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Why should companies accept cryptocurrencies?
Circular 14/2022 on Real Estate Activity Reporting (REAR) requires the submission of cash payments of AED 55,000 and above through the goAML platform to report suspicious transactions. Crypto payments for investors will simplify these transactions because the trajectory cannot be changed.
Distributed ledger technology (DLT), thriving across the crypto ecosystem, allows for the recording, distribution and rendering of digital information impossible, helping to detect financial fraud early. Given the UAE’s commitment to the OECD partnership to strengthen tax cooperation and to ensure compliance with international anti-money laundering standards, the adoption of crypto payments by investors will contribute to this cause.
Cryptocurrencies and smart contracts — both based on blockchain technology — when implemented jointly, will ensure a secure ecosystem in which transactions can take place seamlessly.
Another problem with some countries restricting residents from investing in real estate overseas is foreign exchange losses. Real estate companies that accept cryptocurrencies can solve this problem by forming partnerships with cryptocurrency exchanges in various jurisdictions, where residents can buy crypto assets with their local currency and then use cryptocurrencies 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 released the “Crypto Assets Reporting Framework” (CARF). It is designed to help tax authorities manage the rules when taxpayers invest in crypto or digital assets outside their tax residency country. CARF requires exchanges and certain businesses that trade crypto assets on behalf of clients to report information related to their identity.
Currently, there is no exclusive legislation on crypto taxation. Each jurisdiction has developed mechanisms to incorporate digital assets into existing tax frameworks.
Businesses in the UAE must apply internationally recognised accounting and reporting standards as required by UAE corporate tax. Whether a cryptocurrency will be considered a cash equivalent, capital or intangible asset — and what it will be worth on a year-end balance sheet — are some technical challenges. If the asset is measured at fair value, the taxation of notional gain or loss should be made explicit.
The blockchain technology ecosystem, of which cryptocurrencies are a part, is still evolving and best practices may be adopted by the UAE. While there may be challenges in taxation and accounting, the adoption of cryptocurrencies and related ecosystems bodes well for the real estate industry.
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