Crypto Regulations in the United Arab Emirates
The UAE has taken steps to recognize the use of blockchain technology which is increasingly pervasive in global trade and commerce.
As a market participant and professional services provider, we welcome the development of a functioning framework for regulation and promotion of crypto assets business and related activities as we firmly believe the need to decentralize financial services must be balanced with the imperative need to protect the public’s confidence in Crypto Assets and the underlying technology. Over the past year, we have successfully assisted several clients as facilitating licensing of various activities in the “Virtual Economy” including Distributed Ledger Technology Providers, MetaVerse Service Providers, and Crypto Assets Service Providers. We are pleased to see an increasing level of activity in this sector and large-scale recognition of UAE as a global hub for operating a Crypto Assets business.
Source: Mondaq
The Central Bank of UAE has not licensed cryptocurrencies or recognized them as legal tenders. However, there are no prohibitions against crypto assets and they can be traded on crypto exchange platforms. UAE citizens can own cryptocurrencies, and deposit and trade them.
The government has permitted some cryptocurrency exchanges to operate within the financial-free zone. In May 2021, the DMCC Crypto Centre was launched to promote cryptographic and blockchain technology in Dubai. Over 100 organizations in the crypto field are part of DMCC. According to the executive chairman and chief of DMCC, UAE will be home to more than 1000 crypto businesses by the end of 2022.
Crypto trading in the UAE is not possible without a license. If you’re interested in doing crypto trading in Dubai or in any other emirate, you must first get a license to make your business legal. There are many free zones now offering crypto licenses in the UAE including Dubai Multi-Commodities Center, Dubai Airport Free Zone, Sharjah Research Technology Innovation Park, and Abu Dhabi Global Market.
Source: Global Media Insight
VARA, based out of the Dubai World Trade Centre (DWTC) Free Zone, has already been established as the competent authority in the emirate of Dubai for all activities related to Crypto Assets for onshore Dubai. We expect executive regulations to be issued in the coming weeks which will further clarify the licensing regime in the DWTCA with VARA as the competent regulator, resulting in further updates from our team.
The VARA shall apply to virtual asset services provided throughout the Emirate of Dubai, including special development zones and free zones, with the exception of the DIFC financial free zone. This means that VARA will supplement and amend existing legislation applicable in Dubai issued by onshore UAE financial regulators, the UAE Central Bank, and Securities and Commodities Authority, in relation to crypto assets and stored value facilities. These regulators have issued to date:
- SCA Decision No. 23 of 2020 concerning Crypto Assets Activities Regulation (CAAR): CAAR regulates the offering, issuing, listing and trading of “Crypto Assets” and related financial activities. CAAR defines a crypto asset as “a record within an electronic network or distribution database functioning as a medium for exchange, storage of value, unit of account, representation of ownership, economic rights, or right of access or utility of any kind, when capable of being transferred electronically from one holder to another through the operation of computer software or an algorithm governing its use”.
- Central Bank Circular No. 6/2020 – Stored Value Facilities Regulation (SVF Regulation): The SVF Regulation regulates stored value facilities (SVFs) in onshore UAE. SVFs are defined by the Central Bank as non-cash facilities into which users pre-pay money (which includes values, reward points, crypto-assets, or virtual assets) so that users can use that method to pay for goods and services.
Source: Mondaq
Virtual assets activities are regulated in the Abu Dhabi Global Market (ADGM) where a comprehensive virtual assets regulatory framework is in place. ADGM’s virtual asset policy regulates virtual asset intermediaries, including custodians, broker-dealers, asset managers, and advisors, focusing on consumer protection, prevention of financial crime, and governance.
Under the ADGM’s virtual asset policy, virtual assets are treated as commodities. Market intermediaries such as broker-dealers, custodians, who deal and manage virtual assets, and multilateral trading facilities need to be licensed by the ADGM’s Financial Services Regulatory Authority.
Source: JD Supra
Currently, the UAE has no income tax. A tax resident of the UAE, whether actively trading or holding, pays no taxes on the capital gain. As such, virtual assets such as cryptocurrencies are not recognized as currency by the UAE Central bank, but rather as an investment assets.
- On 31 January 2022, the UAE MoF announced that Corporate Income Tax will be introduced starting 1 June 2023. As such, it could be envisaged that business income generated by UAE businesses from crypto activities may become taxable.
