Crypto Business in UAE
Navigating the Crypto business Landscape in the UAE
- Introduction
- Understanding the Virtual / Digital Assets.
- Types of Business Activities that can be conducted with a Crypto License in UAE.
- Obtaining Crypto License in the UAE.
- Crypto Regulations in the UAE.
- Compliance with VAT and Corporate Tax Laws.
- How RVG can help?
Introduction
The world of finance and technology is constantly evolving, and cryptocurrencies and digital assets have emerged as major disruptors, changing the way we handle value. These innovative digital instruments have given birth to a range of crypto businesses, using blockchain technology to transform traditional financial systems.
This industry offers numerous opportunities for investors, entrepreneurs, and businesses to participate. Whether you’re interested in day trading, starting a cryptocurrency exchange, creating a crypto payment gateway, or offering asset management services, there are plenty of ways to get involved. However, it’s important to understand the regulatory landscape, especially in the UAE, which is supportive of crypto businesses.
Understanding the Digital Assets
Digital assets encompass a wide range of valuable digital items with established ownership and discoverability. They include photographs, manuscripts, documents, data, cryptocurrencies, non-fungible tokens (NFTs), stablecoins, security tokens, software code, digital music, and film clips. Distributed ledger technology, commonly known as blockchain, is used to securely store, record, and validate transactions involving these digital assets.
When exploring investment opportunities, you may encounter various types of popular digital assets, each with its unique characteristics:
- Cryptocurrency: This term encompasses virtual currencies that represent stored value secured through cryptography. Cryptocurrencies operate on decentralized systems without central authorities. Bitcoin, Ethereum, and Binance Coin are notable examples of cryptocurrencies.
- Non-fungible tokens (NFTs): NFTs are distinct digital assets that signify ownership of a specific item, such as digital art or collectibles. Each NFT is unique and cannot be exchanged for other tokens or assets. In recent years, NFTs have gained significant popularity, with some fetching millions of dollars in sales.
- Stablecoins: Stablecoins are cryptocurrencies pegged to a stable asset, often the U.S. dollar. They aim to offer the advantages of cryptocurrencies, such as fast and secure transactions, while mitigating the volatility associated with other digital currencies. Tether and USD Coin are examples of stablecoins.
- Central Bank Digital Currency (CBDC): CBDCs are virtual currencies issued and backed by a country’s central bank. They serve as an alternative to physical money and compete with cryptocurrencies and stablecoins. Many countries, including 19 G20 nations, are exploring the development of CBDCs. Some countries like India, China, and the UAE are already conducting tests. Recently, the CBUAE launched “The Digital Dirham,” its own CBDC strategy.
These digital assets present unique opportunities for investors and individuals interested in the evolving landscape of finance and technology.
Types of Business Activities that can be conducted with a Crypto License in UAE
The UAE has positioned itself as a progressive hub for crypto businesses, fostering innovation and supporting industry growth through a favorable regulatory framework. Obtaining a crypto license in the UAE opens up various business opportunities within the sector. Here are some activities that can be conducted with a crypto license in the UAE:
- Crypto Proprietary Traders: With a crypto license in DMCC, individuals or firms can engage in proprietary trading, using their own funds to trade cryptocurrencies for direct market gains.
- Crypto Exchanges: Crypto exchanges play a vital role in facilitating the buying and selling of cryptocurrencies. These platforms enable traders to exchange fiat currencies for cryptocurrencies and vice versa, ensuring secure and fast transactions. Well-known exchanges like Kraken and Binance have obtained licenses to operate regulated platforms in the UAE.
- Advisory Services: Crypto advisory services provide guidance on various aspects of the cryptocurrency market, including investment strategies, risk management, regulatory compliance, and market analysis.
- Broker-Dealer Services: Acting as intermediaries, broker-dealers facilitate cryptocurrency transactions on behalf of clients. They may offer additional services like custody solutions, investment advice, and market-making. BitOasis recently became the first broker-dealer to receive a minimum viable product (MVP) operational license from Dubai’s crypto regulator VARA.
- Management and Investment Services: These services involve activities related to managing and investing in cryptocurrencies and other virtual assets, providing professional assistance to individuals and businesses navigating the market.
- Crypto Mining: Crypto mining involves validating transactions on blockchain networks and earning cryptocurrency rewards. It remains a fundamental activity within the industry.
- Blockchain/Distributed Ledger Technology as a Service: Distributed Ledger Technology (DLT) services enable secure and decentralized registration of asset transactions. Blockchain, the most prevalent form of DLT, records transaction details between parties, ensuring verification and permanence. Global Blockchain has a Dubai-based subsidiary licensed to develop DLT services within the DMCC.
- NFT Businesses: Non-Fungible Tokens (NFTs) represent unique and indivisible digital assets. NFT businesses involve activities like NFT creation and sales, NFT marketplaces, consultancy, valuation, and tokenization services. These businesses utilize blockchain technology to provide verifiable proof of ownership and authenticity for each NFT.
The UAE’s crypto-friendly regulatory environment creates a fertile ground for businesses to explore and capitalize on the growing opportunities in the crypto industry.
Obtaining Crypto License in the UAE
To obtain a crypto license in the UAE, you can follow these steps:
- Identify your business activity.
- Prepare a business plan.
- Apply to the registering authority of your choice.
- Meet regulatory requirements
- Complete the necessary steps and obtain your crypto license.
Notable free zones in the UAE that offer crypto licenses include:
- Abu Dhabi Global Market (ADGM)
- Dubai Multi Commodities Centre (DMCC)
- Dubai World Trade Centre (DWTC)
- Dubai International Finance Centre (DIFC)
- Dubai Airport Free Zone Authority (DAFZA)
- International Free Zone Authority (IFZA)
Additionally, RAK Digital Assets Oasis, the world’s first Free Zone solely dedicated to digital and virtual asset companies, is set to launch in Q2 2023, catering to businesses in sectors such as the metaverse, blockchain, gaming, NFTs, DAOs, DApp, and other Web3-related industries.
Crypto Regulations in the UAE
The United Arab Emirates (UAE) has implemented a comprehensive regulatory framework to govern the cryptocurrency industry. The Virtual Asset Law, issued in March 2022, serves as the foundation for establishing a regulated onshore industry for virtual assets in Dubai. Additionally, Cabinet Resolution No.111 of 2022 came into effect in January 2023, providing further regulations for virtual assets and service providers.
These regulations ensure the proper oversight and supervision of the crypto industry, promoting investor protection and enhancing the credibility of virtual asset businesses within the UAE.
Compliance with VAT and Corporate Tax Laws
When it comes to Corporate Tax compliance in the UAE, there is no direct exemption for virtual asset businesses. The taxability of virtual asset activities also remains unclear, but we can make some assumptions for interpretation purposes.
The VAT treatment of virtual assets is still unclear, but general VAT rules apply. Direct buying and selling of cryptocurrencies may not attract VAT, while advisory, broker-dealer, and investment services might be subject to VAT.
In summary, the tax and VAT implications for businesses involved in virtual assets in the UAE are still evolving, and specific guidance is lacking. It is important to consider the nature of the transaction and seek professional advice to ensure compliance.
How RVG can help?
RVG is a leading consulting firm specializing in assisting businesses in the crypto industry navigate the regulatory landscape and achieve compliance in the UAE. With our expertise and knowledge of the crypto sector, we can provide valuable guidance and support to help you obtain a crypto license and establish your business in the UAE.
- Licensing and Registration
- Compliance and Regulatory Advisory
- Business Planning and Documentation
- Tax and VAT Consultancy
- Accounting and Bookkeeping Services
- Ongoing Support
