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Regulation and Legislation of Bitcoin and Cryptocurrencies in UAE

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Cryptocurrencies have been in the spotlight since 2008 with Bitcoin’s Cryptocurrency movement. Bitcoin reached a new all-time high in November of 2021 with a valuation of $68,000 per coin and a market cap of $1.2 trillion.  

Bitcoin caught the attention of UAE traders years ago, but there is uncertainty about the legality of Bitcoin in the UAE. Is Bitcoin legal in the UAE? There isn’t a simple answer, so this article discusses the topic and offers the best answers based on the current UAE laws.

Is Bitcoin A Currency Or A Commodity?  

The first question to answer is: Is Bitcoin is a currency or a commodity? This is important because most countries have different laws for currencies and commodities. In 2021, there is no clear international consensus on this question. For example, in the US, the Commodity Futures Trading Commission labels Bitcoin a commodity. Europe views Bitcoin as a currency for VAT purposes.  

The UAE doesn’t have an official position in 2021. This is important for the UAE because: 

· If you use Bitcoin as a commodity, it will fall under the regulatory remit of the UAE Securities and Commodity Authority. But if used as a currency, it would fall under the regulatory authority of the UAE Central Bank.  

· If Bitcoin is a commodity, it may be subject to a sales tax. But if it is a currency, then it would not be subject to such taxation.   

Are There Any Cryptocurrency Laws In The UAE?  

The UAE is becoming a progressive crypto and blockchain country implementing new age legislation and law structure to enhance crypto start ups to move to UAE. UAE accepts crypto payments, including Bitcoin, with the government-owned licensing firm KIKLABB and is also developing its own digital currency.

The regulator of Dubai’s International Financial Centre (DIFC) is the Dubai Financial Services Authority.  The DFSA announced its plan to build an straight forward crypto-regulatory framework to encourage investments from blockchain technology companies . Its 2021/2022 Business Plan aims to provide insights on Bitcoin and crypto’s legality in the UAE.    

The Abu Dhabi Global Market (ADGM) is the most active in issuing extensive regulations. The ADGM oversees the activity of central virtual currency exchanges. The ADGM’s laws update to keep up with global developments in blockchain regulation. 

The UAE Securities and Commodities Authority (SCA) issued a regulation on crypto assets. The Crypto Assets Activities Regulation oversees the trading of digital assets in onshore UAE. 

Securities And Investment Laws  

In onshore UAE, the SCA and the UAE Central Bank oversee the financial and capital markets. This includes non-financial free zones, like the Dubai Silicon Oasis and the Dubai Multi Commodities Centre.   

Securities and investments fall under the Federal Law No.4 of 2000. The Securities Law uses the SCA as a second regulator for managing the offering of securities. The SCA Virtual Asset Regulation aims to be neutral. It applies to anyone offering or issuing crypto assets in/from onshore UAE. It includes anyone providing crypto custody services or operating a crypto exchange.   

The DFSA prohibits promotions with messages that influence a person to agree to financial services. The question is: Do these prohibitions apply to cryptocurrency companies? The current law has not stopped crypto and blockchain projects from setting up in the DIFC. For example, Ripple has its regional headquarters in the DIFC. It appears to conduct marketing activities there.   

The Financial Services Regulatory Authority (FSRA) is the regulator in the ADGM. It ensures compliance with the amendment of the Financial Services and Markets Regulations. FSRA divides tokens and coins into licensed digital assets and other digital tokens. Licensed virtual assets refer to non-fiat virtual currencies, digital securities, and fiat tokens. Other digital tokens, including utility tokens, remain unregulated.   

How Is A Virtual Asset Defined?  

A virtual asset is a representation of currency in a situation or environment. It may have an equal value in real-world money, but it doesn’t have legal status. The FSRA handles virtual assets like commodities, not as specified investments.  

The status of digital securities appears in the regulation issued by the FSRA in 2020. This guidance defines digital securities as digital assets with economic and legal characteristics. Trading digital assets must follow the rules set up in FSRA’s laws. When trading fiat tokens (stablecoins), providers must have licenses. These activities are money services under the FSMRs laws.  

How Does The UAE Central Bank Manage Digital Transactions? 

The Stored Value Facilities Regulation is the UAE Central Bank’s regulatory framework. It refers to onshore UAE and not the economic free zones.   

Stored value facilities are non-cash facilities in which clients pre-pay money to use a payment method to pay for goods or services. The UAE Central Bank states that crypto assets aren’t legal. The SVF allows the usage of crypto assets as a stored value when buying goods and services.  

A key point for the UAE is the increase in the ability to buy real-world assets with crypto assets. Back in February 2021, the KIKLABB was accepting Bitcoin, Ethereum, and USDT as payment. Virtuzone, another leading company in the UAE, announced it would accept cryptocurrencies.   

