The Indian startup ecosystem has developed swiftly in recent years, becoming one of the globe’s most dynamic and lively centers of innovation.  As these companies develop and consider global expansion and public market listings, many are reassessing their corporate structures to ensure they align with global best practices and investor expectations. In this context, a significant trend that is surfacing is the growing interest among Indian SaaS (Software-as-a-Service) and tech startups to establish their holding entities in the Cayman Islands.

What is the reason for this strategic shift offshore?  What has caused a sudden increase in popularity of the Cayman Islands for Indian startups?  And what are the wider consequences of this action?

Related: Lenskart Becomes a Public Entity in Preparation for IPO

Pepperfry: Founded in 2011, this leading online furniture and home décor startup initially incorporated in the Cayman Islands. In 2022, Pepperfry executed a reverse flip—moving its legal domicile from Cayman back to India

Narayana Health (Health City Cayman Islands): While not a tech startup, this major Bangalore-based hospital chain set up a fully operational hospital and medical training center in Grand Cayman. This makes it the first Indian-origin hospital chain to establish a full-fledged overseas facility in Cayman.

Many Indian tech startups initially incorporated abroad (Singapore/US) due to investor needs (like Y Combinator). Some are considering Cayman structures for similar strategic reasons. Notable names include:

Zepto, Groww, PhonePe, Razorpay and Dream11: These firms incorporated overseas (Singapore or US) to streamline compliance, fund-raising, and investor comfort. They are in the process of reversing these setups—though direct Cayman incorporation wasn’t always their initial choice

Indian startups have historically raised funds from both domestic and foreign venture capitalists while maintaining their incorporation in India.  As companies begin to prepare for initial public offerings (IPOs)—especially global listings—they are considering jurisdictions that provide legal, tax, and regulatory benefits.

The Cayman Islands, among these, are a notable choice.  The Cayman Islands, recognized for their business-friendly environment, are rapidly emerging as the preferred destination for companies seeking to create holding structures that streamline international fundraising and listing.

With Indian startups gearing up for global expansion and IPOs, a significant number are choosing to incorporate in the Cayman Islands.  With its numerous strategic benefits, this offshore financial center presents an appealing option for both founders and investors.

With regard to taxes, the Cayman Islands are neutral: there are no direct taxes imposed on profits, capital gains, or income at the level of entities.  This provides an opportunity for startups and investors to optimize returns while avoiding the complications of double taxation.

This represents a major benefit for Indian startups that have foreign investors.  It enables the smooth transfer of capital and returns without the impediment of complex tax duties, thus enhancing the appeal of the investment environment.

It is quick and inexpensive to incorporate in the Cayman Islands.  The regulatory framework is simplified, which diminishes bureaucratic obstacles and the burdens of compliance.  Compared to jurisdictions such as India or the U.S., annual filings and disclosures are minimal.

The ease of conducting business results in enhanced operational flexibility, particularly for companies that must act swiftly in response to evolving market dynamics or investor needs.

Operating under a legal system based on English law, the Cayman Islands utilize common law.  This renders it more recognizable and foreseeable for international investors, lawyers, and financial institutions.

Moreover, the legal framework provides:

• Strong investor protection provisions
• Adaptability in share class configurations
• Advanced options for structuring capital and planning exits

Entities based in the Cayman Islands are already widely accepted by major global stock exchanges, including:

• NASDAQ (National Association of Securities Dealers Automated Quotations)
• New York Stock Exchange (NYSE)
• HKEX (Hong Kong Stock Exchange)
• SGX (Singapore Exchange)
• LSE (London Stock Exchange)

This allows startups to select their preferred share listing location based on market sentiment, investor appetite, and strategic objectives.

Cayman entities are now the default option for SPAC (Special Purpose Acquisition Company) listings.  Actually, around 95% of non-U.S. SPAC IPOs in 2024 were based in the Cayman Islands.

This renders Cayman a structure that is well-understood and trusted by global institutional investors and hedge funds.

Indian startups typically use the following structure:

• A Cayman Islands-based holding company
• Entities of an intermediate nature in jurisdictions such as Singapore or Mauritius
• Entities conducting operations in India

This arrangement with multiple layers enables:

• Capital flowing efficiently
• Facilitated adherence to regulations
• Cross-border mergers and acquisitions made simpler
• Preparedness for dual listings in India and abroad

Although the names of particular companies are frequently kept secret during restructuring, there are rumors that several high-growth Indian SaaS companies have already relocated to the Cayman Islands in preparation for IPOs or significant funding rounds. Experts in the industry anticipate that numerous others will come after, particularly in the areas of AI, deep tech, and cloud software.

This trend reflects the path of successful global tech companies from markets such as China and Southeast Asia, which also utilized Cayman structures prior to their listings on global exchanges.

A significant benefit of establishing a Cayman Islands holding company is the ability to adopt a dual IPO strategy.  Startups in India can investigate:

• Domestic initial public offerings on the Bombay Stock Exchange (BSE) or National Stock Exchange (NSE)
• Global IPOs on platforms such as NASDAQ or NYSE

This flexibility increases the potential for valuation and expands access to global capital pools.

While the Cayman route offers numerous benefits, it also comes with certain risks and responsibilities:

When transferring funds to and from India, startups are required to comply with the Foreign Exchange Management Act (FEMA) and RBI regulations.

Complications regarding round-tripping (returning money invested overseas) can emerge and need to be handled with care.

Global tax authorities are becoming more and more vigilant regarding offshore tax havens.

To prevent reputational or legal problems, startups must guarantee operational transparency and uphold robust corporate governance practices.

There are legal, tax, and operational costs associated with establishing and maintaining offshore structures.

Startups ought to collaborate with seasoned legal and financial advisors to guarantee complete compliance and optimization.

With an increasing number of startups seeking offshore opportunities, discussions are intensifying within India’s policy circles regarding:

• Relaxing the regulations for domestic listings
• Establishing tax-neutral frameworks for domestic holding companies
• Providing inducements to promote global listings via Indian structures

When enacted, these reforms could lead to a diminished motivation for seeking offshore options.  Until that time, Indian startups looking for scale and capital will keep being drawn to the Cayman Islands.

Establishing a company in the Cayman Islands is not related to avoiding taxes; rather, it concerns the ability to scale globally, build investor confidence, and prepare for an IPO.  This action signifies a strategic adjustment for Indian startups with global ambitions, particularly in SaaS and tech, as they seek alignment with international capital markets.

This trend may prompt questions from policymakers, but it also indicates that the Indian startup ecosystem has matured.  With increasing numbers of companies seeking to go public and compete internationally, the Cayman route offers a familiar option that balances flexibility, compliance, and opportunity.