Shalini Nagarajan

Bessie Liu

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 <ul>
 <li>“A favorable tax regime, supportive legislation, access to capital and a wealth of talent makes Dubai the Web3 hotspot of the future,” a crypto exec told Blockworks</li>
 <li>“India has battled brain drain for decades,” CoinSwitch’s CEO said</li>
 </ul>
 
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India’s <a href="https://cms.blockworks.co/india-clarifies-crypto-taxes-as-trading-volumes-crater/" target="_blank" rel="noreferrer noopener">daunting cryptocurrency taxation</a> policies and seemingly complex treatment of digital assets are pushing local exchanges to Dubai and Singapore.



The nation recently announced a <a href="https://cms.blockworks.co/indias-crypto-tax-takes-effect-with-industry-fearing-it-will-stifle-growth/" target="_blank" rel="noreferrer noopener">1% tax deducted at source</a> (TDS) — meaning crypto users must pay 1% tax on any transaction — on top of a controversial <a href="https://cms.blockworks.co/indias-crypto-tax-takes-effect-with-industry-fearing-it-will-stifle-growth/" target="_blank" rel="noreferrer noopener">30% tax</a> on investment profits.



India’s 30% tax law, which came into effect on April 1, triggered trade volumes at four regional crypto exchanges — WazirX, ZebPay, CoinDCK and BitBns — to immediately <a href="https://www.coindesk.com/business/2022/04/11/crypto-trading-volumes-in-india-collapse-10-days-after-new-taxes-crebaco" target="_blank" rel="noreferrer noopener">crash</a> as much as 72%.



Moves like these have led to India’s central bank being labeled “hostile” to the cryptocurrency sector. Its governor Shaktikanta Das has <a href="https://www.moneycontrol.com/news/business/rbi-governor-interview-citing-crypto-crash-shaktikanta-das-says-rbi-has-been-rightly-cautioning-investors-8559491.html" target="_blank" rel="noreferrer noopener">cautioned against cryptocurrencies</a> and claimed they hold no underlying value.&nbsp;



Nischal Shetty and Siddharth Menon, co-founders of WazirX, have now reportedly shifted operations to Dubai, although they still plan on doing business out of Mumbai.&nbsp;



The Binance Labs-backed exchange told <a href="https://www.businesstoday.in/crypto/story/exclusive-wazirx-ceo-nischal-shetty-co-founder-siddharth-menon-shift-base-to-dubai-330395-2022-04-19" target="_blank" rel="noreferrer noopener">Business Today</a> it is a remote-first organization with employees in over 70 locations. Sameer Mhatre, the third co-founder, continues to head the exchange in India.



Coinbase Ventures-backed Vauld, which recently <a href="https://cms.blockworks.co/coinbase-backed-vauld-cuts-workforce-by-30-seeks-to-halve-exec-pay/" target="_blank" rel="noreferrer noopener">cut</a> its workforce by 30%, shifted its headquarters to Singapore in 2018 alongside ZebPay. CoinDCX is also registered there under the legal name Primestack Pte. Ltd.



“India has battled brain drain for decades. This is a generational opportunity to reset the odds in our favor,” said Ashish Singhal, co-founder and CEO of Bangalore-based CoinSwitch.



CoinSwitch itself isn’t being enticed to move operations away from the country. “We want to play an active role in shaping the Web3 ecosystem in India,” he said.



<blockquote class="wp-block-quote">“Examples from the US and other matured economies show institutional investors are ready to put capital in crypto markets if there is more regulatory clarity.”</blockquote>



While the new taxation in India appears restrictive and discouraging to investors, Dubai has a <a href="https://news.bitcoin.com/dubai-launching-crypto-valley-tax-free-zone/" target="_blank" rel="noreferrer noopener">full exemption</a> on cryptocurrency taxes — similar to its <a href="https://tradingeconomics.com/united-arab-emirates/personal-income-tax-rate#:~:text=The%20Personal%20Income%20Tax%20Rate,source%3A%20Ministry%20of%20Finance" target="_blank" rel="noreferrer noopener">treatment</a> of personal income.&nbsp;



The emirate’s crypto regulator, the Virtual Assets Regulatory Authority, began handing out crypto exchange licenses in March, and two months later Dubai announced its <a href="https://dlp.dubai.gov.ae/Legislation%20Reference/2022/Law%20No.%20(4)%20of%202022%20Regulating%20Virtual%20Assets.html" target="_blank" rel="noreferrer noopener">first law</a> regulating digital assets.



“There’s a unified regulator workflow, which synthesizes the regulations and creates a beacon for the UAE to become a leader in the digital asset space,” Pranav Sharma, founding partner of Woodstock Fund, told Blockworks. “Taxation rules are also on the individual side.”



