Indian Crypto Community Faces Brain Drain, Blames Unclear Regulations

Key Insights:

• Several crypto and Web3 entrepreneurs in India are now migrating to “crypto-friendly” countries like Dubai.
• Uncertainty in India’s crypto market and the new taxation laws have prompted the brain drain.
• Several countries have a tax-less approach toward cryptos that lure businesses to migrate.

It has been a real “quit India movement” for several crypto exchanges and founders who have moved to friendlier locations over the past several years. This is due to the plenty of uncertainties in India’s cryptocurrency market.

For instance, WazirX, owned by the world’s biggest crypto exchange Binance (BNB), saw its co-founders, Nischal Shetty and Siddharth Menon, relocate to Dubai in April.

The company said that it is a “remote-first” organization, although the exchange’s operations continue from its Mumbai headquarters, . Sameer Mhatre, CTO and the company’s third co-founder, would reportedly lead the exchange from India.

In the wake of the Indian government imposing a 30% crypto tax and 1% TDS, among other tight clampdowns, WazirX moving its headquarters to Dubai would be a significant development. The imposition of tax has caused trading volume to drop across all crypto exchanges in India.

ZebPay exchange, operating almost half of all crypto transactions in the country in 2018, shuttered operations and moved to Singapore. Another crypto platform Vauld had a similar story of setting up its operations in Singapore to hedge against regulatory uncertainty.

New tax rules burden Indian exchanges

According to the Indian Express report, top management of crypto and Web3 companies in the country are fleeing to Dubai and Singapore in a bid to find a more crypto-friendly atmosphere.

A top official from India’s largest crypto trading platform noted that the bear market is the phase for crypto companies to build products and solutions. The official noted,

“We are in a bear market right now, and this is the time when products and solutions are built. Some of the biggest companies in the Web 2.0 space, like Google and Facebook, were also built during a slowdown phase. This is why many people who are building crypto and Web 3.0 products are moving to jurisdictions with more policy clarity.”

Per a recent Economic Times report, around 30 to 50 Indian crypto and blockchain entrepreneurs and founders run their businesses out of countries like Dubai and Singapore.

The return of the Reserve Bank of India’s (RBI) push for a crypto ban, similar to its de facto ban in 2018, has contributed to extending the brain drain, local industry stakeholders said.

Akshay Aggarwal, the co-founder of crypto community Blockchained India, told Forkast,

“The country is probably suffering more because of the uncertain stance than anything else. The builders are moving out to register headquarters and pay taxes in foreign jurisdictions.”

Siddharth Sogani, founder and CEO of Crebaco, which performs cryptocurrency and blockchain research, recently tweeted that India would see the largest brain drain in history in the next 8-12 months.

India will see the biggest brain drain in history in the next 8 to 12 months. Making #crypto difficult is not going to stop innovation. The smarties will move offshore!
And you know what, these smarties will make billion-dollar enterprises in the crypto space!#Bitcoin

— Sidharth Sogani (@sidharthsogani) March 22, 2022

Polygon co-founder Sandeep Nailwal is among the talent pool who moved out of India in 2020. He noted that the mass brain drain is “absolutely crazy.”

“It doesn’t make sense for us or any team to expose their protocols to local risks.”

Potential of operating from crypto-friendly countries

On the other hand, countries like Dubai, the British Virgin Islands, and Singapore top the wish list for relocation, given their taxless approach towards crypto and legalizing the asset class.

For instance, Dubai has set up the Virtual Assets Regulatory Authority (VARA), which attracts investments across the globe, providing a system to protect investors. Profits from selling crypto assets are tax-free, other than 5% VAT.

Similarly, Singapore is among those nations actively promoting the crypto ecosystem, offering incentives to attract talent pools and policy promises to investors.

However, offshore crypto exchanges may still be subject to certain taxes and levies in India. Indrajeet Sircar, legal and tax counseling worldwide at Nishith Desai Associates, told CNBC,

“These could include an equalization levy and obligations to withhold tax against payments made by Indian residents towards purchasing VDAs over such exchanges. There may also be implications under GST depending on how authorities view and classify the services of such exchanges.”