Taxman stalks UAE property investors from India, Pakistan
AUTHORITIES TAKE A CLOSER LOOK AT REALTY ASSETS HELD ABROAD BY RESIDENTS FROM THESE TWO COUNTRIES
Investment from India and Pakistan into UAE’s property market could feel the pinch as tax authorities there investigate foreign purchases by their citizens.
News reports from India say that hundreds of resident Indians in Mumbai and Kerala have come under the tax scanner after they could not reveal how they got the funds to buy property in Dubai.
In the first 11 months of 2018, Indians pumped in Dh10 billion into UAE property while Pakistani investors put up nearly Dh3 billion.
In Pakistan, a 2019 Amnesty scheme allows resident Pakistanis to disclose all undeclared assets by paying a flat 4 per cent tax, but an investment consultant said there are tax implications depending on asset class.
Investment flows into the UAE property market from India and Pakistan could come under severe pressure as tax authorities there take a closer look at overseas purchases made by their citizens. Particularly, the source of income for such purchases and whether it was declared.
News reports emerged from India on Wednesday saying that hundreds of resident Indians in Mumbai and Kerala have come under the scanner of the tax authority, after they could not properly reveal how they came the funds to buy property in UAE. Real estate sources say the scope of the investigations on overseas asset purchases made by resident Indians could expand.
Indian investors continue to be heavy hitters in UAE real estate; in the first 11 months of 2018, they pumped in Dh10 billion worth of funds. It is not known what’s the split between resident and non-resident Indian (NRI) purchases.
However, sources say that a significant portion could have been from resident Indians, especially as the Indian realty market itself was going through a tough phase following the 2016 “demonetisation” move. (In November 2016, India declared that it would be withdrawing older currency notes, which immediately slowed down the working of the economy. Its effect is still being felt.)
Azaz Motiwala of Ikon Consultants feels there are other factors that will determine whether Indian investments go through a bit of a dip. “Indians have contributed almost 25 per cent in foreign real estate investment in Dubai,” he said. “But these days, Indians are seeing more returns in Indian property than in Dubai,” he said.
India in recent months has been trying to get its tax receipts up, part of a series of moves to get the economy back on track. The latest budget, announced on February 1, made it tough on those Indians — carrying non-resident status —generating a significant portion of their wealth from within India to get away without paying taxes.
The current move on people owning real estate abroad is part of that gameplan. The rationale — you just cannot escape paying taxes. “London, Dubai, Singapore and Australia have been more or less perennial favourites for Indians interested in buying real estate in foreign countries,” said Shahjai Jacob, CEO — Gulf Cooperation Council at Anarock Property Consultants. “If it is true as per reports that the tax authorities in India will closely watch the income-source of
Indians have contributed almost 25 per cent in foreign real estate investment in Dubai.”
Azaz Motiwala | Ikon Consultants
Streamlining the tax system through an amnesty will support all stakeholders and create transparency.”
Imran Farooq | CEO, Samana Group
London, Dubai, Singapore and Australia have been perennial favourites for Indians.”
Shahjai Jacob | CEO — GCC at Anarock Property Consultants
such transactions, it could have some impact on outward flow of investments. While genuine transactions via ‘white money’ may see little impact, there are several instances where large amounts of ‘black money’ is parked outside into the real estate of other countries. Such people may defer these transactions from now,” he added.
Undeclared assets
In Pakistan, the 2019 Amnesty scheme has worked well — the number of resident Pakistanis who had declared their assets topped 76,000 plus. The scheme offered by the Imran Khan government allowed resident Pakistanis to disclose all undeclared assets by paying a flat 4 per cent.
This applies to assets held by them within Pakistan and abroad. In the first 11 months of 2018, Pakistani investors put up nearly Dh3 billion to acquire properties in UAE.
“While the 4 per cent rate is relatively low, there are subsequent tax implications for the asset being declared,” said an investment consultant specialising on Pakistani tax laws. “Fixed income (such as bank deposits) and cash assets are taxed considerably lower than equity or real estate assets.”
According to the current tax slabs, the tax on “equity investments” are at 35 per cent for capital gains and 30 per cent on rental income. But the tax rates on fixed-income assets are only 5-10 per cent. “This has resulted in an incentive for individuals to reclassify assets from equity to debt,” the consultant commented.