Many unicorn founders based in India have applied for a golden visa. Reportedly, tax advisory firms in India are asking founders to move to Dubai, particularly when they are close to liquidity and exist.
At least a dozen prominent Indian startup founders and investors have relocated to Dubai. And it is quickly turning into India’s proxy tech capital.
Most of these individuals have emigrated under the golden visa program, which provides five- and 10-year residency to investors, entrepreneurs, researchers, medical experts, and excellent students, enticed by tax breaks and a welcoming governmental environment.
According to government data, at least 44,000 people have moved to Dubai on a golden visa since it was introduced in 2019.
“We’re going back to the internet-boom era when most of the tech founders or anyone who thought they could build a great product moved out of India. They thought a different country would be more suitable for creating a good startup, getting funding, and having an overall friendly ecosystem,” said Anoush Bhasin, an independent startup and tax consultant.
“India is once again being viewed as a potential source of talent. This time, it shouldn’t have been the case, but because the government hasn’t been cooperative, India is being viewed as an outsourcing hotspot.”
At least 50 bitcoin and Web3 founders have relocated to Dubai, said Bhasin.
The Impact of This Trend in India
If this trend continues, it might have a long-term influence on India, particularly its startup ecosystem, which has steadily grown over the previous decade to become one of the world’s top 20 startup hubs.
We will see continued wealth creation by Indians outside of India; the people and places of residence will not be in India, so there may be a reduction in tax collections on income and listings,” said Pranav Pai, founding partner and CIO of early-stage venture capital firm 3one4 Capital, which has recently seen some of its portfolio founders move out.
“Over the last five years, India has seen a lot of VC and PE money pour in, but that money has stopped coming in because the companies are outside. Then, from a forex standpoint, we’re losing billions of dollars in inflow.”
Why the Shift?
The total exemption from personal income tax and negligible capital gains tax is the key cause of wealthy technologists’ flight. On income over 15,00,000 INR ($19,300), India imposes a 30 percent personal income tax, which can rise to 42 percent with a surcharge and a 10 percent–20 percent long-term capital gains tax.
“In enterprise tech, founders can have a firm outside India and book earnings into that entity without touching Indian borders, whereas the service they provide can be remote, as it does not affect quality. Also, this makes it easier to onboard clients and manage currency volatility,” said Punit Shah, managing partner at venture debt firm Alteria Capital.
“Middle Eastern funds have shown a great interest in investing in companies and establishing a location near them, as it helps build relatability over time.”
Another factor driving this tendency is India’s anti-cryptocurrency and anti-Web3 policies. India now levies a 30% tax on any cryptocurrency revenue, and beginning in July, it will slap a 1% charge on digital asset transfers, making it the first country in the world to do so. Read More
Double taxation on employee stock ownership plans (ESOPs) — both at the time of exercise and liquidation — has also been a problem for Indian enterprises, making it difficult to attract and retain talent.
Individuals in the UAE, on the other hand, do not pay any income tax. In March, the government enacted a law for digital assets and established the Dubai Virtual Assets Regulatory Authority, making Dubai a more welcoming environment for crypto startups.
In the last two years, sources estimate that 8,000 to 10,000 people from the Indian startup ecosystem, which includes employees, founders, and investors, have relocated to Dubai.