At least a dozen high-profile Indian startup founders and investors have shifted base to Dubai. Kunal Shah of Cred, Paytm founder Vijay Shekhar Sharma, OYO Hotels and Homes founder and CEO Ritesh Agarwal, and ed-tech unicorn Byju's founder and CEO Byju Raveendran are said to have golden visas, although this cannot be verified on record. Last month, Indian cryptocurrency exchange WazirX founders Nischal Shetty and Siddharth Menon also moved their base to Dubai.
The UAE is set to draw the most millionaires in the world this year, beating major nations such as Australia, Singapore, Israel, Switzerland, the USA, Canada, New Zealand, the UK, and more. The most recent Henley Global Citizens Report estimated that 4,000 millionaires will move to the UAE in 2022. Among the 10 nations where the greatest net outflows of HNWIs are forecast are Russia, China, India, Hong Kong, Ukraine, Brazil, the UK, Mexico, Saudi Arabia, and Indonesia.
The report forecasts that a minimum of 8,000 super wealthy Indians are emigrating out of India this year, and their number one and two destination choices are Dubai and Singapore. India does not permit a dual passport system, and the majority of HNWIs are in search of residency visas or multiple-entry and extended-stay visas, not outright citizenship.
Tempted by the convenience of establishing business, total exemption on personal income tax, and a more welcoming policy framework, some of India's technology entrepreneurs have been migrating to the UAE under the nation's golden visa scheme, while India has become the world's third-largest startup ecosystem after the US and China.
Indians form over 30 percent of the startup community in Dubai, and the city wants to attract a lot more tech talent from India. It is offering 100,000 “golden visas" that allow entrepreneurs and technology investors to live in the country for up to 10 years, longer than regular visas, and has even set up a national small-business program to help startups find funding, partner with established companies, and market their products overseas.
What is this golden visa?
The golden visa, valid for five or 10 years, is a long-stay residence visa for the UAE. It is granted to investors, entrepreneurs, individuals with specialized skills and researchers in scientific, cultural, and artistic fields, and students with good scientific potential. The visa enables foreigners to reside, work, and study in the UAE without a local sponsor and with 100% ownership of a business in the UAE.
According to the new regulations, entrepreneurs/investors are eligible to obtain a 10-year residence visa by investing in a start-up in the UAE. The start-up, however, must be registered in the UAE in the SME category and have a revenue of at least AED 1 million (around Rs 2.1 crore) annually. Secondly, the start-up idea should be sanctioned by an official business incubator, the Ministry of Economy, or the competent local authorities.
Not Dubai alone; Abu Dhabi too
Besides Dubai, the Abu Dhabi Emirate is also interested in hosting more Indian start-ups in its 'Hub71' ecosystem. Hub71 has been created as an ecosystem to support start-ups across industries in all aspects, ranging from providing them with access to venture funding to the right talent. Over the past year, the platform has welcomed and nurtured startups at various stages of development from industries like fintech, artificial intelligence, software development, and health tech from various countries, including India. Used car marketplace Cars24 was the first Indian firm to make the transition. The other three startups with Indian founders are Arcab, Hafla, and Funder AI.
But what is the greatest benefit of shifting base to Dubai?
1. Startups cost
One of the primary reasons why Indian startup founders are flocking their way to Dubai is that the taxes that a startup incurs while establishing a business are much lower compared to India, particularly in Dubai.
2. Residential/commercial property tax
Another reason Indians are migrating to Dubai is that leases for residential/commercial properties are taxed at a flat rate of 5-10%.
3. Zero personal tax
In Dubai, people are not taxed on their earnings from employment, property, equity investments, or other personal income not related to a UAE trade or business. Companies are also exempted from paying taxes on capital gains and dividends received on shareholdings.
4. No limit on foreign ownership
No limit is imposed on foreign ownership, no limitation is placed on the repatriation of capital and profits, and there is no exemption from import duty for goods imported into the zone. Two free economic zones, namely the Abu Dhabi Global Market and the Dubai International Financial Centre, are some of the popular ones among international start-ups to locate their holding companies.
5. Better opportunities for technologists
The UAE has an almost benevolent tax structure, which provides for a complete waiver of personal income tax and minimum capital gains tax, in stark contrast with India’s onerous direct (and indirect) tax regime.
In short, if one earns in India, he will have to pay 35% tax, but in Dubai, the personal income tax is zero. From a corporate level too,
On income exceeding Rs 1,500,000, India levies a 30 percent personal income tax, which increases to 40 percent with a surcharge and long-term capital gains tax.
6. Improved access to foreign investors for raising money
Since the enforcement process is so time-consuming, foreign investors are not very willing to invest in companies in India. Individuals would rather invest in jurisdiction-based companies, where the enforcement process takes much less time, even if the same might be a wee bit costly.
7. Friendly IP protection laws.
Dubai also provides flexibility/clarity in regulations for some of the new-age businesses/activities, such as crypto and NFTs. For instance, ADGM, the Abu Dhabi free zone, has already come out with detailed guidance and rules for cryptocurrency operations. In India, however, there is no clarity on crypto rules, whereas there is a 30 percent tax on virtual digital assets and a 1 percent TDS per transaction (effective from July 1).
Ever since November 2021, some Web3 founders have shifted operations to Dubai in anticipation of constant harassment by tax authorities, red tape, and epidemics such as frozen bank accounts or blocking UPI payments for crypto exchanges.
8. Ease of doing business
Dubai boasts a business-friendly startup environment with numerous advantages, ranging from establishing 100% foreign ownership and ease of business to great infrastructure to low tax rates. There are some profitable incentives as well to lure foreign startups. For instance, subsidized labor costs.
9. Improved lifestyle and security
There are various reasons why rich people immigrate to the UAE, a global business center with a high-income economy and the image of being the haven in the Middle East and Africa region.
Also, Dubai has wonderful international schools and numerous beaches with yachting, water sports, and other relaxation activities, particularly for the Indian families with kids.
Altogether, the combined effect of a multitude of factors back home is responsible for driving Indian entrepreneurs away. An onerous taxation regime is a key push factor; add to that the fact that any income generated from cryptocurrencies is charged a whopping 30% tax. Starting in July, an additional 1% charge will also be levied on the transfer of digital assets.