Introduction: The Curious Case of Reverse Flipping
Once upon a pitch deck, the dream of every Indian startup was Delaware or Singapore incorporation, and global capital were the norm. But the tide is turning. The latest chapter in India's startup evolution is about returning home. Reverse flipping, also known as internalisation, refers to the process through which Indian-founded but foreign-domiciled startups shift their legal headquarters back to India. This is not just about geography. It reflects growing investor confidence, evolving regulatory conditions, and the increasing maturity of India's capital markets. This article unpacks the motivations behind the original flip, the legal contours of the reverse flip, and what it means for stakeholders.
What is Reverse Flipping?
Reverse flipping refers to the strategic relocation of a company's legal domicile from a foreign jurisdiction back to India. These are startups that may have originated in Indian cities such as Bangalore but were incorporated in the Caymans or Singapore. The reverse flip restructures that arrangement.
This transition may be executed through inbound mergers, share swaps, or by setting up a new Indian holding company. These structures involve significant legal, tax, and compliance considerations, often spanning multiple jurisdictions.
The Original Flip: Why Startups Left India
The initial decision to incorporate abroad was driven by access to capital. Jurisdictions such as the U.S. and Singapore offered simpler listing regimes, enforceable shareholder agreements, tax neutrality, and robust legal systems. These jurisdictions became preferred destinations for Series A funding and beyond.
Additionally, the Indian bureaucratic setup coupled with SEBI compliances were also viewed as restrictive, especially concerning ESOP structuring, share transfers, and outbound investments. For many founders, flipping was a means to achieve global scalability while meeting investor expectations.
The Reverse Current: Why Startups Are Coming Back
The regulatory and commercial landscape that once prompted outward flipping is now shifting. India has transitioned from being a service destination to a consumer-driven, capital-rich market with enhanced investor interest in domestic listings. Improved regulatory clarity and a deeper capital pool are driving startups to reconsider their domicile.
India's IPO market has grown significantly, 62 IPOs have raised USD 2.8 billion in Q1 2025 alone, accounting for 22% of global IPO activity. Concurrently, heightened regulatory scrutiny in the U.S., particularly for fintech and data-centric businesses, has compelled founders to reassess the viability of foreign domiciles.
GIFT City, India's emerging global financial hub, offers relaxed foreign exchange regulations, tax incentives, and infrastructure on par with Singapore. As of September 2024, approximately 60 fintech entities were registered within GIFT-IFSC. Companies like Infosys and Wipro have already established fintech hubs there, reinforcing market confidence. GIFT City is often described as India's answer to Singapore, as it has quickly positioned itself as a global fintech and financial services hub. With attractive tax incentives, relaxed foreign exchange norms, and world-class infrastructure, it offers a strategic middle ground for founders seeking global exposure while maintaining an Indian legal identity. In a move to further deepen capital market access, the IFSCA (Listing) Regulations, 2024 were introduced, allowing Indian companies to list internationally through GIFT-IFSC without requiring a domestic listing.
Structuring a Reverse Flip
Reverse flips may be executed through several legally viable structures, each with distinct regulatory and tax implications:
1.Setting Up a New Structure: Suitable for early-stage entities, this involves creating a new Indian company with a mirrored shareholding pattern and transferring assets/liabilities from the foreign entity. Though clean in execution, it may trigger capital gains tax and forfeiture of accumulated losses, which would mean losing on the ability to reduce taxable income and reduced tax savings.
2.Swap of Shares: Shareholders contribute their foreign shares to a newly formed Indian entity in exchange for Indian shares. The foreign company is then liquidated. This may result in indirect transfer tax and potential loss of accumulated losses due to change in ownership.
3.Inbound Merger: A merger of the foreign entity into an Indian company governed by Section 234 of the Companies Act, 2013 and FEMA (Cross Border Merger) Regulations, 2018. In this option the holding company, based in a foreign jurisdiction, shall merge with the Indian company and postmerger the Indian company shall be the surviving entity. If compliant, this structure is tax-neutral under Sections 47(vi) and 47(vii) of the Income Tax Act. While more complex, compared to the other structures, the inbound merger facilitates seamless succession of assets, liabilities, and contracts.