- From the income tax perspective, the UAE will likely treat virtual currencies as a form of intangible asset and income tax will likely be levied in the form of capital gains. From the VAT perspective, the trading and handling of virtual currencies, including the process of “mining”, may all have VAT consequences. Further, the exchange of fiat currency for virtual currencies and vice versa will be exempt from VAT. However, on the opposite side of the same transactions, the supply of taxable goods and services that are paid for with virtual currencies is considered subject to VAT.
Source: Crowe
As we’ve mentioned, in Dubai there’s no Personal Income Tax or law regulating it, and cryptocurrencies are exempt from taxation in its free zones since September 2021.
And this exemption covers any cryptocurrency operations: sale, staking, high-frequency or algorithmic trading, Defi or farming, mining or sale of NFTs…
However, it should be noted that the cost of living in Dubai is considerable, so depending on the size of your assets, you may not want to relocate.
Generally, users who want to relocate their residence to Dubai are:
- Crypto traders with earnings in excess of €300,000 per year.
- Large holders who want to make cash out of cryptocurrencies above €500,000.
- Large holders who want to avoid tedious accounting.
- Large-scale farming and staking professionals.
- Top-level NFT artists.
Source: Relocate and Save
Despite having limited regulations, entities in the UAE have incorporated the use of blockchain technology in their operations. UAE Exchange, a leading UAE exchange house, recently partnered with San Francisco-based Ripple to enable real-time, cross-border payments using Ripple’s blockchain technology. By reducing the requirement to have third-party foreign exchange handlers, UAE Exchange has managed to cut its administrative costs.
The authors have also observed a rise in cryptocurrency exchange houses such as BitOasis, which offer services to the UAE public. The authors understand that BitOasis currently operates as an entity established in the British Virgin Islands. With the introduction of the ADGM regulations, it is anticipated that there will be a rise in licensed cryptocurrency exchange houses operating from the UAE.
Source: Law Asia
Under the UAE crypto regulations, a crypto asset exchange targeting retail customers gets permission to trade only for two types of users;
Ones who can ably demonstrate experience and the required know-how of how to trade cryptocurrencies or traditional securities and commodities; and
Ones who intend to acquire a crypto asset to exercise its utility exclusively, without investing intentions.
What do such specifications possibly imply? It implies that a crypto-asset exchange is responsible for implementing a knowledge test to ascertain that an onboarded user only wishes to acquire a crypto asset for its utility and nothing else. Any entity that wants to operate a crypto asset exchange in and from UAE has to earn the SCA license. The SCA virtual asset regulation framework has its definition for a crypto-asset exchange. The framework defines an exchange as an entity that facilitates trading, the conversion, and the exchange of crypto assets in return for other crypto assets or fiat currency, security, or commodities. The facility should have provisions for non-discretionary trading or adhere to the order matching rules. It might also have, a system where potential buyers and sellers come together irrespective of whether the resulting transaction eventually happens on the platform or not. The SCA’s market regulations dictate the shape, contours, and nature of the licensing and operation of the exchange. But there could be departures from the accepted norms, where the SCA takes decisions on a case-by-case basis.
Source: Coinfirm
The UAE has taken steps to recognize the use of blockchain technology which is increasingly pervasive in global trade and commerce.
As a market participant and professional services provider, we welcome the development of a functioning framework for regulation and promotion of crypto assets business and related activities as we firmly believe the need to decentralize financial services must be balanced with the imperative need to protect the public’s confidence in Crypto Assets and the underlying technology. Over the past year, we have successfully assisted several clients so as facilitating licensing of various activities in the “Virtual Economy” including Distributed Ledger Technology Providers, MetaVerse Service Providers, and Crypto Assets Service Providers. We are pleased to see an increasing level of activity in this sector and large-scale recognition of UAE as a global hub for operating a Crypto Assets business.
Given the high level of interest in Crypto Assets, our team has prepared the below comparison between ADGM and DIFC financial free zones as two key jurisdictions for Crypto Assets business set up in the UAE. The DIFC is currently in the latter phase of public consultation of its proposed rules and, at the time of writing, the ADGM is currently the only jurisdiction with a clear set of rules in place, and which is accepting applications from all parties for a license to operate a Crypto Assets business.
Source: Mondaq
In most of these scams the scammer enters into agreements with the victim via social media platforms, mostly Telegram groups without having a formal agreement to this effect. Therefore, making it harder for the victim to support legal actions intended to be initiated against the scammer.
