Why are Indian cryptocurrency companies flocking to Dubai?

Driven by a positive regulatory environment, a growing number of Indian cryptocurrency companies are moving to Dubai in order to avoid the heavy taxation system in India.

Crypto experts perceive the mass departure as a response to the strict taxation regulations and unclear legal framework surrounding digital currencies in India. In June of 2022, the government implemented a 30 percent tax on profits made from cryptocurrency trading, along with a one percent tax on transactions over Rs10,000.

The UAE is a highly appealing location for crypto companies due to its contrasting environment with the crypto ecosystem. The combination of low taxes, ease of business setup, and a well-established regulatory framework for digital assets make it a prime financial hub in the Middle East. Dubai, in particular, has emerged as a leading center for crypto innovation, attracting companies through strategic policies and a supportive regulatory environment, according to cryptocurrency experts.

Many Web3 founders choose Dubai or Singapore as their base because they appreciate the clear and predictable regulations as well as the strong community support. When establishing a business, investors feel more at ease investing in a location where they won’t face any unexpected changes at the last moment. Sumit Gupta, CEO of CoinDCX, expressed his concern about this trend and emphasized the need to change it.

He stated that there has been a significant drop in volumes, exceeding 90%. This decline is substantial and drastic. Despite this, India remains at the forefront in terms of widespread adoption of cryptocurrency among the general public. However, a significant portion of this activity is occurring through alternative platforms due to the high tax rates.

India has implemented an additional four per cent levy on profits derived from cryptocurrency trading, in addition to the existing 30 per cent tax and surcharge. Furthermore, Indian crypto traders were previously subjected to a one per cent tax deduction on transactions exceeding Rs10,000. Failure to pay this tax could lead to penalties equal to the unpaid amount, a 15 per cent interest on delayed payments, and in certain circumstances, even imprisonment, as stated in an amendment to the Income Tax Act.

Crypto market experts have stated that the UAE has taken proactive measures to establish a regulatory framework that is strong and adaptable. In recent years, Dubai and Abu Dhabi have been at the forefront of driving change by intensifying their regulatory initiatives, aiming to attract international businesses specializing in digital assets. This endeavor has resulted in the influx of considerable talent, investment, and positive attention to the region.

Dubai’s popularity as a cryptocurrency hub is rapidly increasing due to its progressive efforts in offering clear regulations, exemplified by the establishment of the Virtual Assets Regulatory Authority (Vara). Vara has introduced guidelines and policies regarding licensing, attracting businesses primarily from the UK, India, China, the US, and Russia. Vara is responsible for supervising cryptocurrencies and associated operations in all free zones of Dubai, excluding the Dubai International Financial Centre (DIFC). A comparable regulatory framework exists in Abu Dhabi through the Abu Dhabi Global Market.

The Dubai Financial Services Authority, which is responsible for regulating DIFC, has actively worked on creating a regulatory framework that takes into consideration both risk and innovation. DIFC has suggested introducing a Digital Assets Law and a Security regime, collaborating closely with industry members to define the legal aspects of digital assets, including their ownership, control, transfer, and handling by interested parties.

The DMCC in Dubai is home to more than 23,000 companies and has a specialized Crypto Centre that includes 550 Web3 companies, with 50 of them being from India.

Dubai has made proactive efforts to attract highly skilled individuals in the cryptocurrency field as well. The Dubai World Trade Centre has established a specific area designated for regulated virtual asset businesses, offering various benefits such as foreign ownership rights, exemption from corporate tax, comprehensive business start-up packages, shared workspaces and office facilities, and the opportunity to network with a community comprising over 1,400 companies.

Chainalysis reports that the Middle East and Africa have emerged as the sixth-biggest cryptocurrency market, accounting for approximately $400 billion or 7.2 percent of the worldwide transaction volume documented from July 2022 to June 2023.