<h3 class="wp-block-heading">Global companies look to Dubai and Singapore</h3>



It’s not just India’s crypto exchanges making the move. A raft of global companies are now preparing to launch in Dubai, including Binance, FTX Europe, Crypto.com and Bybit — even though Dubai-based crypto exchanges can only offer a limited number of products and services to pre-qualified investors and professional finance service providers throughout the first phase of its “test, adapt, and scale” framework.



“Dubai is set to become the largest blockchain hub globally,” Domenik Maier, CEO of Dubai-based crypto market maker iBLOXX, told Blockworks. “A favorable tax regime, supportive legislation, access to capital and a wealth of talent makes Dubai the Web3 hotspot of the future.”



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Today, we approved the virtual assets law and established the Dubai Virtual Assets Regulatory Authority. A step that establishes the UAE’s position in this sector. The Authority will cooperate with all related entities to ensure maximum transparency and security for investors. <a href="https://t.co/LuNtuIW8FM">pic.twitter.com/LuNtuIW8FM</a>&mdash; HH Sheikh Mohammed (@HHShkMohd) <a href="https://twitter.com/HHShkMohd/status/1501566703322513408?ref_src=twsrc%5Etfw">March 9, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
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Singapore’s laws, too, are permissive for cryptocurrencies, where the purchase of digital assets isn’t considered taxable, and so capital gains <a href="https://cointelegraph.com/news/why-singapore-is-one-of-the-most-crypto-friendly-countries" target="_blank" rel="noreferrer noopener">aren’t taxable.</a>



Eric Barbier, founder and CEO of TripleA a company that allows businesses to pay and get paid in crypto says Singapore is “an efficient place to run a global business from.”



“I have been building companies in Singapore since the early 2000s because of its strong [intellectual property] laws, pro-business environment and international connectivity,” Barbier told Blockworks.&nbsp;



TripleA recently became one of the first crypto companies to be licensed by Singapore’s Central Bank, a process that took 18 months. Barbier believes that his company was able to receive regulatory approval as it ran by a business-to-business model, which made it “easier to enforce stringent regulatory and compliance standards.”&nbsp;



“Conducting a comprehensive verification process on a business is much easier than on a consumer or on an individual,” Barbier said.



Despite being headquartered in Singapore, Barbier says he has not completely ruled out the possibility of moving to Dubai.



“We are definitely not closing the doors to this possibility. At the moment, though, we are running a global business from Singapore and Europe,” he said. “It is imperative to have in place proper regulatory frameworks and good systems, which will ensure that we are not used as a vehicle for money laundering or terrorism financing in any way.”



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India’s Tax Regime Prompts Crypto Companies To Leave

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India’s central tax authority has issued clarifications around its decision to execute a <a href="https://cms.blockworks.co/indias-crypto-tax-takes-effect-with-industry-fearing-it-will-stifle-growth/" target="_blank" rel="noreferrer noopener">1% tax deducted at source</a> (TDS), on top of a 30% tax on cryptocurrency profits. 



With around <a href="https://www.cnbctv18.com/cryptocurrency/around-15-20-mln-people-in-india-hold-crypto-assets-worth-4-5-billion-wazirx-11579692.htm" target="_blank" rel="noreferrer noopener">20 million</a> people owning cryptocurrency in the country, there has been immense uncertainty around how virtual assets will be treated under taxation rules. The Central Board of Direct Taxes is now attempting to clear away this confusion.



According to a <a href="https://incometaxindia.gov.in/communications/circular/circular-no-13-2022.pdf" target="_blank" rel="noreferrer noopener">notice</a> issued Wednesday, new rules state that exchanges will have to deduct taxes from cryptocurrency buyers during each transaction above certain thresholds. This tax will have to be paid to the central government within 30 days from when the deduction was made. The 1% TDS comes into effect on July 1, 2022.



When the decision to impose a 1% TDS on cryptocurrencies was first announced, the crypto industry pushed for a <a href="https://www.livemint.com/market/cryptocurrency/crypto-industry-wants-govt-to-lower-tds-on-transactions-11652188608890.html" target="_blank" rel="noreferrer noopener">reduction</a> in the range of 0.01% to 0.05% on fear of the impact on retail traders.



According to CoinSwitch CEO Ashish Singhal, cryptocurrencies should be taxed at par with equity markets. He believes prohibitive taxes are likely to unsettle investors and expose them to possible losses.



“TDS is to provide a tax trail. A lower TDS can do so without driving users out of KYC-compliant platforms,” Singhal told Blockworks.



“The crypto market is driven by high-frequency traders, like intraday traders in equity markets. These traders operate on extremely thin margins, and locking up their capital with high TDS will restrict their ability to operate,” Singhal added.



Nicola Massella, head of Legal at STORM Partners, agreed that the 1% TDS may be a competitive disadvantage for local actors.&nbsp;



<blockquote class="wp-block-quote">“The crypto space, by its nature, is transnational and borderless; this tax could push Indian users away from the exchanges of services providers in their home country, damaging the Indian economy,” she told Blockworks.</blockquote>



In the case of direct transactions between a buyer and seller, the person paying the consideration (or the buyer) will be required to deduct taxes. TDS must also be paid for transactions done in kind.



