The fact that there is a beaten path and a welcoming policy environment for crypto firms in jurisdictions outside of India, “you are somewhat guaranteed or have a visibility of a steady regulatory stability [overseas]”. Indian entrepreneurs setting up operations overseas or tech engineers/developers letting go of jobs in India to join companies overseas constitute the classis ‘brain-drain’ syndrome. The Web3-crypto ecosystem has for a few years now also started to see cases of founder-promoters registering their companies overseas. It is not classic brain-drain but it hurts India as the government loses out on potential tax collections. India’s IT sector has been witnessing this practice for nearly three decades now.
KoineArth’s Founder and CEO Praphul Chandra says: “Brain-drain does worry me. Legal entities will relocate. If the legal entity is outside India, then the intellectual property is outside India and tax paid is outside India. Web3 will spread so vast that the impact will be significant.”
In November 2021, when Neha Kumari was setting up Carret, a cryptocurrency trading and investment platform focussed on Indian users, she decided to register the company in India. However, soon enough, looking at multiple challenges, she realised it wasn’t the best idea and registered the holding company in Singapore.
Potential investors into the company had several queries. “When we approached investors, they would ask us: What about the regulations, how are you going to operate in India? They would request us to register the company out of India,” says Kumari, adding that there are no specific regulations on what kind of licences are required to be a crypto exchange. “It is a grey area. Recently I read a tweet that said a company’s bank account was frozen because they had Web3 mentioned on their website. If tomorrow something like that happens, we wanted to ensure our investors’ money was safe.”
However, Kumari, 29, and her team of nine have no plans to shift base outside India. Their focus market will be Middle East and South Asia. “These regulatory hurdles are affecting us and it is likely to impact India, because as startups, we are thinking about whether we want to expand more in India or not. So eventually, yes, there is bound to be a brain-drain. But we are still hopeful that things will change in India,” she told. .
“About 99 percent of Web3 founders will domicile outside of India. If you are a crypto company working in India and dealing with banks, it invokes 10x questions. Also, in the future if you have a material gain, the option to domicile outside India is a better option,” says an official with an American venture capital firm, on condition of anonymity. Non-tech companies too, which domicile in the US or Singapore, find it easier to list or make acquisitions overseas and move money in and out of different jurisdictions.
The fact that there is a beaten path and a welcoming policy environment for crypto firms in jurisdictions outside of India, “you are somewhat guaranteed or have a visibility of a steady regulatory stability [overseas]”.
IndiaTech’s CEO Rameesh Kailasam says brain-drain cannot be “ignored”. Each country is still figuring out crypto-related regulations and legislations but a situation should not arise where, after years, India realises it lost out to Dubai or Singapore. “It is like realising we were late in the hardware boom,” he says. “We will start to lose out on revenue potential to other countries”.
The British Virgin Islands are a very popular choice for registering companies which plan to issue tokens. “We don’t have to do much, a lawyer charges fee for the process, we submit KYC details and within five days you have a company. We’ve never been there, nor do we have plans to move operations there,” says Atharva Sabnis, founder-CEO of NFT Labs, a Web3 company, which is the developer of Itsmyne, a social-plus marketplace for officially licenced NFTs.
NFT Labs, set up in 2021, did an initial coin offering (ICO)—a cryptocurrency equivalent of an IPO—where funds are raised for a particular venture. NFT Labs has a dual company setup, where the British Virgin Islands company has issued the token and a Singapore-registered company carries out the rest of the operations. Currently, his team is spread across India, Kazakhstan and Czech Republic.
British Virgin Islands is popular is because “there is zero tax on corporates, which also extends to any virtual assets. If you have to create a crypto token and select from a BVI entity, then you’re not paying a part of the amount you raised […]
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