A cryptocurrency is a form of digital money that is decentralized and relies on blockchain technology. Although you might be aware of the most well-known versions, Ethereum and Bitcoin, there are over 5,000 distinct cryptocurrencies in use.
When Satoshi Nakamoto, the unknown founder of Bitcoin, introduced the Electronic Cash System in late 2008, the terms Bitcoin, Cryptocurrency, and blockchain were unfamiliar to the rest of the world. The idea spread like wildfire over the world, and investors from all over the world launched a cryptocurrency market for buying and selling. In comparison to the current scenario, where the world's first cryptocurrency deep "cold storage" organisations are established and working in UAE, and before the tides of increasing profit hit the market, UAE was also unfamiliar with this concept.
Crypto allows value to be transferred online without the involvement of a middleman such as a bank, allowing value to be transferred globally. A government or other central authority does not normally issue or control cryptocurrencies. They are controlled by peer-to-peer computers network working with free, open-source software.
Laws Regulating Cryptocurrency in UAE
The Financial Services Regulatory Authority of Abu Dhabi Global Market (FSRA-ADGM) was the first one to provide rules and regulations regarding cryptocurrency purchasing and selling.
The guidelines dealt with the regulation of Initial Coin Offerings (ICO) and digital currencies, which allow the general public to buy and sell cryptocurrency. The actual commodity will be determined by FSRA-ADGM on a case-to-case basis. The goal of the ADGM rules and regulations is to strengthen transparency, combat financial terrorism and limit money laundering.
DMCC (Dubai Multi Commodity Authority) has given an opportunity for traders to establish a Cryptocurrency trading business, inspired by ADGM laws. Companies, on the other hand, would only be permitted to trade according to their own capacity. As a result, such companies will be able to build the world's first Cryptocurrency deep "cold storage" vault.
According to the issuance of ADGM rules, the UAE's Central Bank issued a regulatory framework for the Electronic Payment System in 2017, restricting all digital currencies and transactions and raising concern in the UAE market.
The governor of the Central Bank, however, stated that the restrictions would not apply to Cryptocurrency after obtaining an unsatisfactory review. Despite this confirmation, the UAE still lacks approved regulations to which one can resort in order to successfully understand cryptocurrency validation or file a claim for digital currency fraud.
New Regulations Were Implemented to Regulate Cryptocurrency
The most important regulation recently implemented in the UAE is the Securities and Commodities Authority's (SCA) Decision No. 23 of 2020 regarding Crypto Assets Activities Regulation, which comes into force on November 1, 2020.
Almost all activities with Crypto Assets are governed by the Regulation, which includes offering, issuing, advertising, listing, and regulating exchanges for the trading of Crypto Assets including cryptocurrencies and associated activities.
All of these actions will need SCA permission and, it appears that it will be subject to the same rules that apply to traditional securities.
The Regulation further expands on current money-laundering and terrorism-financing restrictions, such as regulating all licensed persons to consider client's transaction in Crypto Assets as 'high risk' for the reason of client due diligence.
Punishments for Supporting Unrecognized Cryptocurrency
Under Article 48 of the Online Security Law, any individual who advertises, promotes, or encourages trading in cryptocurrency which is not legally recognized in the UAE, and who does without being authorized, is liable to a punishment of detention or a fine between Dh20,000 to Dh500,000," according to Josh Kemp, a partner at ADG Legal.
Apart from the fact that any fraudulent plan is illegal under the Penal Code, committing a crypto scam online would put people at risk of being prosecuted under the new law.
Article 40 carries a punishment of not less than 1 year in prison or a fine of somewhere between Dh 250,000 and Dh 1 million, while Article 41 carries a penalty of up to 5 years in prison or a fine of between Dh 250,000 and Dh 1 million, according to Kostubh, a dispute resolution lawyer at ADG Legal.
Taxation of Cryptocurrency Activities in UAE
The UAE has no income taxes for crypto businesses, which makes it interesting to entrepreneurs.
If you use cryptocurrencies for trade or earn them as a salary, you will pay no tax on cryptocurrency in Dubai.
The UAE, on the other hand, has an extremely low Value Added Tax rate of 5% from the beginning of 2018. You should get additional advice to assess whether or not your project is VAT-exempt.
And, there are rare exceptions, that taxes on crypto is not carried out in the UAE.
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