PhonePe Reverse Flip to India: Unraveling the Strategic Shift and its Impact

First Published on 21st August, 2023

The Reverse Flip

What is Reverse Flip?

“Reverse flip” or “re-domiciliation” refers to a corporate restructuring process in which a company changes its country of domicile or legal registration from one jurisdiction to another.

Background

• PhonePe was incorporated in 2015 in India
• In April 2016, PhonePe was acquired by Flipkart. As part of the acquisition, PhonePe flipped its structure to Singapore
• In 2018, PhonePe became a part of Walmart after it acquired Flipkart
• In October 2022, PhonePe announced that it has moved its domicile to India (reverse flip) for following key reasons:
  • PhonePe wants to focus on India markets for the next couple of decades. PhonePe is a digital payments company that operates primarily in India. By redomiciling to India, PhonePe can be more responsive to the needs of its customers and partners.
  • The Indian government has been tightening regulations for digital payments companies in recent years. By redomiciling to India, PhonePe can be more easily compliant with these regulations.
  • To be better positioned for an IPO. PhonePe is expected to go public in the next few years

What Happened?

Steps undertaken

• PhonePe moved all businesses and subsidiaries of PhonePe Singapore to PhonePe India directly
• PhonePe created a new ESOP plan at India level and migrated all group employees to this new plan
• IndusOS, owned by PhonePe, also shifted operations from Singapore to PhonePe India

Key Consequences of Reverse Flip to India

• Lapse of accumulated losses of USD 900 million
  • PhonePe stands to lose the chance to offset its USD 900 million (~INR 7,380 crore) of accumulated losses against future profits as shifting the domicile from Singapore to India is viewed as a restricting event under Section 79 of the Income Tax Act, 1961
  • As per the provisions of Section 79, a company is not allowed to carry forward the losses if the change in beneficial ownership of shareholding of more than 50% occurred at the end of year in which losses were incurred
• Reset of ESOPs to zero vesting with 1 year cliff
  • All employees of PhonePe were migrated to the new India level ESOP plan which stipulates a minimum 1 year cliff.
  • Thus, the employees vesting status was reset to zero with a 1 year cliff
• Tax payout by investors of almost INR 8,000 cr
  • PhonePe investors, led by Walmart, sold their stake in the Singapore entity and invested in PhonePe India
  • This means that there was a capital gains tax event in India for the the investors leading to a tax-pay-out of almost INR 8,000 cr

Other Startups looking at Reverse Flip

• Razorpay is in process to move its parent entity from the US to India
• Groww is planning to move its domicile from the US to India
• Pepperfry has reverse flipped their structure to India via amalgamation

Who Should Consider a Reverse Flip?

US Holding Company Founders Preparing for IPO

If your company is incorporated in Delaware or any US jurisdiction but operates primarily in India and plans to go public on Indian exchanges (NSE/BSE), reverse flip is essential. Indian regulators prefer domestic listed entities for governance and regulatory oversight. PhonePe, Razorpay, and Groww all recognized that a Singapore or US entity listing in India would face scrutiny. Moving domicile to India eliminates this friction during IPO roadshows and regulatory approvals.

Founders Facing Regulatory Arbitrage Pressure

RBI and government regulations on fintech, payments, e-commerce, and data localization keep tightening. If you are a foreign-incorporated entity managing Indian customer data, processing Indian rupees, or handling payments, you face compliance questions daily. A reverse flip positions you as a domestic entity subject to Indian regulations from day one, reducing legal ambiguity and investor concern. This is especially critical for payments companies, lending platforms, and data-heavy SaaS firms.

Pre-IPO India-Focused Startups (3 to 5 Years to IPO)

If your IPO timeline is 3 to 5 years and India is your primary market, reverse flip makes sense now. The longer you wait, the more complex the unwinding. PhonePe did this in October 2022, approximately 2 to 3 years before expected IPO (likely 2024 to 2025). Early reverse flip gives you time to settle into Indian regulatory framework, rebuild investor relationships, and demonstrate consistent India-domiciled governance.

Startups Facing Investor Pressure to “Prove India Commitment”

Late-stage investors and PE firms increasingly ask: “Are you really India-focused or is this a tax optimization play?” A reverse flip is a credible signal. Moving your legal domicile, reincorporating subsidiaries, and resetting ESOP structures shows serious commitment. It is no longer just about tax benefits; it is about operational alignment with your market.

Founders NOT Ready for Reverse Flip

Early-stage startups (Seed to Series A) should not reverse flip. The costs (legal, tax, ESOP reset, loss carry-forward forfeiture) exceed benefits. Wait until Series B or C when you have institutional investors and clearer IPO trajectory. Also skip reverse flip if you operate across multiple geographies. If India is just 30 to 40% of revenue, the regulatory and tax burden may not justify the move. Finally, if you have no IPO plans in next 5 years, reverse flip is premature. The tax loss lapse (like PhonePe’s USD 900 million) is painful if you are not profitable soon.

Read our Founder Guide on Reverse Flip.

Source:

https://economictimes.indiatimes.com/tech/technology/phonepe-shifts-headquarters-from-singapore-to-india/articleshow/94621544.cms

https://www.bqprime.com/business/after-phonepe-razorpay-kicks-off-reverse-flipping-process

https://en.wikipedia.org/wiki/PhonePe#:~:text=10%20External%20links-,History,the%20CEO%20of%20the%20company

https://inc42.com/features/unicorn-desh-wapsi-reverse-flipping-is-the-new-startup-sensation