Further, if transactions involve an exchange of one virtual currency for another, then both parties will be considered buyers and will each have to pay taxes. They will need to show evidence of tax payment before the virtual asset exchange can take place.



The TDS liability applies only when the aggregate value of the consideration exceeds 50,000 INR ($638) in the case of a specialized individual and 10,000 INR ($127) in other cases.



“Since the threshold of fifty thousand rupees (or ten thousand rupees) is with respect to the financial year, calculation of consideration for transfer of VDA triggering deduction under section 194S of the Act shall be counted from 1st April, 2022,” the tax authority said.



India’s latest tax rules come as both equities and cryptocurrencies remain on shaky ground after weeks of weakness. Bellwether asset bitcoin is up 3% in the last week, but is down 55% so far this year, according to data from <a href="https://www.blockworksresearch.com/assets/btc/" target="_blank" rel="noreferrer noopener">Blockworks Research</a>. It last traded around $21,200.



India’s controversial 30% tax on cryptocurrency profits came into effect in April. The initial announcement of this tax on capital gains <a href="https://economictimes.indiatimes.com/tech/technology/volumes-on-crypto-trading-platforms-decline-as-new-tax-norms-come-into-effect/articleshow/90643153.cms" target="_blank" rel="noreferrer noopener">hurt</a> trading volumes on platforms in the country by as much as 70%.



It isn’t clear whether the provisions laid out by the authority apply to foreign crypto exchanges. The CBDT is expected to issue a separate set of Frequently Asked Questions to clear up any other confusion related to the tax regime.



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India Clarifies Crypto Taxes, as Trading Volumes Crater

<div id="highlights-block_6299e4fe84c1f" class="highlights">
 <ul>
 <li>The CRE8 index measures the performance of the Indian crypto market in rupees, rather than US dollars</li>
 <li>Dollar-denominated crypto indexes aren’t accurate representations for Indian investors, CoinSwitch’s CEO said</li>
 </ul>
 
</div>



Indian cryptocurrency exchange CoinSwitch on Thursday launched the country’s maiden benchmark altcoin index to track the performance of the rupee-based crypto market.



Based on real-time transactions on the CoinSwitch app, CRE8 — the <a href="https://coinswitch.co/blog/coinswitch-cre8/" target="_blank" rel="noreferrer noopener">Crypto Rupee Index</a> — tracks eight of the most highly-traded cryptocurrencies in the Indian market: bitcoin, ether, BNB, XRP, cardano, solana, polkadot and dogecoin.&nbsp;



“The index addresses a gap in the market. Until now, Indian users had to rely on international [indexes] denominated mostly in US dollars to assess the market,” Ashish Singhal, co-founder and CEO of CoinSwitch, told Blockworks.



<blockquote class="wp-block-quote">“These [dollar indexes], however, do not provide a true picture of the Indian market as they do not take into account the demand and supply specific to the Indian rupee-based market, nor the INR exchange rate.”</blockquote>



The index represents the total market value of all cryptoassets traded in the Indian market relative to a base date of October 1, 2020, and a base value of 1,000 Indian rupees ($12.90), rather than in US dollars. Data will be refreshed 1,400 times a day to ensure the latest updates for observers and will be amended to include new constituents each quarter.&nbsp;



The CRE8 index was last up 0.88% at press time, but is down 44% in the past 12 months.



In the US, investors can track various similar benchmarks, such as the <a href="https://www.spglobal.com/spdji/en/index-family/digital-assets/cryptocurrency/#indices" target="_blank" rel="noreferrer noopener">S&amp;P Cryptocurrency Index</a> and the <a href="https://www.nasdaq.com/crypto-index" target="_blank" rel="noreferrer noopener">Nasdaq Crypto Index</a>. Digital-asset investing firm CoinShares also maintains several <a href="https://coinshares.com/products-services/index-strategies" target="_blank" rel="noreferrer noopener">indexes</a> that track cryptoassets, designed to suit investors with distinct exposures.



Valued at nearly $2 billion, CoinSwitch is a prominent crypto exchange in India that is backed by investors including Andreessen Horowitz (a16z), Coinbase Ventures, Tiger Global and Sequoia Capital. It has 18 million registered users, according to company-provided figures.



Trading volumes in India plummeted <a href="https://www.coindesk.com/markets/2022/04/27/first-mover-asia-trading-on-indian-crypto-exchange-continues-to-slump-following-new-tax-laws-cryptos-higher/" target="_blank" rel="noreferrer noopener">as much as 60%</a> in April after the government <a href="https://cms.blockworks.co/indias-crypto-tax-takes-effect-with-industry-fearing-it-will-stifle-growth/" target="_blank" rel="noreferrer noopener">imposed a 30% tax</a> on crypto earnings, which some criticized as a drastic move that crushes the digital asset economy of the country.



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