UAE real estate companies too can take a proactive approach to bring in more crypto-backed transactions. Image Credit: Shutterstock

With Dubai real estate companies accepting crypto payments in lieu of fiat currency, it has opened avenues for early investors in cryptos to diversify their investment portfolio and to convert the notional gains into tangible assets.

Real estate experts estimate that crypto payments for property increased 300 per cent this year and that the trend will continue. Developers are partnering with regulated crypto exchanges to offer payment options to clients, enabling them to pay for an array of services. These companies have the option to hold these crypto currencies in their wallets or convert them into fiat currencies through the exchanges.

Why should companies accept crypto?

Circular No. 14/2022 concerning Real Estate Activities Report (REAR) requires cash payments for value Dh55,000 and above to submit through the goAML platform on reporting suspicious transactions. Crypto payments by investors would streamline these transactions as the trail cannot be mutated.

The Distributed Ledger Technology (DLT) on which the whole crypto ecosystem thrives allows digital information to be recorded, distributed and renders editing impossible, thus helping detect financial frauds early. Given UAE’s commitment to the OECD partnership to strengthen tax co-operation and its commitment to ensure compliance with international standards on anti-money laundering, adoption of crypto payments by investors would enable the commitment towards the cause.

Crypto currencies and Smart Contract – both based on blockchain technology – when implemented jointly would ensure a secure ecosystem in which transactions can be carried out seamlessly.

Another concern due to which several countries have restrictions on residents from investing in real estate overseas is because of loss of foreign exchange. Real estate companies accepting cryptos could resolve this by having working relationships with the crypto exchanges in various jurisdictions, where residents could buy crypto assets in their local currency and then use crypto to buy real estate overseas.

How will foreign investors be taxed?

Personal Income under UAE Corporate Tax (‘CT’) is not taxed. However, the Organization for Economic Co-operation and Development (OECD) recently published the ‘Crypto-Asset Reporting Framework’ (CARF). It is designed to help tax authorities administer rules when taxpayers invest in crypto or digital assets outside their country of tax residence. CARF requires exchanges and certain businesses transacting with crypto assets on behalf of customers to report information pertaining to their identity.

Currently, there is no exclusive legislation on the crypto taxation. Every jurisdiction has evolved mechanisms to fit digital assets into the existing framework of tax.

Businesses in the UAE must adopt internationally acceptable standards for accounting and filing of returns as required under UAE Corporate Tax. Whether crypto currencies would be treated as cash equivalents, capital or intangible asset - and what should be its value in the balance-sheet at the end of the year - are some of the technical challenges. If the assets are to be carried at fair value, taxation of notional gain or loss should be clarified.

The technological ecosystem of blockchain of which crypto is a part is still evolving and the UAE is likely to adopt the best practices. While there could be challenges in terms of taxation and accounting, the adoption of cryptocurrency and the allied ecosystem would augur well for the real estate sector.