According to the RBI Remittance Survey 2021, the United Arab Emirates (UAE) accounts for 30% of India’s expatriate population and India accounts for 18% of global remittance flows of US$110 billion. Financial ties between the two countries go beyond remittances, now encompassing the realm of Web3, an evolving iteration of the Internet based on blockchain technology.
Bilateral trade between India and the United Arab Emirates grew to US$85 billion last year, and both countries are exploring interoperability between their central bank digital currency (CBDC) projects.
Over 90,000 Indian companies registered with Dubai Chambers in Dubai, the UAE’s most populous city, while the city’s biggest tech event, GITEX, welcomed over 300 Indian startups, triple the number from last year. Was.
India topped the Chainalysis Global Crypto Adoption Index in 2023, and is now the world’s second-largest crypto market by raw transaction volume. But the local industry, which is drying up due to the government’s strict tax regulations, is prompting local players to seek out Dubai’s growing crypto ecosystem.
“Many Web3 founders prefer Dubai or Singapore as their hub, as they have clarity and certainty around regulations and more community support. When you’re setting up a business, investors are more comfortable investing in a jurisdiction where there are no last-minute surprises. I am starting to see this trend breaking ground and should reverse,” said Sumit Gupta, chief executive of Indian crypto exchange CoinDCX. Forecast.
“We have seen a decline of more than 90% in volumes. That’s a huge, steep decline. And you have seen that India remains number one when it comes to grassroots crypto adoption, but because of high tax rates a lot of activity is happening on alternative channels,” Gupta said.
Finance Minister Nirmala Sitharaman had imposed a 30% tax plus applicable surcharge and 4% cess on profits from crypto trading during last year’s budget announcement.
This year brought even more bad news for Indian crypto traders with the introduction of 1% tax deducted at source or TDS on crypto transactions above Rs 10,000. As per the amendment in the Income Tax Act, failure to pay TDS can result in a penalty equal to the unpaid amount, 15% interest on late payment and even jail sentence in some cases.
According to Gupta, “regulatory arbitrage” may not last much longer. The Indian Finance Ministry did not respond to requests for an interview or provide comment for this article.
“There is a regulatory arbitrage that will not persist for long, and it has to go away. The government is aware of this. It’s about time they decide to remove that arbitration. “Serving Indian customers from abroad is not scalable, reliable and compliant,” Gupta said.
But low taxes, ease of setting up business, a dedicated regulator and access to international markets like Asia and Europe are driving the wave of Indian crypto firms heading to Dubai.
Crypto projects can connect with the rest of the world through Dubai. If I look at new businesses coming in, mainly UK, India, China, US, Russia come in the top 5%. Dubai is fundamentally a hub,” said Belal Jassoma, head of business development at Dubai Multi Commodities Center (DMCC), at the Future Blockchain Summit.
DMCC has more than 23,000 companies, of which 3,700 are from India. Last year it opened a representative office in Mumbai to further its members and provide customized licenses to Indian businesses.
Its dedicated crypto center houses 550 Web3 companies, of which 50 are Indian. The DMCC Crypto Center welcomed Solana Foundation as its ecosystem partner at the Future Blockchain Summit and features a long list of Web3 companies, including crypto exchange Bybit, digital asset market maker DWF Labs, Web3 incubator TDFI, and venture capital fund Brink.
The city’s dedicated regulator for digital assets, 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 Abu Dhabi Global Market (ADGM).
Sunita Khatri, Commercial Director, Dubai World Trade Center (DWTC), said, “VARA has designed its rules to adapt to market demands and be agile in addressing global market risks, with the aim of providing a central platform for Web 3. “The aim is to attract entrepreneurs to strengthen Dubai’s position as a hub.” ,
unicorn Indian exchange explores MENA expansion
The United Arab Emirates is one of the countries that make up the Middle East and North Africa (MENA) region. The region had the sixth-largest crypto economy, with an estimated US$400 billion between July 2022 and June 2023, or 7.2% of global transaction volume, according to Chainalysis.
“MENA as a region is quite an interesting opportunity for CoinDCX, as it is a fast-growing market, the adoption numbers there are quite impressive and Web3 can unlock many opportunities in the India-UAE corridor. New use cases for remittances and payments are emerging from that area,” Gupta said.
According to VARA in a notice, the license of BitOasis, a crypto trading platform based in the UAE, was suspended due to “not meeting the mandatory conditions required to be satisfied within the 30-60 day time frame.” The exchange, which received funding from CoinDCX, said it is working with the regulator to satisfy the remaining conditions.
“BitOasis was a strategic investment approach by CoinDCX to create impact in international markets, perhaps not directly, but by partnering with the right companies that are aligned 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 GDP, is not alone in tightening restrictions on crypto businesses.
In Australia, progress on crypto regulations has been slow. The country aims to release a draft law in 2024 for the licensing and custody of crypto asset providers and Australian crypto exchanges may not get licenses until 2025.
Australia’s top banks, including Commonwealth Bank (CBA), implemented a ban on crypto exchanges citing “scams” as the reason. As a result of the debanking, Binance Australia had to halt customer deposits and withdrawals.
“We have always been an Australian-only exchange, but due to the difficulties and challenges associated with licensing and the time it takes to complete, we are now actively looking to expand overseas,” said Caroline Bowler, CEO of BTC. Markets, an Australian crypto exchange.
“The advantage for Dubai is that they have gone for something very tailored, very specific. And I think the way they’ve structured it makes it seem like they’re looking to build this area for the long term.”
Binance recently received an operating 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 licenses in the UAE.
Brian Armstrong of US-based Coinbase has discussed with UAE regulators plans to establish a second headquarters in the country to access markets in the Middle East, Africa and Asia. Coinbase suspended its operations in India three days after its launch in April 2022 due to issues with the local digital payments service. Informal pressure from India’s central bank was cited as a contributing factor. The exchange is inactive in India, but its wallet services and tech hub are active.
Ripple’s XRP recently received approval from the Dubai Financial Services Authority (DFSA) for use within the Dubai International Financial Center (DIFC). Virtual asset companies licensed in the DIFC can now offer XRP as part of their services.
Ripple CEO Brad Garlinghouse said in a press release: “Dubai continues to demonstrate global leadership when it comes to regulation of virtual assets and fostering innovation… Ripple will continue to double its presence in Dubai and We look forward to continuing this.” “Working closely with regulators to realize the full potential of crypto.”
About 20% of Ripple’s customers are located in MENA.
Jimmy Nguyen, CEO of New Win Global, said, “The US regulatory environment for digital asset businesses has been relatively hostile or unclear, so exchanges like Coinbase and other major players have announced that they are going to apply for licenses here. ” A Web3 enterprise consulting firm.
“And this is because Dubai has been progressive in creating regulatory clarity, creating guidelines and policies around obtaining licenses with the launch of the Virtual Assets Regulatory Authority. So around the world, exchanges and other digital asset service providers are setting up second headquarters.”
UK-based crypto lender Nexo is expanding its UAE operations, aiming for 30% of its global footprint. The move follows sanctions imposed by the Securities and Exchange Commission (SEC) on a crypto loan product in the US, where Nexo paid regulators US$45 million in settlements.
The UK government is gearing up to regulate the crypto industry by 2024, bringing it in line with the rules governing traditional banks and financial services.