1. Introduction: What Is Reverse Flipping?
The trend commonly referred to as “reverse flipping” or “internalisation” involves startups that were earlier structured with offshore holding companies deciding to shift their principal holding structure back to India.
In a reverse flip:
- India becomes the primary value-holding jurisdiction, and
- The foreign entity is either merged, wound down, or economically neutralised over time.
In recent years, this trend has gained momentum across sectors such as fintech, e-commerce, stock broking, healthcare, edtech, and consumer internet.
Several established startups have either completed or publicly announced reverse flips, including PhonePe, Groww, Pine Labs, Zepto, Meesho, and others such as Razorpay, Udaan, Pepperfry, and Eruditus.
This shift reflects a broader evolution of the Indian startup ecosystem, where India is no longer viewed merely as an operating base, but increasingly as a credible domicile for scale, capital, and public listings.
2. The Flipping Phenomenon: Context Matters
To understand reverse flipping, it is important to revisit the earlier practice of “flipping”.
Historically, many Indian startups:
- incorporated holding companies in jurisdictions such as Singapore or the United States,
- transferred ownership (and sometimes IP) to the foreign entity, and
- continued operations in India through a wholly owned subsidiary.
The original drivers for flipping included:
- access to deeper pools of global venture capital,
- perceived tax efficiency,
- stronger investor protection regimes,
- global branding and valuation arbitrage,
- and limitations in India’s earlier regulatory and capital-market maturity.
At the time, these structures were often commercially rational.
Reverse flipping does not negate that rationale—it reflects the fact that the underlying assumptions have changed.
3. Why Reverse Flipping Is Gaining Traction Now?
From a practitioner’s perspective, the drivers of reverse flipping are structural, not trend-driven.
Key motivating factors include:
- Maturity of Indian capital markets
India now supports large, tech-led, growth-stage IPOs with meaningful domestic institutional and retail participation. - India-centric business reality
Many startups generate the bulk of their:- revenues,
- customers,
- regulatory exposure. In India, making an offshore holding structure is increasingly misaligned.
- Strong domestic investor base
There is a growing pool of domestic retail and institutional investors keen to participate in technology and consumer businesses they understand. - Government and regulatory facilitation
Progressive steps toward easing IPO norms, improving disclosure frameworks, and reducing uncertainty around listings. - Economic trade-offs are now visible
Despite significant one-time tax costs during internalisation, companies are willing to incur them due to:- attractive Indian market valuations,
- long-term reduction in structural leakage,
- clearer exit pathways.
- Union Budget 2026 – AI & Data Infrastructure Signal
Budget 2026 reinforced India’s intent to be a build-and-scale jurisdiction for AI and digital infrastructure, including:- tax incentives for foreign cloud/AI businesses using India-based data centres,
- safe-harbour margins for related-party data-centre services,
- long-term policy visibility up to 2047.
This has strengthened India’s positioning not just as an operating hub, but as a long-term value jurisdiction for data- and AI-driven companies.
4. Which Companies Should (And Should Not) Reverse Flip?
Companies where reverse flipping is often well-aligned:
- Consumer internet and marketplace businesses
- Fintech, payments, lending, and broking platforms
- India-focused B2C and B2B platforms
- Regulated businesses where India is the primary regulator
- Companies planning an Indian IPO in the medium term
Companies requiring deeper 360-degree evaluation:
Some companies may need a more nuanced assessment before deciding whether to reverse flip or remain offshore:
- Global SaaS companies
- Businesses with predominantly overseas customers
- IP-heavy models where acquirers are largely non-Indian
- Companies dependent on the US/EU capital markets for exits
For such businesses, India may continue to serve as the operating arm, while the foreign jurisdiction may still remain relevant at the holding level. Reverse flipping is not ruled out—but it should not be a default reaction.
5. Common Structrures Used In Reverse Flipping
There is no single standard structure. The most commonly used approaches include:
A. Inbound Merger
- The foreign holding company merges with the Indian company.
