Foreign Listing: Government can impose tax on only big foreign shareholders

Foreign Listing: The decision to allow overseas direct listing was announced in March 2020, but no follow-up action was taken thereafter.

Exemption from long term capital gains tax for those having holding up to 10%. The second structure is to tax all those who held the shares before listing, when they exit from their investments.

Foreign Listing: Government of India can impose tax on only large foreign shareholders of domestic companies listed on overseas exchange. The overseas listing is expected to help large Indian startups raise funds at good valuations on foreign exchanges, where demand may be high. A detailed framework on this is expected to be announced in the Union Budget for FY23. The decision to allow overseas direct listing of Indian companies was announced in March 2020, but no follow-up action was taken after that.

Two structures under consideration for levying tax

In its report, the Economic Times wrote, quoting people associated with the matter, “At least two structures or mechanisms are under consideration for levying tax on foreign shareholders of domestic companies listed on overseas exchanges.” The first structure is to exempt all foreign shareholders from long term capital gains tax who have holdings up to 10%. The second structure is to levy tax on all those who held shares before listing, when they exit from their investments.

Multiple deliberations at regulatory levels

A government official said, “Many discussions have taken place at the ministries and regulatory levels. The aim is to help in value creation in India, but care is also being taken that the situation does not become like Vodafone. In 2007, Vodafone International Holdings bought Indian telecom operator Hutchison Essar in a deal executed overseas. The government controversially amended the Income Tax Act to levy tax on transactions. The government recently repealed this provision and is in the process of settling the cases.

Clear mechanism for levying tax on indirect transfers

At the same time, a clear mechanism has been provided for levying tax on indirect transfer of Indian properties. Any foreign shareholder holding up to 5% in an Indian company can sell offshore here without paying tax. According to sources, a similar framework may be implemented for companies listed abroad and the limit may be revised to 10% in all cases transferred, listed or unlisted.

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