According to RBI Remittance Survey 2021, The 30% of expatriates in India in the United Arab Emirates (UAE) account for 18% of the US$110 billion inflow of global funds to India. Financial ties between the two countries extend beyond remittances and now encompass the realm of Web3, a scalable iteration of the Internet based on blockchain technology.
Bilateral trade between India and UAE surged $85 billion last yearand both countries are exploring interoperability between their central bank digital currency (CBDC) projects.
Dubai, the most populous city in the United Arab Emirates, saw 90,000 Indian companies registered with the Dubai Chambers, while the the city’s biggest tech eventGITEX, has seen more than 300 Indian startupsa number that had tripled compared to last year.
India in the lead Chainalysis Global Cryptocurrency Adoption Index in 2023, and is now the second largest crypto market in the world by gross trading volume. But the local industry, which has dried up due to the government’s strict tax rules, has local players seeking the oasis of Dubai’s booming crypto ecosystem.
“Many Web3 founders prefer Dubai or Singapore as a hub, as they benefit from clarity and certainty around regulations and greater community support. When starting a business, investors are more comfortable investing in a jurisdiction where there are no last-minute surprises. I am starting to see this trend on the ground and it needs to be reversed,” said Sumit Gupta, chief executive officer of Indian crypto exchange CoinDCX. Forkast.
“We have seen a drop in volumes of more than 90%. That’s a huge, steep drop. And what you’ve seen is that India continues to be number one in popular crypto adoption, but a lot of that activity is happening in alternative channels because of the crypto rates. high taxes,” Gupta said.
Finance Minister Nirmala Sitharaman, while announcing last year’s budget, introduced a 30% tax plus applicable surcharge and a 4% tax on profits earned from trading cryptocurrencies.
This year brought more bad news for Indian crypto traders with the introduction of a 1% withholding tax or TDS on crypto transactions above Rs 10,000. According to an amendment to the Crypto Trading Act income tax, foption to pay TDS can result in a penalty equal to the unpaid amount, late payment interest of 15% and in some cases even a prison sentence.
According to Gupta, “regulatory arbitrage” may not last much longer. India’s finance ministry did not respond to an interview request or comment for this article.
“There is a regulatory arbitrage that will not last long and must disappear. The government is aware of this. It remains to be seen when they will decide to remove this arbitration. Serving Indian customers from abroad is not scalable, reliable or compliant,” Gupta said.
But low taxes, ease of starting businesses, a dedicated regulator and access to international markets such as Asia and Europe are pushing the wave of Indian crypto companies towards Dubai.
Crypto projects can meet the rest of the world through Dubai. If I look at the new companies coming in, mainly in the UK, India, China, US and Russia, they represent the top 5%. Dubai is basically a hub,” said Belal Jassoma, head of business development at Dubai Multi Commodities Center (DMCC), at the Future Blockchain Summit.
DMCC is home to more than 23,000 businesses, including 3,700 come from India. Last year, opened a representative office in Mumbai to further grow its membership and provide customized licenses to Indian businesses.
Its dedicated Crypto Center has 550 Web3 companies, including 50 Indian ones. The DMCC crypto center welcomed the Solana Foundation as an ecosystem partner at the Future Blockchain Summit and hosts a long list of Web3 companies including crypto exchange Bybit, digital assets market maker DWF Labs, Web3 incubator TDeFi, and equity fund Brinc risk.
The city’s dedicated digital assets regulator, the Virtual Assets Regulatory Authority (VARA), oversees cryptocurrencies and related activities in all free zones in Dubai, except the Dubai International Financial Center (DIFC). Abu Dhabi, the capital of the United Arab Emirates, also has a similar scope of work through the Abu Dhabi Global Market (ADGM).
“VARA has crafted its regulations to adapt to market demands and be agile in the face of global market risks, with the aim of attracting entrepreneurs to consolidate Dubai’s position as a central Web3 hub ” said Sunita Khatri, Commercial Director of Dubai World Trade Center (DWTC). ).
