://www.fortuneindia.com/enterprise/groww-pays-1340-cr-tax-to-move-domicile-to-india/118861.

60 Singapore court clears Pine Labs plea to move domicile to India, Economic Times, (May 20, 2024),

https://economictimes.indiatimes.com/tech/technology/singapore-court-clears-pine-labs-plea-to-move-domicileto-india/articleshow/110268243.cms?from=mdr. 61 In the matter of Scheme of Amalgamation (Merger by Absorption) and Arrangement of Trendsutra Cyprus Limited, Trendsutra Client Services Private Limited, Trendsutra Cayman Holdings and Pepperfry Private Limited (2022) [CP (CAA)/155/MB-IV/2021 in CA (CAA)/74/MB-IV/2021], National Company Law Tribunal Mumbai (15 February 2022) [hereinafter Pepperfry Scheme of Merger].

62 Yashasvi Mohanram, Vaishnavi Sankar and Aayushi Jain, supra note 18.

63 Pepperfry Scheme of Merger, supra note 61.

64 Amit Singh, supra note 16.

65 Ramesh Bafna, Historic scenes on completion of #IndiaFirst reverse merger from Singapore to India in the #FastestEver timeline, LinkedIn, (Jan. 2025), https://www.linkedin.com/posts/rameshbafna_indiafirstfastestever-dreamteam-activity-7289916309780254721- _Vjy?utm_source=share&utm_medium=member_desktop.

and Udaan planning similar moves.66 In order to tap into the South Asian market,67 with a pool of over six hundred million potential customers,68 and circumvent the restricted FDI regulations, Flipkart, the Indian e-commerce giant, in 2011 made a strategic move to shift and expand its operations to Singapore by establishing a holding company there. Thereafter, it set up subsidiaries in India under the Singaporean holding company and carried out substantial business operations in the Indian jurisdiction.69 However, it now plans to launch its much-awaited IPO in 2025-2026 and in order to meet the regulatory guidelines it aims to reverse flip back to India.70 VII.

Way Forward And Conclusion Founder of one of the top venture capital funds believes that at least ninety % of flipped Indian unicorns would reverse flip in the near future71 and looking at the homecoming stories prevalent in the Indian startup ecosystem, reverse flipping back to India has seen a dynamic upliftment. India does position itself as an emerging global hub for investors. While reverse flipping has been on the forefront in the recent mergers and acquisitions trends, there are several other factors which should be considered to ensure the upward scaling of this trend. At the grassroot level, it is pertinent to identify the ground breaking issues which persist in the Indian market by way of increased dialogue between the startups and global investors.

Moving forward, the second step would entail ironing out these issues with the assistance of various recommendations given by IFSCA and similar institutions, and promote collaborative participation of market regulators like the Securities Exchange Board of India, in order to pave 66 Peerzada Abrar, With IPO in mind, Flipkart may move domicile from Singapore to India, Business Standard, (May 13, 2024), https://www. business-standard. com/companies/news/with-ipo-in-mind-flipkart-may-movedomicile-from-singapore-to-india-124051300111_1. html. 67 Kritti Bhalla, Binny Bansal’s Xto10X Takes Singapore Route To Enter Southeast Asia, Inc24, (Dec. 13, 2019), https://inc42. com/buzz/binny-bansals-xto10x-takes-singapore-route-to-enter-southeast-asia/. 68 Market Entry & Expansion in Southeast Asia: An introduction, ARC Group, (June 1, 2022), https://arcgroup. com/southeast-asia-market-entry/.

69 Deepansh Guwalani, Analysis of Externalisation under Indian Law, IndiaCorpLaw, (May 14, 2018),

https://indiacorplaw.in/2018/05/analysis-externalisation-indianlaw.html#:~:text=Soon%2C%20they%20decided%20to%20bring,wholly%20owned%20subsidiaries%20in%20 Singapore. 70 Digbijay Mishra, Reverse flip in cart, Flipkart plans IPO delivery in 12-15 months, The Economic Times, (Dec. 9, 2024), https://economictimes.indiatimes.com/tech/technology/reverse-flip-in-cart-flipkart-plans-ipo-deliveryin-12-15-months/articleshow/116112988.cms?from=mdr. 71 Palak Agarwal, BT Exclusive: At least 90% of India’s foreign domiciled unicorns will flip back to India, says Siddarth Pai, Business Today, (Oct. 1, 2024), https://www.businesstoday.in/entrepreneurship/news/story/btexclusive-at-least-90-of-indias-foreign-domiciled-unicorns-will-flip-back-to-india-says-siddarth-pai-448294- 2024-10-01.

a way for easier listings. This move with the securities market regulator becomes paramount since several entities seek to tap into the Indian IPO pathway. Given the precedents of re-domiciliation, the move is not just a mere trend in the market. As the Indian startup ecosystem strengthens and several policies favouring reverse flipping are being introduced, entities choosing to redomicile can indeed be a strategic move since it helps find a right balance between the opportunities that the global market has to offer and the local advantages. Every corporate restructuring pertaining to flipping or reverse flipping should be backed by a compelling rationale, wherein entities need to weigh in the pros against the cons basis the several factors discussed above.

Ultimately, the decision-making process should be based on a crucial in-depth study of startup re-domiciliation and keeping in mind the long-term growth prospects and sustainability.