Such transactions, although quite expensive in Dubai, which wants to position itself as the crypto capital of the world, can come back to haunt property owners, many of whom are oblivious to the regulatory and legal hurdles ahead of them.
They do not realize that copies of their passports, those of their family members or close relatives in whose name the property is registered may one day be in the hands of the Indian Income Tax Department (IT) and the Enforcement Directorate (ED).
With the Reserve Bank of India (RBI) imposing a shadow ban on cryptocurrencies and the finance ministry on the verge of taxing the asset to death, many high net worth individual investors (HNI) have moved their cryptocurrencies to Dubai and other hubs. other financial.
In the process, many may have committed, perhaps unknowingly, many mistakes. First, the transfer of cryptos from the personal wallet of a resident Indian to the wallet of a real estate company in Dubai (or an intermediary hired by the developer to exchange cryptos) is an unusual border transaction and a Foreigner violation. Exchange Management Act (FEMA).
Second, buying property abroad without paying a matching fund through banking channels is against RBI regulations.
Understand the Laws of both States
Thirdly, the assessee can be pulled under the black money law for not disclosing the (Dubai) assets in the annual tax returns.
Finally, not paying tax on tax earned on offshore property is a clear case of tax evasion.
“Many resident Indians invest in Dubai real estate to own a second home, or to attract additional income,” said Karan Batra, a Dubai-based chartered accountant. “They must consult with tax professionals who understand the 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 be a home for illegal financial activities,” Batra said. “Even if a small amount is paid for the purchase of property, it is reported to the government. In addition to disclosing the property in the foreign property schedule of ITR (income tax return), the tax on the actual tax or tax claimed to be received by the resident of India. paid in India.”
An official of DAMAC Properties, one of the leading developers in Dubai, confirmed that cryptocurrencies can be transferred to buy property in Dubai and that many Indians have paid in cryptos to buy houses there.
In response to a question, a representative of Nakheel, another major real estate group, referred the question to Hayvn, a financial institution focused on digital assets that is regulated in Switzerland and Dubai. A Hayvn official said, “Yes we have a few real estate partners in Dubai, like Nakheel and others, who use us to process crypto payments. Your relationship manager at the real estate company will be able to help you through the process.”
Cryptos are freely and easily converted into local currency in Dubai, which has traditionally been a hub for currency exchange. A property management company agent said that many Indians prefer to own property through a company that is established in a free trade zone (FTZ). Although the names and proof of identity of the principal beneficiaries of the assets will be available to the FTZ authorities, there is no system to automatically share the information with the Indian authorities.
Data Not Shared
“The data, along with passport copies, are primarily kept for the purpose of collecting stamp duty (which a property buyer in the UAE has to pay),” said a real estate agent. “Therefore, when the property, or the company that owns it, changes hands, tax is collected. But it is widely believed that property ownership data may not be easily shared. Also, it is not easy to link the property to the owner.
Automatic Exchange of Information (AEOI) involves the systematic transmission of information – such as bank accounts and related information – from the tax administration where the account is held to the tax administration where the taxpayer resides. The resident tax administration can verify whether the taxpayer has reported the income correctly.
Information is shared according to the Common Reporting Standard (CRS), which is the internationally agreed standard for AEOI. Information required to be reported under CRS includes financial information such as bank accounts, financial income, etc
“However, as of now, it does not include non-financial assets like real estate and new-age digital assets like Bitcoins,” said Ayush Tandon, partner at AZB & Partners. “This results in a situation where an individual country will not know that their residents own (whether directly or indirectly) offshore real estate assets or any crypto transactions conducted.”
“After reviewing the possible misappropriation of Indians to transfer unaccounted wealth in the form of crypto or offshore real estate, recently, the Indian finance minister has given his recommendations to the G20 nations … to include non-financial assets in the AEOI,” Tandon said.
According to him, the OECD International Forum has also proposed to include other asset classes – such as real estate, crypto transactions, donations to non-profit organizations – to the data to be shared in the AEOI method. “However, it is difficult for a few countries to adopt this proposal,” Tandon said.