In the beginning, the UAE was among the countries that tried to neglect the new technological improvements. Nowadays, it is one of the best countries for cryptocurrency projects in the world. Based on our experience, we will especially emphasize the advantages of the free zone Dubai Multi Commodities Centre (the DMCC).
To operate a legal business with cryptocurrencies, you need to obtain a crypto license in the UAE. It can be used for providing crypto-related services to customers, such as storing their coins. Getting a license for cryptocurrency in Dubai requires filing an application to the DMCC. It should be noted that this license doesn’t allow the launch of an ICO or register a crypto exchange. However, it doesn’t mean that exchanges and ICOs are illegal in the UAE. The main point here is how to arrange such activities well to overcome possible difficulties. We will discuss that in detail later.
Legislation and regulators of cryptocurrencies in the UAE
Regulation of cryptocurrency and blockchain projects in the UAE is performed by the FSRA (Financial Services Regulatory Authority) regarding ADGM (Abu Dhabi Global Market). This authority publishes guidance on cryptocurrencies. It also monitors blockchain businesses to ensure transparency as well as prevent money laundering and financing terrorism. Other authorities that might contribute to crypto regulations in the UAE in the future are the SCA (Securities and Commodities Authority) and the DFSA (Dubai Financial Services Authority).
The Dubai Multi Commodities Centre (DMCC) Free Zone is a place worth considering for working with cryptocurrencies in the UAE. The DMCC crypto license will guarantee the legality of your business. The first company to receive this license was Regal Assets, which offered cold storage of cryptocurrencies for its customers.
Here are the core advantages of operating with your crypto business here:
- availability of 100% foreign ownership of a local company – it is not necessary to search for the local partners;
- zero restrictions for the transfer of the income and capital of a company;
- Favorable tax regime – 0% corporate income tax for the subsequent 50 years of operation;
- 0% rates for import and re-export taxes;
- Zero currency restrictions;
- No existing restrictions for involving foreign employees in the company’s operation.
To get a license, it is basically required to have a share capital of EUR 15,000 for a company applicant and a detailed business plan. There are no residency requirements as of now while applying for such a license. If the application process is completed well, a license holder can carry out its transaction freely. These codes are used to identify operations:
- 7229-99 Distributed Ledger Technology Services – enabling development and application database management solutions and also provide any ancillary services with the use of distributed ledger technologies, including Blockchain. But, it should be noted that license holders are not allowed to hold an exchange or trade with cryptos, fiat currencies, and commodities, and also render any financial services, payment processing, and even brokerage.
- 6599-92 Proprietary Trading in Crypto-commodities – a license holder can carry out sale and purchase operations with crypto commodities (proprietary trading) created based on the distributed ledger technology. This activity also doesn’t cover any brokerage or exchange functions, banking, financial, payment processing, and similar regulated services.
This license is obtained for a local company and for this purpose the next documents are required:
- Confirmation about the registered address of residency;
- Document concerning the verification of the future company’s name;
- Detailed business plan.
The total price for the entire process may be around USD 34,690 and it includes:
- company formation costs and expenses;
- payment for the lodging of the crypto license application;
- opening a corporate account in EMI (outside the UAE).
If we speak about a timeframe for establishing a new crypto company in the UAE, this may take approximately 4 weeks.
As of today, there is no crypto law in the UAE. “Regulation of Crypto Asset Activities in ADGM” by the FSRA is the most detailed guide of cryptocurrencies in this country. According to it, the following requirements must be met by a company that performs actions with crypto assets:
- Only some crypto assets are allowed. The decision about particular crypto assets is made based on market capitalization, traceability, security, price volatility, and other factors.
- You must “hold capital resources equivalent to 6 months’ operational expenses” (12 months’ equivalent for crypto exchanges) in fiat.
- Preventing fraudulent activities. KYC is required.
- Risk management and disclosure are compulsory.
- Keeping funds and information secured with such measures as “code version control, implementation of updates, issue resolution, regular internal and third-party testing”.
Working with cryptocurrencies in the UAE
As cryptocurrency projects in the UAE are yet to become fully regulated, the legal status of cryptocurrencies is only constituted by practices and guidelines for now. According to the ADGM regulations, whether crypto is allowed or not is determined separately for each case. It seems reasonable to say that the main cryptocurrencies are legal in this country because DMCC already issued crypto licenses to companies that use them. Moreover, Crypto Bulls Exchange is the first crypto exchange that is expected to be officially registered in Dubai. As the country embraces new technologies and even plans to issue an official cryptocurrency, friendly legislation is expected.
Nowadays, a license to work with cryptocurrencies, such as cold storage or trading with personal funds can be obtained from the DMCC. As for crypto exchanges, the first one is yet to be registered, so there is no public information regarding the crypto license it will use.
Taxation of cryptocurrency projects in the UAE
No income taxes in the UAE for cryptocurrency projects is what makes this country very appealing for entrepreneurs. The tax of cryptos in Dubai equals zero percent if you use cryptocurrencies for trading or receive them as a salary. However, since the beginning of 2018, the UAE has Value Added Tax at a very low rate of 5%. You should seek separate consultation to determine for sure whether your project is VAT-exempt or not. Thus, while there can be some exceptions, the taxation of cryptocurrencies is generally not performed in the UAE.
Operation of crypto exchanges in the UAE
If you decide to open a crypto exchange in the UAE, you will be among the first people to do that. This implies certain difficulties, such as diving into existing regulation deeper than most crypto projects have to. Registering a cryptocurrency exchange might be difficult, but it is not impossible. As we mentioned before, there is information that the first completely legal crypto exchange will start operating in 2019. The Crypto Bulls Exchange is said to be supported by the government, and it will offer cryptocurrencies in trading pairs with Arab Emirate Dirham.
Opening an exchange probably requires a license for crypto exchange. As of today, the DMCC crypto license does not allow to operate an exchange or launch an ICO. As for financial licenses for crypto exchanges in the UAE, they can be theoretically obtained from the FSRA, since the ADGM regulations mention that crypto-asset exchanges “will need to be licensed/approved by FSRA”. Moreover, the document lists additional requirements exchanges must meet, such as monitoring, identifying, and managing operational risks or preventing market misconduct.
It is unclear for now what kind of license, if any, Crypto Bulls Exchange has obtained. Was it approved by the FSRA? Since this exchange will open in Dubai, perhaps it managed to receive a DMCC crypto license for its operation. This is yet to be determined.
Launching an ICO in the UAE
Holding an ICO in the UAE can be problematic for now. There is no ICO regulation as such yet, but some ICOs can pass the FSRA review and be allowed. If you want to launch an ICO in this country, make sure you are offering security tokens, because otherwise, the Authority will not regulate it. You can find an economic advisor to determine the primary purpose of your tokens.
As investors are not losing interest in crowdfunding projects, the UAE will eventually find a way to regulate ICOs efficiently. This is likely to happen in 2019. For now, however, even though the UAE is generally crypto-friendly, a license for a blockchain project does not grant permission to launch an ICO.