6 minute read 29 Nov 2021
SPAC route

Going the SPAC route: key considerations

By Pavan Sisodia

EY India International Tax and Transaction Services Partner

Pavan specializes in direct tax and advises on areas of corporate structuring, inbound/outbound transactions, mergers and acquisitions, fund raise, deal advisory and promoter planning opportunities.

6 minute read 29 Nov 2021

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We examine the key considerations for companies looking to go through the SPAC route.

In brief

  • SPAC is available in multiple jurisdictions across the globe. The US and European exchanges account for the bulk of SPAC activity.
  • SPAC in India is a developing concept. Markets regulator, SEBI, is developing a framework which will allow companies to take the SPAC route in India. 

Special Purpose Acquisition Companies (SPACs), commonly referred to as ‘blank check companies’ have increasingly become popular as a new method of going public. The explosive growth of these entities that exist solely to acquire other companies has provided another option for sellers, as well as an efficient way for private companies to tap public equity markets.

India is also witnessing a growing trend of companies, in particular, by start-ups and new age technology companies willing to go public through the SPAC route like their international counterparts. A SPAC raises capital through an IPO for the purpose of acquiring an existing operating company. Subsequently, an operating company can merge with (or be acquired by) the publicly traded SPAC and become a listed company in lieu of executing its own IPO.

Our latest publication provides an overview how SPAC works and also explains why SPACs are the new IPO. It also talks about how they are different from traditional listing, key regulatory challenges for SPACs in India, SPAC accounting and SEC reporting for SPAC companies, and taxation considerations for companies undertaking such transactions. It also covers aspects of SPAC Vs IPO in the US and global markets during the last couple of years, and funds raised through the SPAC route by US companies.

US listing considerations for SPAC

SPACs have become very popular in the US and currently exceed traditional IPOs in numbers and dollars raised. The reasons include greater acceptance among private companies that are usually SPAC targets and increasing interest from financial sponsors and management teams with experience in private equity.

In the US, a typical life cycle of a SPAC comprises approximately eight months of IPO journey. A SPAC would normally take 18-24 months to identify and complete an initial merger with a target company based on the timeline included in the governing documents of the SPAC. However, timeline for an initial merger can be extended based on governing instruments subject to shareholders’ approval, subject to a maximum period of three years as per the US regulation from the date of IPO.

Indian Tax and regulatory considerations for SPAC

Considerations on migration into a SPAC

An Indian company could transition into a SPAC through any of these typical options:

  1. Share-swap: under which the shareholders of the Indian target receives shares of the SPAC in exchange of their shares transferred in the Indian target, and the SPAC ultimately holds shares of the Indian Target;
  2. Outbound merger: whereby the Indian target merges with the SPAC, with the SPAC being the surviving entity undertaking the business of the Indian Target directly in India, and the shareholders of the Indian target would be issued shares of the SPAC;
  3. Inbound merger: in this case, the SPAC merges with the Indian target, with the target being the surviving entity, and the shares of the Indian Target are issued to shareholders of the SPAC.

Ongoing considerations for a SPAC

An Indian company migrating to an overseas SPAC (either in lieu of share swap or outbound merger discussed above) would also have to bear in mind the following considerations, from a future tax and regulatory perspective:

  • Where key management and commercial decisions are taken in India, the place of effective management (“POEM”) of the SPAC may be regarded to be in India and the SPAC could be subject to Indian taxes on its global income. This aspect would have to be borne in mind and suitably addressed.
  • Where the Indian target remains a subsidiary of the SPAC (i.e., in case of a share-swap), repatriation of profits from the Indian target to shareholders of the SPAC may have tax implications in India, and this would need to be carefully evaluated.
  • From a shareholders’ perspective, on the basis that the overseas SPAC may be deriving value from Indian target/ operations, sale of SPAC shares in future should be taxable in India (subject to ‘5% small shareholder exemption[1] or any beneficial tax exemption under the treaty).
  • From a future investment perspective, investment in a SPAC by resident investors would primarily be permitted under portfolio route by: an individual Indian resident shareholder (up to US$2,50,000 per financial year) and listed companies. In addition, there may be further conditions that may need to be met by them. On sale of the SPAC shares, resident investors would be required to repatriate such sale proceeds to India within 90 days from the date of sale. Further, there may not be any restrictions for non-resident investors, except for press note 3 (PN3) Investors.

Recent regulatory updates

Listing of SPAC in GIFT City

The Gujarat International Finance Tech City (GIFT City) is India’s first International Financial Services Centre (IFSC), similar to the IFSCs set up in Shanghai, Dubai, etc. Considering the widespread interest around SPACs, International Financial Services Centre Authority (IFSCA) has now facilitated listing of SPACs in GIFT City. IFSCA has recently issued regulations containing conditions and guidelines for listing of SPACs on recognized stock exchange of the IFSC GIFT City, such as minimum public offer size, compulsory sponsor holding, minimum application size and minimum subscription.

Further, as per a recent amendment to the Indian tax laws, transfer of a capital asset being a foreign currency denominated equity share of a company by non-residents on a recognized stock exchange in IFSC shall not be subjected to Indian capital gains tax, where the consideration for such transaction is paid or payable in foreign currency. Accordingly, such non-resident shareholders of a SPAC listed on recognized stock exchange of the IFSC should be eligible for such tax exemption under the Indian tax laws.

How capital markets evolve in the IFSC and how investors react to such changes as well as the opportunities that would come up must be observed in the coming future. 

While SPAC deals in India are still at a nascent stage, the number of SPAC related conversations in the Indian transactions space is swiftly growing.
Pavan Sisodia
EY India International Tax and Transaction Services Partner
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    Non-resident shareholders would not be subject to ‘indirect transfer’ tax provisions where they hold less than 5% directly or indirectly in the Indian Target and have no management control rights directly or indirectly in the Indian Target.


At present, SEBI regulations may not be conducive for taking the SPAC route in India. However, SEBI is planning to introduce a framework to enable listing of SPACs on domestic stock exchanges. While it is a welcome decision, one has to wait for detailed guidelines to assess how they evolve.

About this article

By Pavan Sisodia

EY India International Tax and Transaction Services Partner

Pavan specializes in direct tax and advises on areas of corporate structuring, inbound/outbound transactions, mergers and acquisitions, fund raise, deal advisory and promoter planning opportunities.