Many high net-worth individuals (HNI) investors have moved their cryptos to Dubai and other financial centres with the Reserve Bank of India (RBI) imposing a shadow ban on cryptos and the finance ministry taxing heavily.
Cryptocurrencies are actively being used to buy properties in Dubai, with leading realtors in the emirate accepting the digital coins to cut deals.
Dubai is geared to position itself as the world’s crypto capital and therefore many high net worth individuals (HNI) are paying in cryptos to buy property in Dubai. However, these moves can come back to haunt the property owners, most of whom are unmindful of the regulatory and legal pitfalls ahead.
Little do they realise that copies of their passports, those of their family members or close relatives in whose name the property is registered could someday fall into the hands of the Indian Income Tax (I-T) Department and Directorate of Enforcement (ED).
In the process, many may have committed, perhaps unwittingly, multiple offences. First, the transfer of cryptos from the private wallet of a resident Indian to the wallet of a real estate company in Dubai (or an intermediary hired by the developer to convert the cryptos) is an irregular cross-border transaction and a violation of the Foreign Exchange Management Act (FEMA).
Second, buying a property abroad without a matching fund remittance through banking channels is against RBI regulations.
Understanding Laws of Both Nations
Third, an assesse can be pulled up under the black money law for non-disclosure of the (Dubai) property in the annual tax return.
Lastly, non-payment of tax on the rent earned on the offshore property is a clear case of tax evasion.
“A lot of resident Indians invest in Dubai real estate to own a second home, or in the lure of additional income,” said Karan Batra, a Dubai-based chartered accountant. “They must consult tax professionals who understand laws of both countries.”
“Since Dubai wants to be a crypto hub, buying property by paying in crypto is allowed. However, it is important to note that Dubai does not want to become the home for illegal money transactions,” Batra said. “Even if a small amount is paid for purchase of property, it is reported to the government. Besides disclosing the asset in foreign assets schedule of the ITR (income tax returns), tax on the actual rent or deemed rent received by an Indian resident is required to be paid in India.”
In response to a question, a representative of Nakheel, another leading realty group, forwarded the query to Hayvn, a digital asset-focused financial institution that is regulated in Switzerland and Dubai. A Hayvn official said, “Yes we have a few property partners in Dubai, such as Nakheel and others, that are using us to process crypto payments. Your relationship manager at the property company will be able to assist you with the process.”
Data Not Shared
“The data, along with passport copies, is primarily stored for collection of stamp duty (which a property buyer in UAE has to pay),” said a property dealer. “So, when the property, or the company owning it, changes hands, tax is collected. But it is widely believed that property ownership data may not be readily shared. Also, it’s not easy to link a property with the owner.”
Automatic Exchange of Information (AEOI) involves a systematic transmission of information — such as bank accounts and related details — from the tax administration where the account is held to the tax administration where the taxpayer is resident. The resident tax administration can then verify whether the taxpayer has accurately reported income.
The information is shared as per the Common Reporting Standard (CRS), which is the agreed global standard for AEOI. The information required to be reported under CRS includes financial information such as bank accounts, financial income, etc.
“However, as of date, it does not include non-financial assets such as real estate and new-age virtual digital assets like Bitcoins,” said Ayush Tandon, partner at AZB & Partners. “This leads to a situation where the home country of an individual would not be aware of their residents owning (whether directly or indirectly) an offshore real estate asset or any crypto transactions undertaken.”
“Upon review of the possible malpractice of Indians shifting unaccounted wealth through the crypto or offshore immovable properties, recently, the finance minister of India has voiced her recommendation to G20 nations… to include non-financial assets in AEOI,” Tandon said.
According to him, the OECD Global Forum has also recommended to include other asset classes — such as real estate, crypto transactions, contribution to non-profit organisations — to the data to be shared in the AEOI route. “However, barely a few countries have adopted this recommendation,” said Tandon.