How has crypto been adopted in the UAE? Summary: – UAE has an investment tax rate of 0%, including cryptocurrency – Differing Regulations in the Dubai International Financial Centre and the Abu Dhabi Global Market – How to set up an OCAB in the UAE – How will you be taxed? – The future of […]
Can I trade Bitcoin and cryptocurrency in the United Arab Emirates?
Introduction to Bitcoin trading in the UAE
Mixed messages appear to come out of the UAE on the question of crypto friendliness. The United Arab Emirates UAE, as a trading nation and the most diversified in terms of GDP within the Middle East, not surprisingly has a tradition of developing a strong all-around economy and it views new technology and ideas positively. Yet the UAE has been slow off the mark to take blockchain and crypto to heart and is only now offering licenses to the exchanges and blockchain-related companies that boost the crypto economy in any country.
Indeed, whilst Bitcoin was initially banned, trading is now legal and the country appears to be moving fast to adopting a crypto economy. Whilst many countries around the world have delayed or played wait-and-see with regard to defining and regulating crypto, the United Arab Emirates (UAE) moved ahead very early with clear guidelines on Initial Coin Offerings ICOs and the roles of agencies providing crypto services.
In contrast to many countries that have developed homegrown exchanges, UAE relies on established overseas exchanges for its transactions. The biggest of these are becoming more established worldwide and offer more protection in terms of fraud or theft. Having exchanges that have already gained traction worldwide licensed adds confidence to investors – although the drastic price drop of early 2022 may have curbed enthusiasm. Top exchanges in the UAE feature many of the usual suspects including Kraken and the UK’s very own BC Bitcoin.
Outside of international exchanges, BTC can be obtained ‘over-the-counter’ from the numerous sellers of Bitcoin on the market. Bitcoin ATMs have yet to take off, but perhaps this will change when the exchanges become more established and greater in number. On the matter of tax, there is no clear framework – not a good point in the Coincub ranking (efficient tax collection usually points to a more cohesive crypto strategy). Whether investors declare gains as a capital gains tax on assets or as part of income tax generally requires individuals to seek some specialist advice. Crypto can be spent online, but as yet, not on a local basis, probably due to the lack of clarification about taxes. Accordingly, the mining of Bitcoin or other crypto is not regulated in the UAE or in any of the free zones within the UAE. The activity of mining is also not covered in any previous legislation that would be applicable.
All said, with crypto and blockchain becoming embraced by the state, the UAE moves onto the Coincub ranking as much for its potential as anything else.
Spending Bitcoin in the UAE
With Bitcoin and crypto’s late acceptance on the UAE scene, there is very little in the way of an advanced retail economy for spending cryptocurrency directly into participating outlets. This isn’t helped by the lack of direction regarding tax on spending and trading crypto retailers are probably inhibited from accepting crypto. That said, a number of state-owned companies are able to accept Bitcoin for their services along with a number of restaurants and estate agencies. For the most part, crypto is mostly limited to the inevitable international online brands which accept crypto. The quest is to find which of them is able to transport goods to the country. Oh yes, ATMs are thin on the ground – when they are numerous it is usually a sure sign of a blossoming crypto retail economy within any country
Bitcoin and crypto legislation in the UAE
The UAE had a slow start into the global rise of crypto, even banning Bitcoin early on – admittedly joining many other countries that were very unsure of what they were dealing with. Times have changed. Ironically, right at the time when the UAE is taking huge steps to become a crypto trading hub (talk of a global crypto hub may be pushing it too far) the price of Bitcoin took a nosedive at the back end of 2021.
Crypto trading is legal and thrives, but the country has no specific strategy for trading crypto and taxing it. The country is massively into blockchain – the concept technology that makes for cryptocurrencies and which is now finding many other applications outside of finance. To this end, the UAE is moving rapidly to become a blockchain leader and its Blockchain Strategy is the instrument to pursue its vision.
The Financial Services Regulatory Authority (FSRA), a regulator of the Abu Dhabi Global Markets (ADGM) is the first body in the UAE to provide guidance across the range of crypto activities, from indirect crypto-related services to exchanges. The FSRA also guides the growth of Initial Coin Offerings ICOs – these are ways of raising money for start-ups by issuing crypto tokens to raise money in a similar way to issuing shares for an Initial Public Offering. As well as ICOs, the FSRA also guides the implementation of virtual currencies when they are being offered for sale to investors.
Paying tax on my crypto trading in the UAE
Paying tax on crypto – or rather not paying tax on crypto is a huge attraction in the United Arab Emirates. There is no clear framework for crypto tax – not a good point in the Coincub ranking (efficient tax collection usually points to a more cohesive crypto strategy). There is no capital gains tax on crypto profits and much depends on which jurisdiction you live in and your status as a resident or ex-pat. That said it’s a good idea for individuals to seek some specialist advice because Bitcoin is still a slightly misty play and largely unaccounted for in the tax system. As an investor, you may wish to treat gains as capital gains and hold funds back or consult a tax office for information. As the UAE surges forward on its crypto odyssey it’s highly likely that strategic guidance – one way or the other – will be forthcoming from the government.
Tax relief, changing residency, and gifting crypto coins UAE
As inferred by the previous section, tax relief doesn’t really come into it regarding your crypto gains – or losses, for that matter, as there appears to be no tax on crypto anyway – or capital gains tax. As before the advice is to seek specialist tax advice regarding your situation within the jurisdiction you live in the UAE.
Bitcoin and crypto mining regulations in UAE
Bitcoin mining is alive and well in the UAE – it’s actually flourishing. There is no tax (to speak of, but as ever seek advice first to make sure) and no specific taxation policy or regulation around mining. There are actually highly advanced, specialist companies selling all-powerful crypto mining hardware to help you make that high-tech plunge into fantastic wealth. How long things will stay like this and continue to flourish is anyone’s guess but at the moment it’s full steam ahead.
