Trade-Offs involved in registering holding companies in India, USA or Singapore for Start-Ups
In this blog post, I am sharing my thoughts on the trade offs involved in setting up a Holding Company in USA/Singapore vs India for Start-Ups operating and having management control in India while raising their first external investor.
I have enlisted below my thoughts based on my limited understanding on this subject :
- Global customers and investors prefer evolved jurisdictions because of enforceability of contracts, exchange risk and capital account convertibility.
- The investor pool is many times larger and evolved for angel investments.
- US investors prefer proximity of domicile of the company.
- Exit options for investors may be better in US/Singapore because of evolved legal framework, M&A and strategic choices.
- While Singapore has lower capital gains and corporate tax, it is almost similar to that in the US.
- As regards GST, since companies are operating out of India the tax applicability will be the same, and domicile of the holding company does not matter.
Here are some caveats :
- Only companies with amazing founders who are great storytellersand can scale exponentially are likely to get funded.
- The startups need to be aware and be cautions while ensuring compliance with Indian regulations and authorities amongst others (Reserve Bank of India (RBI) , Income Tax India Official, SEBI etc). While it may not be a real risk and unlikely to be triggered is PMLA.
- These companies may loose benefits granted because of DPIIT Registration.
- The issue however will become important around place of effective management as the company grows, starts generating profits and achieves scale with regards to the jurisdiction for tax purposes if the decisions / management is in India.
- Food for Thought, Philosophical question for founders is where do they want wealth creation to happen.