Virtual Assets thriving in UAE

Virtual assets, including cryptocurrencies, digital tokens, etc., have gained significant attention globally, and the UAE is emerging as one of the favourite markets for virtual assets businesses. UAE is becoming a hotspot for virtual assets businesses by establishing clear regulatory authorities for virtual assets. Let’s discuss why UAE is becoming a magnet for crypto users.

Overview of Virtual Assets in the UAE

To give you an introduction to what Virtual assets are, these are digital representations of value that can be traded or transferred electronically i.e. on the internet. This includes cryptocurrencies, tokens, digital assets, etc. While some jurisdictions are still struggling, UAE has already adopted a supportive approach towards these assets. It is safe to say that UAE has already established itself as a global hub for virtual assets due to its advanced infrastructure and business-friendly policies.

Types of Virtual Assets (VA)

Virtual assets come in different forms, some main VA forms relevant for our discussion are as below:

• Cryptocurrencies: These are digital currencies that use cryptography for security, for example - Bitcoin and Ethereum are most popular cryptocurrencies.

• Stable coins: These are cryptocurrencies linked to a stable asset/coin, for example – coin USDT is linked to the US dollar.

• Tokens: These are digital tokens that represent assets or utilities and are often used in initial coin offerings (ICOs) in the digital market.

You may be wondering that what is the use of these currencies/coins? Well, these can be used to transform traditional financial system and offer innovative solutions for businesses and investors. For example, a digital coin can represent anything from a token in a project to a ticket for a virtual event.

Key Regulatory Authorities Governing Virtual Assets

The UAE already has a reputation of being business-friendly with streamlined processes, low taxation and innovative infrastructure. Whether you’re a startup launching a token or a player running a crypto exchange, the UAE feels like a place where you can actually make things happen as the country’s got clear regulation.

In UAE, virtual assets business is not governed by a single authority, but by a set of federal and emirate-level regulators. It depends on the nature of the activity (e.g., trading, custody, ICOs, exchanges). It’s a bit like a team effort, with each regulator bringing something to the table. The main relevant authorities for virtual assets in UAE can be categorised into Federal and Emirates-level authorities, as discussed below:

Federal-Level Authorities

1.     Securities and Commodities Authority (SCA)

Though it was established in the year 2000, the SCA undertook the responsibility of overseeing, supervising, and regulating the virtual assets sector in the UAE via Cabinet Decision No. 111 of 2022. Its jurisdiction includes not only mainland but free zones as well. SCA is responsible for licensing of crypto exchanges and Initial Coin Offerings (ICOs) within the UAE.

2.     Central Bank of the UAE (CBUAE)

CBUAE Regulates crypto-related financial services, especially where digital assets transacts with banking (including payments, or remittances). The CBUAE plays an important role        in maintaining financial stability and overseeing crypto conversion related transactions.

Emirate-Level & Crypto-focused Free Zone Authorities

1.     Virtual Assets Regulatory Authority (VARA)

            VARA was established in 2022, it serves as Dubai's primary regulator for virtual assets.  Their mission? It is to create a secure environment for businesses while protecting all the stakeholders. This authority is crucial in shaping policies, enforcing regulations, and supervising virtual asset service providers (VASPs) registered within Dubai. So, if you plan to provide any virtual asset related service in Dubai, VARA licensing will be required.

2.     Dubai Financial Services Authority (DFSA) in DIFC

            Dubai  International Financial Centre (DIFC) is one of the free zones in Dubai that      specifically acts as a financial hub of companies. DFSA regulates financial services           within the Dubai International Financial Centre (DIFC). The DFSA introduced a regulatory framework for virtual assets, including guidelines for licensing and   operational compliance. This framework is designed to promote transparency and integrity within the financial services sector, ensuring that virtual asset activities align    with international standards.

3.      Abu Dhabi Global Market (ADGM)

Like VARA and DIFC in Dubai, Abu Dhabi also has its own regulator for virtual assets   business. ADGM, a freezone in Abu Dhabi, serves as an international financial centre in the capital of the UAE.

Other regulations impacting Virtual Assets Business in UAE

There are several other laws and regulations that impact the operations of businesses dealing with virtual assets in the UAE.

1.     Licensing Requirements for Virtual Asset Service Providers (VASPs)

            VASPs include crypto exchanges, gaming sites, platforms that allow any crypto             transactions, etc. To operate legally in UAE, VASPs must obtain licenses from VARA,            DFSA, or ADGM depending on where they are or will be based in UAE. These licenses             require businesses to meet specific standards, including compliance with anti- money laundering (AML) regulations.

2.     Anti-Money Laundering (AML) Regulations

            AML rules play a significant role in maintaining the integrity of the virtual assets   market. Businesses are required to implement strict measures for customer             verification, transaction monitoring, and reporting any suspicious or fishy activities.       

Why UAE is the best choice?

These regulations might sound like a lot, but they’re part of what makes the UAE so attractive for businesses dealing in virtual assets. They give businesses a roadmap to follow, which is way better than the unclear regulations that mostly result in litigations.

The UAE provides a supportive environment for virtual asset businesses which sets it apart from other jurisdictions. With clear regulations, strategic location, and modern infrastructure, more and more companies are choosing the UAE as their base for virtual asset operations. So, whether you’re a crypto newbie, a seasoned investor, or a crypto service provider, UAE is surely a safe place for you.

How we can help!

Understanding the regulations around virtual assets in the UAE is essential for businesses. As regulations continue to change, staying informed will help businesses to capture the opportunities in the virtual asset landscape. That is where we come in, FINACT is based in UAE since 2019, uniquely positioned to provide comprehensive support in this area. We have a team of seasoned professionals with deep expertise in both the crypto and technology sectors. We offer tailored solutions that address the specific challenges and requirements of virtual asset businesses including re-structuring to optimising your tax liabilities, and assisting with the regulatory compliance.