The Cayman Islands, a self-governing British Overseas Territory, is gaining traction as the new pitstop for Indian startups building software products for global markets. These software-as-a-service (SaaS) companies are increasingly looking to the Caribbean island as a flexible option to tap into capital markets, either at home or overseas.
According to multiple industry sources, the push to register these Indian SaaS startups in the tax-neutral Cayman Islands is being led by their venture capital backers, including prominent investor Accel Partners. This shift in preference is driven by the startups’ desire to have the flexibility to list in India, the US, or pursue a future dual listing.
Previously, the US was the preferred destination for most Indian SaaS companies, as the bulk of their customers were American entities. Freshworks was the first Indian SaaS company to list on American bourses, followed by other top players like Chargebee, Icertis, and Innovaccer.
However, this trend is now changing as the Indian stock markets become more attractive, and the bar for IPO in the US becomes more challenging. The Cayman Islands’ tax-neutral status and flexibility in managing complex global footprints make it an appealing choice for Indian SaaS startups.
However, experts caution that the Cayman Islands route is not without its downsides, such as the absence of a double taxation avoidance treaty with India and potential capital gains tax implications in the event of share swaps. The ecosystem needs to navigate these uncertainties carefully, as reverse flips or shifts in domicile can be a costly affair.
As Indian SaaS startups continue to expand their global footprint, the Cayman Islands’ emergence as a preferred domicile reflects the evolving landscape and the startups’ quest for flexibility and access to diverse capital markets.
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