BSA has acted for a number of crypto-scam victims in the UAE. One of the cases involves an investor, who intended to conduct a real estate transaction in Dubai using his crypto assets but fell victim to an unforeseen scam.
The investor initially entered into an agreement with an international over-the-counter dealer for the issuance of a manager’s cheque in exchange for cryptocurrency to complete the transaction. The investor has then received the concerned cheques issued by a UAE company and deposited them in a UAE bank.
Source: bsabh
Unfortunately, the government’s efforts to secure crypto asset transactions do not yet prevent scams. Indeed, the downside of the exponential growth of crypto industry is the increase of crypto scams in the UAE.
Several UAE authorities have raised concerns about crypto asset transactions, including the Securities and Commodities Authority who has previously issued several warnings to UAE residents about crypto asset-related frauds.
The dangerous aspect of crypto asset transactions is its online anonymous nature which is a medium that can lead to fraud.
Therefore, according to Tarek Mohammed, Head of the Digital Assets Crime Section at the Dubai Police, in the first half of 2021, there were hundreds of cases of crypto scams in Dubai with victims losing up to 80 million AED in total.
Source: bsabh
First and foremost, it is fundamental that no personal information is shared and that anonymous calls, messages, and ads are ignored.
The Digital Assets Crime Section of Dubai Police was created last year as a proactive approach in response to the increase of cyber crimes happening around crypto matters. The head of the section stated: “There is no harm in asking companies and people to provide them with a copy of trade license because it’s public information and not confidential. Also, make sure the license is not photoshopped.”
Then, it is essential to conduct all transactions using exchange platforms that are regulated by the UAE financial regulator by checking for example with Dubai Financial Service Regulatory Authority (DFSA) or the Abu Dhabi Global Market (ADGM) for their license and regulatory permission.
The UAE Security and Commodities Authority (SCA) has a list of alerts for falsely claiming to be regulated by it. As for DIFC, the DFSA has sent alerts about fraudulent crypto-assets.
Source: Mondaq
The Central Bank of the UAE deployed its regulatory sandbox as one of the initiatives in the insurance sector, in response to the rapid developments in digital technology that are transforming the economic and financial landscape, as well as, creating opportunities and posing challenges for the insured, policyholders, beneficiaries, affected stakeholders, companies, related professions, and regulators. These developments are mostly led by the private sector, driven by the global digitization and technological development forces that are re-shaping numerous aspects of the world’s economies and societies.
The Central Bank of the UAE, Insurance Sector, issued the Sandbox Regulation to define the regulatory framework for the operation and management of the experimental environment of the insurance sector. The document aims to:
- understand the products to be introduced and identify the risks associated with them and ensure a satisfactory level for customers during the pilot period
- transform the UAE insurance market into a smart insurance market
- support the emerging Emirati FinTech companies
- create an attractive environment for the insurance sector using innovative systems, as well as making it a platform to interact with FinTech companies, improve the regulatory framework, and contribute to economic growth and risk management.
Source: u.ae
The Emirate’s Virtual Assets Regulatory Authority (VARA), Dubai’s new cryptocurrency regulator, announced on Tuesday that it has created a virtual headquarters in The Sandbox metaverse platform.
The Sandbox is a platform linked to the Ethereum-based blockchain in which users can purchase and sell play games, and plots of land, and earn digital currency.
Sebastien Borget, COO and Co-founder of The Sandbox, disclosed firstly the development on Tuesday. Borget said: “We are thrilled to witness the progressive mission of Dubai’s Virtual Assets Regulatory Authority (VARA) and the UAE, establishing itself at the forefront of innovation to enable the current global movement by being the first regulator in the open metaverse.”
The Emirate’s Virtual Assets Regulatory Authority (VARA) claims that it is the first regulatory authority in the virtual world to develop its headquarters in the metaverse. In a statement, Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, Crown Prince of Dubai and Chairman of the Dubai Executive Council stated: “Today, VARA joins the metaverse to become Dubai’s — and the metaverse — first government authority, ushering in a new era in which Dubai Government utilizes modern innovations to extend its services.”
The Dubai regulator stated that the metaverse headquarters will serve as a primary channel that engages virtual asset service providers (VASPs) across the world to initiate applications, enable licensed individuals and entities to enter the metaverse, openly share knowledge and experiences with consumers, and regulators to raise awareness, drive global interoperability, and enable safe adoption.
Source: Blockchain News