Recent Homecomings
PhonePe's reverse flip in January 2023 was executed via a share swap. It involved employee transition, restructured ESOPs, and ultimately repositioned the company for a domestic IPO. However, the process resulted in the loss of USD 900 million in accumulated losses and tax liabilities of nearly INR 8,000 crore. Pepperfry adopted the inbound merger route, consolidating its foreign holding entities into Pepperfry Private Limited. The structure enhanced operational efficiencies and improved governance without the complexities of parallel entities. Groww, previously domiciled in the U.S., completed its reverse flip in March 2024 after securing NCLT approval. The move was prompted by tightening U.S. regulations and improved Indian IPO prospects, and though the transition in India was tax-neutral, Groww incurred a $160 million tax bill in the U.S. In addition to the companies discussed hereinabove, several other Indian-origin startups such as Razorpay, Udaan, Pine Labs, Meesho, and Zepto have either completed or are currently in the process of undertaking a reverse flip to India.
Legal and Regulatory Framework in India
1.Cross-border mergers involving an Indian company and a foreign entity are governed by Section 234 of the Companies Act, 2013, and Rule 25A of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016. Inbound mergers require prior RBI approval unless the transaction meets the following conditions, in which case approval is deemed.
Some of the conditions for deemed approval are as follows:
- The resultant Indian company must comply with all provisions of FEMA and related rules/regulations.
- Any issue/transfer of securities to persons resident outside India is in compliance with FEMA (Non-Debt Instruments) Rules, 2019
- All necessary filings (e.g., FC-GPR, FC-TRS) must be submitted within prescribed timelines.
- Overseas Assets and Liabilities, as per the received permission should either be retained and if not the same must be disposed of within 2 years of NCLT approval.
2. Valuation must be based on internationally accepted methodologies. Post-approval, the scheme must be sanctioned by the NCLT. In issuing shares to non-residents, the Indian company must comply with the FEMA (Non-Debt Instruments) Rules, 2019. Swap structures involving outbound investments must also adhere to the Overseas Investment Rules, 2022.
3.If the Indian company inherits foreign assets or liabilities, they must be aligned with FEMA regulations within two years. Foreign assets not permitted under Indian law (such as debt instruments issued in commercial or mercantile transactions, US Saving bonds, etc) must be liquidated and proceeds repatriated. Any pre-existing FEMA violations must be resolved before the merger is approved. Tax exemptions under Sections 47(vi) and 47(vii) are conditional. Foreign shareholders may still face Indian taxation under indirect transfer rules unless covered by a favourable tax treaty. The carry forward of losses is governed by Sections 72A and 79 and may be disallowed if the foreign entity is not an industrial undertaking or if there is a substantial change in shareholding.
Anhad Law's Perspective:
Reverse flipping not only restores regulatory and operational alignment but also proves strategically beneficial for Indian startups across sectors, especially in light of India's evolving capital markets and policy frameworks. From a legal and structural standpoint, an inbound merger under the Companies Act, 2013, read with the Cross Border Merger Regulations, 2018, emerges as the most coherent and compliant route for executing a reverse flip. Inbound mergers benefit from deemed RBI approval and avoid many uncertainties which are inherent in swap structures, such as FEMA pricing compliance and sectoral caps. From a tax perspective, inbound mergers provide for exemption from capital gains under Sections 47(vi) and (vii), provided conditions are met. Inbound Mergers also facilitate universal succession ensuring a seamless transfer of assets, liabilities, and contractual right which is often cumbersome in swap arrangements. The resultant simplified shareholding structure is more attractive for Indian public markets and investors.
Moreover, it is increasingly clear that returning to India through a reverse flip is more beneficial than pursuing or continuing with a foreign listing, particularly on exchanges like NASDAQ. Companies such as Yatra Online Inc. and Lytus Technologies serve as real-world examples of how foreign listings can fail to deliver expected outcomes. Despite their Indian roots and operational focus, both companies faced limited investor interest, weak trading volumes, and low analyst coverage in the U.S., primarily because their core business narrative did not resonate with American investors. The result was underwhelming valuations and minimal strategic gain from being listed overseas.
In contrast, the Indian capital markets have matured significantly. With growing participation from domestic and global investors, increased regulatory clarity, and thriving IPO activity, India now provides a more aligned and supportive environment for companies with an Indian footprint. A reverse flip shifting the holding structure and operations back to India not only simplifies regulatory and tax compliance under the framework of FEMA, Companies Act, and the Cross Border Merger Regulations, but also helps in attracting long-term capital that understands the company's market and growth potential.
Moreover, Indian investors are now more receptive to tech and new-age business models, which earlier drove companies abroad in search of better valuation. Today, listing in India allows these companies to build credibility, tap into favourable market sentiment, and avoid the costs and complexities of maintaining a foreign listing with no clear advantage. In essence, reverse flipping realigns a company's legal and capital structure with its business reality making it not just a compliant move, but a commercially smart one.
Originally published on 13 August 2025 on Lexology
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
