PhonePe investors lose $1.1 billion in taxes due to move from Singapore to India
- ByStartupStory | January 26, 2023
Phonepe, Payments and financial services decacorn, disclosed that the investors of the company paid around Rs.8,000 cr in taxes to move the company’s headquarters from Singapore to India.
Co-founder and CTO Rahul Chari, Sameer Nigam, Co-founder and CEO of PhonePe stated in the live session on Youtube that Indian law poses several challenges for startups that want to shift their domicile to India. At least 20 existing unicorns want to shift their base to India if regulations are simplified.
The CEO stated “For example, if you want to move from any other market to India as a domicile, it’s treated like a capital gains event for existing investors. So you need to have a fresh market valuation and pay tax on the delta,”
“Our investors have paid almost Rs.8,000 crore in taxes just to allow us to come back to India, and that is a very stiff shock if a business is not yet at maturity.”, Sameer added.
The company changed its primary place of business to India, in October 2022 ,after its separation by Flipkart in 2016.The company recently raised $350 million in a late-stage funding round, with General Atlantic as the lead investor, resulting in a $12 billion valuation and making it a “decacorn” (a start-up valued at over $10 billion).
The other challenge it faced was convincing several thousand employees to return to a “zero-vesting one-year cliff” or a reset of the vesting period for their stock options. The CEO stated “The law in India says if you migrate, you still have to start with a new one-year cliff. It’s very hard for startups, particularly early-stage startups, to convince employees that their ESOP vesting status reverts back to zero,”
He added “One thing that’s very common in pre-profits startups is that you are accumulating losses, and later when companies become profitable, you get to offset the losses to save some tax. By domiciling to India, we stand to lose about $900 million of accumulated losses because this is treated as a restructuring event,”
Commenting on the vision of the company Rahu stated “We will be looking at launching new products and offerings—be it lending on the merchant side, lending on the consumer side, a lot of new open API initiatives like account aggregator and ONDC. I think India is just going to explode on the digital front, and with the kind of patient capital backing us, we’d love to actually play a small role and move it over time.”
As of now, the Co-founders did not share the timeline of the IPO they said the decision will be made only after achieving certain parameters, including profitability at scale and diversification.
The CEO also commented on the separation with flipkart ”It is a big investment of time, money, and effort. And when we started having discussions on a long-term view, it became clearer that these two companies are on very, very different tracks strategically, as well as market-wise. So it made more sense to separate the two entities.”
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