How Indian Startups Leverage Offshore Structures Before Redomiciling to India for IPO

CS Muhammed Sahal
Director, Company Secretary

13-Jun-2025

Introduction

In the fast-evolving startup ecosystem, regulatory flexibility and investor-friendly structures often determine how quickly a company can scale and access global capital. Indian-origin unicorns like Zepto, Razorpay, Groww, and Flipkart have pioneered a strategic model: incorporating offshore—primarily in Delaware (U.S.) or financial centers such as DIFC (Dubai)—before redomiciling back to India via a reverse flip once ready for an IPO. This article explores how this approach minimizes tax and compliance hurdles, attracts international investors, and streamlines fundraising.

Why Incorporate Offshore?

Startups with successful MVPs and ambitions for rapid growth often choose to incorporate outside India for several reasons:

1. Investor-Friendly Jurisdictions: Entities incorporated in Delaware or DIFC follow familiar corporate governance norms that appeal to global venture capitalists and institutional investors. These regions offer favorable exit tax treatments—for example, qualifying U.S. investors may enjoy up to 100% tax-free exit gains.

2. Low Compliance Burden: Incorporation and ongoing regulation in these jurisdictions are simpler and faster compared to India, with fewer filings and more liberal foreign direct investment (FDI) policies.

3. Flexible Licensing Options: Jurisdictions like DIFC and Delaware offer low-cost registration licenses and company types tailored for startups. DIFC, for instance, provides cost-efficient options suitable for startups targeting Middle East or international investors.

4. Investor Onboarding: All equity investors typically invest into the offshore parent entity. This structure simplifies cap table management and provides investors with clear legal rights under offshore laws.

Operational Structure: Offshore Parent and Indian Subsidiary

The Indian operating entity remains a wholly-owned subsidiary of the offshore parent company. This arrangement provides:

1. A clear operational base in India, focusing on market execution and delivery.

2. Capital raising, shareholding, and investor rights are centralized at the offshore holding level.

3. Streamlined regulatory compliance as investments flow into the offshore parent, reducing complications from Indian securities and foreign investment laws.

Flip and Reverse Flip: A Minimal Structure

1. Flip: The initial incorporation offshore, creating a parent company that holds the Indian subsidiary. This enables global fundraising and onboarding of international investors.

2. Reverse Flip: When the startup prepares for an IPO on Indian stock exchanges, the offshore parent redomiciles to India using the fast-track merger provisions under Section 233 of the Indian Companies Act, 2013. This requires only the Ministry of Corporate Affairs (Regional Director) approval, simplifying the process.

This mechanism enables seamless conversion of the holding company to an Indian entity, allowing the company’s shares to be listed domestically and providing liquidity options to investors.

Case Studies

1. Zepto: Incorporated offshore, raised capital globally, then redomiciled to India ahead of IPO plans.

2. Razorpay & Groww: Followed similar models to efficiently manage investor relations and regulatory requirements.

3. Flipkart: Utilized a Singapore-based holding entity to channel global investments, culminating in a major acquisition exit.

The Role of Financial Centers like DIFC

DIFC provides a strategic alternative to Delaware for startups raising funds from Middle East and global investors:

1. Offers legal structures based on English common law with transparent investor protections.

2. Provides cost-effective licensing tailored to startup needs.

3. Zero corporate tax and capital gains tax benefits in most cases.

4. Acts as a bridge between Asian and Western financial markets.

Benefits of This Approach

1. Investor Confidence: Jurisdictional familiarity and tax benefits attract global funds.

2. Tax Efficiency: Early-stage investors enjoy minimal tax exposure on exits before IPO.

3. Regulatory Simplicity: Reduces the burden of Indian regulatory and foreign exchange laws during fundraising.

4. IPO Readiness: Enables a clean transition to Indian markets through a legally simple re domiciliation.

Conclusion

The offshore incorporation plus reverse flip strategy is a powerful tool enabling Indian startups to unlock global capital efficiently while preparing for a successful domestic IPO. By combining operational presence in India with a flexible offshore ownership model, startups gain access to world-class investors, streamlined compliance, and a tax-efficient structure — all crucial to scaling in today’s competitive environment.

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