There are two peculiar closed free zones in the UAE, where the crypto industry is developing, constrained by literally minimal rules. GMT Legal lawyers helped Bits.media understand the nuances of the rules and regulations.
The country has virtually no regulation at the national level. Single acts of state authorities were issued. These are the UAE Central Bank Regulation of September 30, 2020 on retail payment services and card schemes, and the Securities and Commodities Authority Decision No. 23 of October 31 of the same year on “Regulation of Crypto Asset Related Activities.”
Cryptocurrencies are regulated in more detail in individual emirates, where local authorities issue special regulations.
Dubai
This most popular emirate for foreigners has a legal definition of a virtual asset: “a digital representation of value that can be digitally traded, transferred or used as a medium of exchange or payment, or for investment purposes.”. A special supervisory body, the Dubai Virtual Assets Regulatory Authority, has also been established.
In February 2023, Dubai’s Virtual Assets and Related Activities regulation came into force, finally regulating the VASP (Virtual Asset Service Provider) licensing process, clarifying aspects of AML/CFT and marketing. Penalties for violation of this legislation have been established.
Tax conditions
VAT 5%
Legal status of cryptocurrency
Legalized
Special sanctions
- issuing written reprimands, notices to correct noncompliance with the law;
- limiting or reviewing the scope of any virtual assets or activities associated with them under the license;
- suspension or revocation of the license;
- imposing additional supervisory, monitoring or reporting requirements;
- fines up to 50,000,000 AE/15% of annual income;
- and other (part 9 of the regulation).
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Ban on cryptocurrencies with enhanced anonymity (like Monero and Zcash)
Key regulations and legislation: the Virtual Assets Regulation Act of 2022 and the Virtual Assets and Related Activities Regulation of 2023.
Dubai International Financial Centre (DIFC)
The DIFC has a licensing regime and the Dubai Financial Service Authority (DFSA) is an independent regulator.
According to the rules established since 2021, those who perform actions with investment tokens (e.g., issuing, offering, owning, promoting, consulting, brokering) must obtain a cryptocurrency license from the DFSA and comply with certain obligations. This mode is called “crypto-token mode.
A crypto-token is a cryptographically secured digital rights grant that is issued, transferred, and stored using DLT or other similar technology, which confers on the holder rights corresponding to those of the holder of a security or derivative. And also has a purpose and effect corresponding to a security or derivative. The investment token provision says it all.
Under the new regime, financial services and activities can only be performed on “recognized crypto-tokens”. In connection with which the original list is published, which indicates that the DFSA initially recognized Bitcoin, Etherium and Litecoin. This publicly available list is expected to continue to expand – as applicants apply to the DFSA to do business with other tokens.
The DFSA has issued guidance on cryptocurrency regulation, which includes licensing requirements for cryptocurrency exchanges and custodians, as well as anti-money laundering (AML) and counterterrorist financing (CTF) rules. The DFSA requires that cryptoassets be kept in cold storage, a security measure designed to protect against hacking and theft.
All types of non-exchangeable tokens (NFTs) are removed from financial regulation under the crypto-token regime. However, the provisions of AML/CTF apply to them. In addition, the DFSA does not regulate confidential tokens, algorithmic tokens, or central bank digital currencies;
Tax conditions
–
Legal status of cryptocurrency
Legalized
Special sanctions
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Administrative sanctions: fines, warnings and activity restrictions for non-compliance with cryptocurrency regulations;
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Criminal sanctions: imprisonment and fines may be imposed in case of serious violations;
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Revocation of licenses from cryptocurrency exchanges and custodians that violate regulatory requirements;
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Civil liability: damages and injunctions.
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Authorized persons will be able to provide services related to crypto-tokens, including engaging in investments as a principal or agent, managing assets, advising on financial products and providing custody. To distinguish between regulated and unregulated crypto-asset activity, authorized persons would not be allowed to provide services for both regulator-recognized crypto-tokens and any other tokens.
Key regulatory and legal acts: the Regulation on Investment Tokens 2021.
Abu Dhabi International Financial Center (ADGM)
The UAE capital emirate has its own independent regulator, the Financial Services Regulatory Authority (FSRA).
A virtual asset is defined here as a digital representation of value and can be digitally traded, functioning as:
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A medium of exchange;
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unit of account;
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store of value.
With that said, a virtual asset:
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has no legal tender status in any jurisdiction;
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not issued or guaranteed by any jurisdiction,
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performs the foregoing functions only by agreement in the community of virtual asset holders;
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differs from fiat currency and electronic money.
ADGM licenses the following activities: crypto exchange, cryptocurrency custodian services, buying, selling and executing any right in accepted crypto assets, managing third-party crypto assets, and marketing crypto assets.
FSRA has implemented a regulatory framework for crypto-asset activities that includes licensing requirements for crypto-exchanges and custodians, as well as AML/CTF rules. The FSRA also requires that cryptoassets be stored in cold storage.
Tax conditions
–
Legal status of cryptocurrency
Legalized
Special sanctions
Identical to the sanctions in DIFC
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OCAB (Operate a Crypto Asset Business) fees are relatively higher than most other regulated activities under ADGM. In addition to the fees applicable to exchanges of cryptocurrency assets, such exchanges are subject to a trading fee payable monthly. Calculated as a percentage of the transactions made each month.
Key regulations and statutes: the Virtual Asset Activities Regulation, 2022; the Regulation on Electronic Securities and Virtual Asset Placement Activities Under Financial Services and Financial Markets Regulation, 2020; the FSRA Basic Principles of Approach in the Regulation and Oversight of Virtual Assets, 2022.
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