Many Startups thinking about that they are registered in india but when someone register their company in india then they also think that Why Flipkart is Registered in Singapore.
There are many factors that were considered by the Bansal’s to move their Backend operations to Singapore, these are the few:
1. FDI policy of India: The Governments recently introduced FDI policy did not permit FDI in the B2C business to commerce segment. So foreign venture capital to fund an Indian online retail operation had its limits. There were only two ways to push growth for Flipkart. One was to sell off the stakes completely to a bigger company who had the liquidity to push a high paced growth. The second was split the company and take the technology end abroad and raise funds through an IPO at a higher valuation after divesting the risk that lay largely in the operational portion. Rajesh Magow, CFO of online travel company MakeMyTrip.com which recently went through a similar split is on the board of Flipkart and is reported to have advised the start up to adopt route 2 . Another online retail start up from India who could hit the disinvestment track to raise funds is Myntra also funded by Accel Partners and Tiger Global. Clearly Indian entrepreneurs are not ready to be shackled by restrictive Indian laws and are restructuring themselves to reach global highs.
2. Taxation: is primarily the driving factor behind deciding on the location for registering a company. One can look at the examples of MNCs registered in Ireland as it has a corporate taxation rate of 12.5%, which is considered one of the lowest in the world – Apple, Adobe, Accenture, Aviva Vodafone, etc.
Flipkart must have compared the taxation clauses between India and Singapore on the following fronts-
a. Corporate taxation rate – Singapore has a corporate taxation rate of only 17%, whereas India has a rate of 34%.
b. Double taxation avoidance – Singapore has a one-tier corporate tax system whereby tax at the corporate level (i.e. any underlying tax) is the final tax.
Accordingly, dividends paid by Singapore resident companies are exempt from further Singaporean tax in the hands of investors. Now, considering the investor base of Flipkart is currently comprising of Venture Capitalists & Private Equity investors it makes sense for them to save the potential tax liability which might occur if the dividends are distributed from Flipkart in India.
c. Customs duty – Singapore being a transit and trade hub has limited import duty on only a few items like Petroleum products, tobacco etc, and NO export duty. Compared to India, that contributes to a lot of savings given that Flipkart will have a lot of foreign vendors (for electronics, fashion apparels).
This was all in a nutshell. Stay tuned to know more in details on the Taxation part of Flipkart.
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