AgenciesMany wealthy Indians are paying in cryptocurrencies to buy properties in Dubai, with leading realtors in the emirate accepting the digital coins to cut deals.
Such transactions, though perfectly kosher in Dubai, which wants to position itself as the world's crypto capital, 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).
With the Reserve Bank of India (RBI) imposing a shadow ban on cryptos and the finance ministry almost taxing the asset to death, many high net-worth individuals (HNI) investors have moved their cryptos to Dubai and other financial centres.
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 assessee 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."
An official of DAMAC Properties, one of top developers in Dubai, confirmed that cryptos can be transferred to buy properties in Dubai and that many Indians have paid in cryptos to buy homes there.
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."
Cryptos are freely and easily converted to local currency in Dubai, which has traditionally been a centre for currency exchange. An agent of a property management firm said that many Indians prefer to own properties through a company that is set up in a free trade zone (FTZ). While the names and identity proofs of the ultimate beneficiaries of a property would be available with the FTZ authority, there is no system of sharing the information with Indian authorities on an automatic basis.
Such transactions, though perfectly kosher in Dubai, which wants to position itself as the world's crypto capital, 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).
With the Reserve Bank of India (RBI) imposing a shadow ban on cryptos and the finance ministry almost taxing the asset to death, many high net-worth individuals (HNI) investors have moved their cryptos to Dubai and other financial centres.
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 assessee 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."
An official of DAMAC Properties, one of top developers in Dubai, confirmed that cryptos can be transferred to buy properties in Dubai and that many Indians have paid in cryptos to buy homes there.
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."
Cryptos are freely and easily converted to local currency in Dubai, which has traditionally been a centre for currency exchange. An agent of a property management firm said that many Indians prefer to own properties through a company that is set up in a free trade zone (FTZ). While the names and identity proofs of the ultimate beneficiaries of a property would be available with the FTZ authority, there is no system of sharing the information with Indian authorities on an automatic basis.
