Such exchanges, even though they are legitimate in Dubai, which wants to establish itself as the world’s cryptocurrency capital, will come back to haunt the owners of the property, most of whom are not keeping in mind the legal and regulatory obligations ahead.
They do not know that the copies of their passports or those of their family members or close relatives in whose name the property is registered fall into the hands of the Indian Income Tax (IT) Department and the Enforcement Directorate (ED).
With the Reserve Bank of India (RBI) imposing a shadow ban on cryptos and the finance ministry about to tax the asset to death, many high net worth investors (HNI) have moved away from their cryptos to Dubai and other financial centers.
In the process, many may have committed, without knowing, many sins. First, the transfer of cryptos from the private account of an Indian resident to the account of a real estate company in Dubai (or an intermediary paid by the developer to exchange cryptos) is a non-transferable transaction and break the game. Transportation Management Act (FEMA).
Second, buying property abroad without having a bank account equivalent to remittance through banking channels is against RBI regulations.
Understanding the Laws of Both Countries
Thirdly, the assessee can be dragged under the black money law for not declaring assets (Dubai) in the annual tax return.
Finally, failure to pay tax on rent received on offshore property is a major reason for tax avoidance.
“Many Indian expatriates invest in Dubai real estate to have a second home or to attract additional income,” says Karan Batra, a chartered accountant in Dubai. “They should consult with tax experts who understand the laws of both countries.”
“Since Dubai wants to be a crypto hub, buying goods by paying in crypto is allowed. However, it is important to note that Dubai does not want to be a home for exchanges illegal money,” Batra said. “Even if the purchase price of the property is low, it will be transferred to the government. In addition to showing the property in the foreign property list of the ITR (income tax return), tax on actual rent or rent deemed to have been received by a resident of India. payable in India.”
An owner of DAMAC Properties, one of the famous developers in Dubai, confirmed that cryptos can be exchanged to buy property in Dubai, and many Indians have paid in cryptos to buy homes in there.
In response to a question, a representative of Nakheel, another leading group, referred the question to Hayvn, a financial firm focused on digital assets operated in Switzerland and Dubai. One of the Hayvn executives said, “Yes, we have a few partners in Dubai, such as Nakheel and others, who use us to manage crypto payments. Your relationship manager can company really helps you do it.”
Cryptos are converted into local currencies in Dubai, which has become a hub for money exchange. A client of a property management firm said many Indians prefer to own property through a company set up in a free trade zone (FTZ). Although the names and identities of the real beneficiaries of a property are available with FTZ status, there is no system for sharing information with the Indian authorities in an automated manner.
Data Not Shared
“The data, along with passport copies, are stored for the collection of stamp duty (to be paid by the property buyer in the UAE),” said a real estate agent. “Therefore, when the house or the company they own changes hands, the tax is collected. But it is believed that proprietary data may not be easily shared. Also, it is not easy to link a property to an owner.”
Automatic Transfer of Information (AEOI) is a systematic transfer of information – such as bank statements and related information – from the tax office that maintains the account to the tax office where the taxpayer is domiciled. The resident tax office can verify whether the taxpayer’s income has been reported correctly.
Information is shared according to the Common Reporting Standard (CRS), which is the accepted international standard for AEOI. The information required to be reported under the CRS includes financial information such as bank accounts, bank income, etc.
“However, today, it does not include non-financial assets such as real estate and new virtual digital assets such as Bitcoins,” said Ayush Tandon, partner at AZB & Partners. “This leads to a situation where the people’s country does not know that their residents have (whether legitimately or not) any foreign real estate or any crypto transactions that have been made.”
“Based on the review of illegal activities of Indians transferring undeclared assets through crypto or foreign countries, in recent times, the finance ministry of India has issued its word to the G20 nations… to include non-financial assets in the AEOI,” Tandon said.
According to him, the OECD Global Forum has also recommended the inclusion of other asset classes – such as real estate, crypto exchanges, contributions to non-profit organizations – in the data shared in the AEOI way. “However, very few countries have adopted this term,” Tandon said.