Legal Insights
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ToggleIn the dynamic world of Web3, the UAE stands out as a beacon of innovation and opportunity. Thanks to its visionary policies and progressive and clear regulatory landscape, the UAE has emerged as a top-tier destination for crypto entrepreneurs.
Imagine a country with minimal taxes, clear regulations for Virtual Asset Service Providers (VASPs), a vibrant Web3 community and abundant venture capital opportunities. Therefore, for those ready to make their mark in the crypto space, the UAE isn’t just a random choice – it’s the premier jurisdiction.
As 2024 sees a surge in the number of companies entering the UAE’s thriving market, our comprehensive legal guide offers the essential steps to launch your crypto venture legally in the UAE. It will steer you clear of costly pitfalls and save you time and effort.
Step 1. Define The Regulatory Business Model
When determining the business model for a crypto company in the UAE, it is important to consider various factors such as the type of activities you plan to undertake, target market, regulatory regime, costs, and timeframes associated with company incorporation and obtaining relevant licenses.
Crypto entrepreneurs often have ambitious plans to offer a wide range of services. However, it is recommended to start with identifying the primary types of activities. This approach will help you to stay focused on the initial stages of building your business. Additionally, it will enable the regulator to more efficiently understand your business model and categorize it under the desired licensed activity.
Practical Tip: To increase your chances of obtaining necessary regulatory permits, it’s important to communicate effectively with the authorities. Make sure that your Regulatory Business Model is properly defined and that you convey this information correctly to the regulators.
Step 2. Have A Regulatory Business Plan Professionally Prepared
One of the common mistakes made by crypto entrepreneurs is not having a detailed Business Plan and White Paper professionally prepared when registering their company or communicating with government bodies. In the UAE, having these documents is essential at every stage of building your business, starting from registering a company to obtaining necessary licenses or attracting investors.
A Regulatory Business Plan is a document that describes a company’s regulatory activities as well as commercial objectives, along with the strategies it plans to implement in order to achieve them. Typically, such business plan must include detailed information regarding the company’s products and services, management structure, and the targeted market.
White Paper provides a comprehensive overview of the project’s technical architecture and functionalities. It is intended to outline the core ideas and mechanics of a project, acting as both a technical guide and a marketing tool.
Practical Tips: It is recommended that those documents are reviewed for compliance with the relevant VASP regulations by an experienced crypto lawyer to ensure that they align with the core business activities and adhere to the regulatory regime to which the company is seeking to become subject to before such documents are shared with any regulatory authority.
Step 3. Examine Regulatory Regimes
The UAE is a unique jurisdiction and, thus, an attractive place for crypto founders as it has several Virtual Assets (VA) regulatory frameworks, aka VASP regimes, throughout the country. At present, the regulatory framework within the UAE governing the provision of virtual asset services comprises:
- Federal Regulations
- Financial Free Zones Regulations: DIFC and ADGM
- Local Regulations in the Emirate of Dubai
Federal Regulations
At the Federal level, there are two financial regulators authorized to regulate Virtual Assets activities:
- Securities & Commodities Authority (SCA): the primary VA regulator in the country (except for the Financial Free Zones).
- UAE Central Bank (CBUAE): regulates everything related to payment tokens and CBDCs.
Financial Free Zones Regulations
The UAE has two Financial Free Zones: Abu Dhabi Global Market (ADGM) and Dubai International Financial Centre (DIFC). These Zones are not governed by Federal Regulations and operate under a common law legal system. As a result, each of the Financial Free Zones has its own regulatory authorities.
- The Financial Services Regulatory Authority (FSRA) is the regulatory body for the ADGM Free Zone.
- The Dubai Financial Services Authority (DFSA) is responsible for the DIFC.
Step 4. Incorporate A Company
Once the regulatory analysis is completed, you will be able to decide where to incorporate your company. If the business activities are considered regulated, meaning they require obtaining a license from the relevant Financial / VA regulator, you must select one of the licensing regimes mentioned above, which will determine the jurisdiction of incorporation for the company.
Step 5. Obtain Residency Permits For Shareholders And Managers
This particular step is optional, as some crypto founders may not relocate to the UAE after registering their company. However, if the shareholders intend to stay and reside in the UAE, they must obtain a residency permit, also known as a residency visa.
Step 6. Open A Bank Account And A Crypto Exchange Account
Banking still remains a sensitive area for crypto companies globally, but the UAE is making efforts to make a change. Currently, there are several options available for a bank account for VASPs in the UAE.
Step 7. Obtain A Corporate Tax Registration Number
In 2022, the UAE introduced a Federal Corporate Tax at a rate of 9%. Prior to this, only certain businesses were subject to a 5% VAT and most of the UAE companies did not have to obtain a tax number. However, from June 1, 2023, all companies and individuals earning business income must register with the Federal Tax Authority and obtain a Corporate Tax Registration Number.
Step 8. Ensure Ongoing Compliance
Starting a crypto business entails complying with legal requirements that apply to all businesses within the country on an ongoing basis. These obligations include:
- Accounting and Audit
- Filing Tax Returns
- AML / CTF Regulations Compliance
- Data Protection and Privacy Laws
- License Renewal
- Office Lease Renewal
Wrapping Up
The UAE Federal Law specifically prescribes that no entity can engage in Virtual Assets-related activities unless approval and license are obtained from the Financial Regulator (SCA) or its delegate in a specific Emirate (VARA in Dubai).
Failure to comply can lead to heavy sanctions, fines of up to 50 million AED, disgorgement of profits, and even criminal liability for founders and managers. Consequently, before engaging in any crypto activity in the UAE, it is necessary to study the regulatory regimes and identify whether the business activities of the company are regulated and require a license under the VASP Regime.
Ensure to engage a professional crypto lawyer to avoid costly consequences.
Contact us today for personalised legal advice to ensure your business is fully compliant with the latest requirements.