Planning your retirement and investing in cryptocurrency in UAE
Large pension funds and investment groups around the world are allowing for some form of crypto
within their portfolios, Germany for example has recently given the go-ahead for a proportion of crypto investing within savings and pension funds. Such investing is usually only for professional bodies and not the man in the street. Likewise, many advanced economies are allowing crypto to comprise some part of strategic investment – but for large institutional bodies which can plan for and rationalize the risks and benefits. Anyone wishing to acquire crypto for their own pension – or savings, is at liberty to do so through recognized investment trusts such as Dubai-based Sarwa which holds cryptocurrency as part of their portfolio of investments on behalf of customers.
Bitcoin and the crypto economy in the United Arab Emirates
The government’s late turbo-charged enthusiasm for crypto and blockchain obviously directly affects the financial institutions of the UAE. In the field of financial and capital markets, the UAE Central Bank and the Securities and Commodities Authority (SCA) are the federal regulators and much activity has been centered around licensing of exchanges, security, and safety. Up until late, local banks – like so many around the world, are unsure about handling crypto transactions for their customers, let alone offering full-blown custodial services between customers, wallets, and crypto exchanges. Anti-money laundering requirements and know-your-customer (KYC) obligations are obviously most applicable to banks and UAE banks have found it easier not to open bank accounts for crypto trading businesses. The situation is changing rapidly, however, probably led more by the possibilities that blockchain has to offer and the UAE’s governing bodies’ enthusiasm for it.
The UAE and Defi – decentralized finance in the UAE
Deregulated Finance is a much-used phrase, but whilst the concept is linked to blockchain and decentralized ledgers, it’s still only in the assessment stage for national economies which value tradition and control. Not many central banks and their governments are ready to think of a decentralized financial system for their countries’ economies for example. Like nearly all governments, the UAE is not seriously advocating Defi at a strategic level but where the Defi concept is being exploited in smaller tactical applications around the world, in the UAE there is no wish to support Defi in relation to cryptocurrency. Also on the at arm’s length list of new concepts are NFTs and no regulatory framework has been considered for how to accommodate them as applying to intellectual property laws for example. It’s highly likely that NFTs, with their growing, if somewhat controversial, popularity will soon acquire some form of regulation – Defi would seem to require more of a sea change in thinking before we see it take or – or not.
Crypto regulation in UAE
How to buy bitcoin in UAE?
There are several ways to buy Bitcoin in the United Arab Emirates (UAE). One popular option is to use a cryptocurrency exchange, such as BitOasis or CoinMama. These exchanges allow users to buy and sell Bitcoin using their local currency, the UAE Dirham. You can also use Coinbase in UAE to buy bitcoin and other cryptocurrencies.
To use an exchange in UAE, you will first need to create an account and verify your identity. This typically involves providing a copy of your passport or national ID card, as well as a recent utility bill to prove your residence. Once your account is set up and verified, you can then link it to your bank account and make a purchase.
Another option is to buy Bitcoin through a peer-to-peer marketplace, such as Localbitcoins. These platforms connect buyers and sellers directly, allowing users to make purchases without the need for a third-party intermediary. You can find Bitcoin sellers on the site and make a deal to buy with them directly, sometimes in cash but it’s not common in UAE.
Please note that buying bitcoin or any other cryptocurrency is a high-risk investment and should be done after proper research and consultation with a financial advisor.
How to store bitcoin in the United Arab Emirates?
A good strategy is to store the majority of your bitcoin in a “cold storage” and to use a hot wallet for payments. You can transfer only the amounts you want to spend to your mobile wallet. What does that even mean? Let’s dive in!
A hardware wallet, also known as a “hard wallet,” is a type of cryptocurrency storage device that allows you to store your bitcoin offline. These devices look like USB drives and provide an additional layer of security by keeping your private keys stored on the device itself, rather than on a computer or mobile device.
There are several popular hardware wallet options available, such as Ledger and Trezor. To use a hardware wallet, you will need to purchase the device and follow the manufacturer’s instructions for setting it up and securing it. Once set up, you can transfer your Bitcoin to the hardware wallet and store it offline.
A mobile wallet, on the other hand, is a type of cryptocurrency wallet that you can use on your mobile device. There are various popular options available on the App Store or Google Play Store, such as Coinbase Wallet, Mycelium, or Trust Wallet. Please check for UAE country reviews before going ahead and check the experiences from users before downloading the app. To use a mobile wallet, you will need to download the app and create a new wallet. Once the wallet is set up, you can transfer your bitcoin to it and use it to make transactions and store it safe with the security measures provided by the app.
Before storing bitcoin in any type of wallet, it’s important to understand the security and backup features that the wallet provides, also make sure to keep the backup and recovery seed for hard wallet and backup phrase for mobile wallet at safe place, as these are the only way to recover the assets in case of losing the device or uninstalling the app. You can read more about bitcoin wallets here.
Crypto fraud and UAE
The UAE authorities are just as concerned with fraud and consumer protection as all governments.
The DFSA advises all investors to undertake checks and be aware of the risks and pitfalls – both the choice of investment vehicle and the ever present reality of price volatility. One principal reason for the FSRA’s decision to regulate crypto was to prevent fraud and negligence. As with the country’s late take-up of the crypto phenomenon, scams and frauds were probably able to take advantage of people’s lack of experience. Criminal and civil penalties could apply to crypto fraud and the names of violators can be made public. Much advice on security and safety abounds with the emphasis very much on individuals taking adequate advice and precautions on a personal level.
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