Crypto & Blockchain in the UAE: Trends & Business Possibilities
Cryptocurrency, without a doubt, is one of the biggest revolutions in the 21st century. Even thinking about cross-border transactions through a virtual currency online was nearly impossible just a few years ago. As with other places, crypto has found its way into the UAE market as well.
Globally, cryptocurrency has expanded with the launch of many new coins and now territories accepting cryptocurrency as an official mode of payment. Undoubtedly, UAE is one of the largest markets in both the Gulf states and the world. Naturally, crypto trading units have an increased interest in entering and establishing themselves in the UAE’s market. Therefore, this blog will cover the details of cryptocurrency in the UAE and its expansion. We’ll highlight the main points that will help you understand how the UAE Government embraces the crypto technology, advantages and challenges of cryptocurrency being embraced by the UAE Government, how to get a crypto business license in UAE & what’s the process of opening a crypto trading business in the UAE.
Blockchain in the UAE: How the Government Is Embracing the Technology?
UAE has been the global champion in embracing new technologies, ideas, and initiatives. It is no surprise that the country with some of the best architectural units, trading hubs, and leisure spots has started to take its share in the blockchain market. The first official step in embracing the blockchain strategy into the country came in Emirates Blockchain Strategy 2021, where blockchain has been adopted as an official medium for administrative affairs within the UAE. More ideas in support of Blockchain strategy were embraced by the Dubai Blockchain Strategy during this year as well. The Emirates Blockchain Strategy has significant aims for the transformation of blockchain technology and its use in the UAE, including:
- Saving AED 11 billion that is spent annually on the documents and other transactional records.
- AED 398 million that is spent on printing annual documents will be saved.
- Digitalizing transactions save the labor work of almost 77 million hours each year through blockchain.
This way, the country aims to transform over half of all its governmental transactions into blockchain platforms by the end of 2021. With this focus, the government would become one of the global giants in blockchain usage, making it an advanced economy that can adapt to change. Naturally, such adaptability to change and new technology will likely attract many serious investors to consider pouring more money into the country. Likewise, the growth with other technologies in the future can be streamlined. The main reason is that most other future technologies are likely to embrace the use of cryptocurrencies, making the UAE more prepared for any such change.
Advantages and Challenges of Cryptocurrency Being Embraced by the UAE Government
There are numerous advantages for the UAE to accept cryptocurrency and embrace the technology:
- It will allow unlimited transactions to be processed fast.
- The decentralization of the economy will create more opportunities for individual businesses.
- The transaction fee is low and can save on costs of conducting business/ governmental actions.
- The system is completely transparent, ensuring complete anonymity to the user.
- Each transaction can be fully traced, making cryptocurrency an effective way to trace financial activity.
However, UAE may have to face a few challenges in its quest to embrace cryptocurrency:
- The people using cryptocurrency from UAE for global transactions may have to select from the limited nations that currently accept crypto.
- The transactions are non-reversible, and storing crypto can be a headache.
- The high volatility of the currency can make it a danger for governmental transactions. Large-scale transactions may cause economic troubles if the currency’s value falls.
Can You Get a Crypto Business License in the UAE?
This question is debatable because UAE is currently in the transition process to accept cryptocurrencies. As such, there are only a handful of free zones that allow you to obtain the required license to trade crypto. Let us cover a few examples of the licenses that are currently available.
DMCC is the flagship world free zone. The Government of Dubai Authority on Commodities Trade and Enterprise has already signed an MOU with the Securities and Commodities Authority (SCA). This MOU focuses on establishing a regulatory framework that allows businesses to issue, offer list, and trade crypto assets in DMCC. As such, businesses providing crypto trading services can get listed and trade in DMCC, bringing the world’s leading free zone in their grasp.
Currently, DMCC has been leading the development of crypto partnerships and digital strategies, which can help in creating a complete cryptocurrency ecosystem in the free zone area.
Under the DMCC flagship free zone, a case-by-case evaluation is performed to grant either of the two alternatives: Distributed Ledger Technology Services and Proprietary Trading in crypto-commodities.
Distributed Ledger Technology Services are focused on your database and ancillary activities, providing management and related services. They use different crypto platforms such as blockchain to help manage the firm’s trading activities. As such, those firms registered for Distributed Ledger Technology Services are not allowed to trade in or provide formal crypto exchange services. Likewise, they can not trade in crypto commodities or provide any related financial activity service. Thus, payment processing and brokerage are prohibited as well.
On the other hand, Proprietary Trading in Crypto-Commodities offers the ability to purchase and sell crypto commodities. These commodities must be developed on platforms that are built on the distributed ledger technology applications. As such, both DMCC activities seriously prohibit exchange, brokerage, financial services, banking and payment processing, and storage services involving cryptocurrencies and commodities.
What Is the Process of Opening a Crypto Trading Business in the UAE?
Slowly and gradually, UAE is embracing crypto technology, which means that crypto business requirements may vary in the future. The current process involves the following steps/ requirements:
- Anti-Money Laundering and Counter-Terrorism Financing Laws compliance are mandatory in the UAE for any investor to get a license for the crypt trading business.
- Value-Added-Tax must be disclosed if required by the government.
- Cybersecurity and privacy safeguards are equally important.
- The investor must take approval from UAE’s Securities and Commodities Authority (SCA).
The approval by the SCA is dependent on the following factors:
- Capital must be available to meet business needs for the next half a year.
- All data must be safe in the crypto wallet, and KYC norms must be followers.
- A proper business plan and the previously mentioned requirements must be submitted to demonstrate a comprehensive understanding of the business.
Bank and Tax: The Crypto Case
It is essential to consider the adaptability and acknowledgment of banks regarding crypto trading in the UAE. Cryptocurrency has two frameworks: the formal, regulated framework and the independent framework subject to no regulations. The latter form is what the banks fear because they may hide transparency and cause a severe crash. On the other hand, well-regulated crypto businesses are under regulatory authority, ensuring proper compliance and adherence to the regulations.
However, it can not be denied that banks may need time to adapt to the cryptocurrency market. The virtual asset scheme launched by the UAE’s central bank in 2020 is the first step towards formally incorporating private banks into the cryptocurrency framework. Blockchain technology and virtual currency are on the rise, and the involvement of international organizations is all set to increase its popularity further. Currently, no personal or company income tax is imposed in the UAE. Thus, crypto trading firms are safe from any tax obligations as of now. However, the value-added tax does exist, being imposed at a meager rate of 5%. As such, a tax-free crypto trading company can be established in an EAR with the transactions being charged at 5 % VAT.
Expert Advice on Crypto Business Setup
Choosing our firm to help you set up a crypto trading and exchange business in the UAE will help you streamline the setup process and ensure that all legal issues are adequately addressed. Our firm has the necessary experience to guide you in developing a viable business. Currently, the best route is to establish a tax-free crypto trading business under the free zone authorities that have a formal MOU with the SCA. Further information can be gained by contacting our team: we are always there to help.
Cryptocurrency and crypto trading are undeniable aspects of global society today. With the UAE taking its significant steps to embrace the technology, we encourage you to consider the profitable setup. Let us know if you need any help.