How Does The Anti-Money Laundering Law Apply To Digital Transactions? 

The Anti-Money Laundering and Combating the Financing of Terrorism and Financing Of Illegal Organizations (the AML Law) applies to digital transactions. The AML Law concerns all emirates, including the DIFC and ADGM. It explains the crimes of money laundering and terrorist financing.   

The funds mentioned in the law refer to any assets in digital or electronic form. Crypto assets fall within the scope of the UAE’s AML regime.   

The SCA Virtual Asset Regulation relates to the AML Law. It sets specific rules, including the necessity to have a robust framework. Deposits/withdrawals are possible from/to a bank account with an authorized institution. A foreign institution signed off by the SCA is legal, too. 

The SCA says a crypto asset that isn’t traceable shouldn’t be part of transactions through a licensed person. This aims to restrict the usage and trading of privacy coins, including Monero, Zcash, or Dash.   

Which Are The License Requirements For Exchanges?  

The SCA states that anyone who operates a crypto exchange from onshore UAE must have an SCA license. It describes operating a crypto-asset exchange as a licensed platform or facility.  It involves trading, converting, and exchanging digital assets for other digital assets.

To receive a license, an operator must follow the best market practices. This includes:  

· Demonstrating the provision of resilient technological systems  

· Using robust market surveillance mechanisms  

· Implementing customer screening procedures   

· Using effective policies to prevent insider trading and market abuse  

Requirements depend on whether an exchange is open for retail investors or not. If an exchange allows only professional investors, the operator must file limited documentation. If the exchange is open to retail investors, more approval for listing is necessary for each asset.   

Today, no cryptocurrency exchange operates 100% onshore in the UAE. BitOasis is the first cryptocurrency exchange in the Middle East. It started in the Dubai free zone and moved to the British Virgin Islands to receive a license from the FSRA. BitOasis operates as a custody and multilateral trading facility in the ADGM.  

The FSMRs allow cryptocurrency exchanges to trade in accepted virtual assets only. It decides which tokens or coins are digital assets. The FSMRs show that a licensed crypto-asset exchange is a multilateral trading facility. A facility must have in place processes such as:  

· KYC and AML procedures  

· Transaction recording  

· Transparency and public disclosure of essential data  

· Exchange-like operational systems  

· Market surveillance to prevent abuse  

Crypto exchanges outside ADGM as a multilateral trading entity have to pay a US$125,000 fee. The annual fee is US$60,000. These fees are in place to reflect the strict compliance with the FSRA regulation.   

Related: best crypto exchange UAE

What About Taxation Of Cryptocurrency Projects In The UAE?  

Cryptocurrency projects in the UAE are yet to become regulated. Their legal status comes from specific practices and guidelines. No income taxes in the UAE are in place for cryptocurrency projects. This makes the country attractive for entrepreneurs. The taxation of cryptos in Dubai equals zero percent if you use cryptocurrencies for trading. Keep in mind that since 2018 the UAE has had Value Added Tax, so there might be exceptions. The taxation of cryptocurrencies is not performed in the UAE.   

Bitcoin is a legal coin to transact in UAE if the person uses a licensed exchange and has a transparent trading account account. Following the latest statement of The Central Bank of the UAE saying that digital assets are not presently accepted or acknowledged as legal tender in the UAE, the only legal currency in this country remains the UAE dirham.

As of now there is no unified regulation on cryptocurrencies in UAE and trading with virtual assets like Bitcoin remains Illegal. Digital assets including Bitcoin are not licensed by the UAE Central Bank although exchanges like BitOasis have been given permission to operate in the Middle East crypto market. The UAE dirham remains the only valid currency in the region that is recognised by the UAE Central Bank.

Cryptocurrencies fall under the authority of FSRA, SCA, and DFSA. The SCA and FSRA oversee the trading of digital coins. The UAE Central Bank views crypto trading as risky. This is why all parties involved in the transaction must follow the AML Laws of the UAE. The market share of digital coins in the Middle East is growing thanks to the new laws of the Central Bank. These laws are new and changes are coming in the future. 

Although cryptocurrencies are Illegal in UAE, citizens are allowed to buy, sell and hold virtual currencies like Bitcoin as investments. Digital coins, including Bitcoin, remain a virtual asset for now.

Related: how to buy Bitcoin in UAE

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Stefan Grasic (Dipl.-Jur) is the World Wide Director of research for Buisness24-7 and has considerable experience in the financial and investment niche, but also enjoys writing articles for the general readership. Stefan is an active Crypto, Forex and general investment researcher advising blockchain companies at their start up level. He keeps fit by mountain biking, surfing, skiing and lots of other adrenaline sports.

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