Unicorn Indian stock market studies expansion in MENA region
The United Arab Emirates is one of the countries that make up the Middle East and North Africa (MENA) region. According to On-Chain Analysisthe region had the sixth largest cryptocurrency economy, worth an estimated $400 billion, or 7.2% of the global transaction volume recorded between July 2022 and June 2023.
“MENA as a region is quite an exciting opportunity for CoinDCX to exploit as it is a rapidly growing market, the adoption numbers there are quite impressive and Web3 can open up a lot of opportunities in the India-UAE corridor. New use cases around remittances and payments are emerging in this region,” Gupta said.
BitOasis, a crypto trading platform based in the United Arab Emirates, has had its license suspended for “failure to comply with mandatory conditions, which must be completed within 30 to 60 days,” according to VARA in a statement. notice. The exchange that ensured funding of CoinDCX, said it was work with the regulator to fulfill the remaining conditions.
“BitOasis was a strategic investment approach by CoinDCX aimed at creating impact in international markets, perhaps not directly, but by partnering with the right companies that align with our mission and values.
It’s not just India
India, the world’s most populous country and the world’s sixth-largest economy by nominal gross domestic product, is not alone in tightening restrictions on crypto activities.
In Australia, progress on crypto regulation has been slow. The country is aiming to publish a bill in 2024 for licensing and custody of crypto asset providers and Australian crypto exchanges may not be licensed until 2025.
Australia’s major banks, including the Commonwealth Bank (CBA), have applied restrictions on crypto exchanges citing “scams” as the reason. Due to the removal of banks, Binance Australia had to halt deposits and withdrawals from its customers.
“We have always been an Australian-only exchange, but with the difficulties and challenges around licensing and the time it has taken for this to come to fruition, we are now actively looking to expand overseas,” Caroline said Bowler, CEO of BTC. Markets, an Australian crypto exchange.
“The advantage for Dubai is that they went for something very personalized, very specific. And I think they kind of have the way they’ve phrased it, it sounds like they’re looking to grow this industry for the long term.
Binance recently obtained an operational license in Dubai, opening the services of the world’s largest cryptocurrency exchange to customers in Dubai. Crypto exchanges Gemini and Bybit are also seeking licensing in the UAE.
Based in the United States Coinbase’s Brian Armstrong held talks with UAE regulators on plans to create a second headquarters in the country to access markets in the Middle East, Africa and Asia. Coinbase suspended operations in India three days after its April 2022 launch due to issues with the local digital payment service. Informal pressures from India’s central bank have been cited as a contributing factor. The exchange remains inactive in India, but its wallet services and technology center remain active.
Ripple’s XRP recently received approval from the Dubai Financial Services Authority (DFSA) for use within the Dubai International Financial Center (DIFC). DIFC licensed virtual asset companies can now offer XRP as part of their services.
Brad Garlinghouse, CEO of Ripple, said in a Press release: “Dubai continues to demonstrate global leadership in regulating virtual assets and supporting innovation… Ripple will continue to double its presence in Dubai and we look forward to continuing to work closely with regulators to achieve all the potential of cryptography.”
Around 20% of Ripple’s customers are based in the MENA region.
“The U.S. regulatory climate has been relatively hostile or unclear for digital asset businesses, which is why exchanges such as Coinbase and other major players have announced they are going to apply for licenses here,” Jimmy said NGuyen, CEO of New world victorya Web3 venture capital advisory firm.
“And the reason is that Dubai has moved forward in regulatory clarity with the launch of the Virtual Assets Regulatory Authority, issuing guidelines and policies regarding which licenses to obtain. So, all over the world, exchanges and other digital asset service providers are setting up second headquarters.
UK based crypto lender, Nexo is expanding its operations in the UAE, aiming for 30% of its global footprint. The move follows sanctions imposed by the Securities and Exchange Commission (SEC) on a crypto lending product in the United States, where Nexo paid $45 million to regulators in settlements.
The British government is preparing to rregulate the crypto industry by 2024 bringing it into compliance with the rules governing traditional banks and financial services.