- Indian entity survives as the parent.
- Shareholders of the foreign entity receive shares of the Indian company.
Pros:
Cleaner structure, long-term alignment, and potential tax neutrality if conditions are met.
Cons:
Court-driven process (NCLT), longer timelines (6–9 months), multi-jurisdictional approvals.
Groww’s reverse flip (USA → India) is widely reported to have followed this route.
B. Share Swap Structure
- Shareholders exchange shares of the foreign entity for shares of the Indian entity.
Pros:
Relatively faster execution.
Cons:
Triggers capital gains tax for foreign shareholders in India; valuation scrutiny.
PhonePe’s Singapore → India internalisation used this structure and reportedly resulted in significant tax costs.
C. Asset / Business Migration
- Business, IP, and contracts are transferred to India.
- A foreign entity is wound down or becomes economically irrelevant.
Pros:
Operational flexibility, phased execution.
Cons:
IP valuation risk, indirect tax exposure, transfer pricing scrutiny.
6. Taxes Payable In A Reverse Flip: Who Pays, And Where?
Reverse flipping is rarely tax-neutral. Taxes can arise in multiple jurisdictions:
A. Foreign Jurisdiction (e.g., US / Singapore)
- Capital gains tax on exit, demerger, or cancellation of foreign holding company shares
- Corporate taxes on repatriation of accumulated profits
Illustration:
Meesho’s reverse flip (US → India) has been publicly reported to involve a US tax outgo of approximately USD 280–300 million, as disclosed in NCLT filings and media reports.
B. India
- Capital gains tax on share swaps or inbound transfers (unless exemptions apply)
- Potential deemed dividend exposure
- Stamp duty and indirect tax implications in some structures
Illustration:
PhonePe’s internalisation reportedly resulted in very significant tax costs in India, largely attributable to shareholder-level capital gains.
C. Shareholder Jurisdictions
- Investors may face capital gains tax in their country of residence, depending on treaty benefits and local law.
These examples highlight that tax cost is often the single largest economic factor in deciding when and how to reverse flip.
7. Key Regulatory Considerations
Foreign Exchange Laws
- Compliance with FEMA, Non-Debt Instrument Rules, Overseas Investment Rules, and Cross-Border Merger Regulations
- Inbound mergers compliant with FEMA regulations are deemed RBI-approved; non-compliant ones require prior approval
- Outstanding foreign borrowings must be aligned with ECB norms within prescribed timelines
Press Note 3 (PN3) – 2020
- Prior government approval is required where investors or beneficial owners are from countries sharing land borders with India
- PN3 uncertainty (definition of beneficial owner, approval timelines) can materially delay reverse flips
- Security clearance may be required for board appointments
Other Regulatory Approvals
- RBI approvals for change in control (NBFCs, payment aggregators)
- Sectoral regulator notifications
- Competition Commission of India (CCI) filings
- Foreign jurisdiction approvals (e.g., Singapore courts, Cayman registrar)
8. ESOPs & Employee Considerations
- Offshore ESOPs cannot be seamlessly migrated
- Fresh ESOPs must be issued under Indian law
- One-year statutory cliff applies post-migration
- Potential employee dissatisfaction and attrition risk must be managed
9. IPO Viability & Inesvtor Considerations
- Reverse flipping is often undertaken as part of IPO readiness
- SEBI lock-in norms (6 months for pre-IPO investors) apply
- Investors require clarity on:
- exit timelines,
- tax leakage,
- post-internalisation governance
10. Conclusion
Reverse flipping represents a structural realignment, not a cosmetic trend.
While attractive valuations and policy support are powerful motivators, reverse flipping:
- involves complex tax, regulatory, and operational trade-offs,
- requires long lead times and careful sequencing,
- and must be evaluated holistically across shareholders, employees, regulators, and capital markets.
The growing wave of internalisations signals one clear shift:
India has evolved from being merely an operating base to becoming a credible destination for ownership, scale, and public markets.
