Chapter 12
Bitcoin in the UAE
The UAE’s stance on Bitcoin and virtual assets has evolved considerably in recent years. From initial caution, reflected in warnings from the Central Bank, the country has shifted towards becoming a global leader in regulating and accepting regulated virtual assets services providers, including offering of Bitcoin.
“There is no second best.” – Michael Saylor
Legal and Regulatory Framework
Over the past few years, UAE has introduced a comprehensive regulatory framework in relation to virtual assets at both a federal and emirate level.
Under the federal regulatory framework Bitcoin, defined as a virtual asset, is recognized as a digital representation of value that can be traded or used for investment.
This legal recognition of Bitcoin as property provides owners with protections, including the ability to bequeath it as part of their estate.
Accepting Bitcoin as Payment
The UAE Central Bank’s Payment Token Services Regulation (PTSR), introduced in June 2024, has specific implications for accepting Bitcoin as payment.
The PTSR primarily focuses on stablecoins, defining payment tokens as virtual assets whose value is pegged to fiat currencies like the Dirham or other stable assets.
These tokens, such as Dirham-backed stablecoins, can be used as legal payment within the UAE if licensed by the Central Bank.
Bitcoin cannot be legally accepted as a direct form of payment
for goods and services under the new regulation.
The law prohibits merchants from accepting virtual assets as payments unless they qualify as licensed payment tokens, which Bitcoin and similar cryptocurrencies do not.
That said, Bitcoin can still be used for investment purposes or for the purchase of virtual assets (e.g., NFTs) through regulated Virtual Asset Service Providers (VASPs), such as those licensed by the Securities and Commodities Authority (SCA) or Dubai’s Virtual Assets Regulatory Authority (VARA). Therefore, businesses looking to accept Bitcoin must ensure they comply with these legal restrictions and may need to explore alternative uses for Bitcoin, such as trading or holding it for investment.
The transition period for this regulation extends until July 2025, giving businesses time to adjust their operations accordingly.
Bitcoin Mining
Cryptocurrency mining, including the mining of proof-of-work coins like Bitcoin, is not a regulated activity.
Companies can base their mining operations internationally and book profits from mined Bitcoin in the UAE, benefiting from the country’s low-tax and business-friendly environment. However, the Abu Dhabi Agricultural and Food Safety Authority recently issued an advisory prohibiting the use of farms for cryptocurrency mining operations.
Personal Holding Companies for Bitcoin
Many investors establish holding companies (HoldCo) in the UAE to manage their Bitcoin investments. This structure offers privacy, tax efficiency, and the ability to engage in trading and investment activities, benefiting from the UAE’s regulatory framework and favourable tax policies.
Note of Caution!
The virtual asset regulatory landscape in the UAE is evolving rapidly. It is crucial for businesses and investors to stay updated on the latest regulations and seek legal guidance to ensure compliance with changes in the regulatory environment.
For more detailed updates and to stay compliant, it’s recommended that legal experts and official updates from the SCA and VARA be regularly consulted.
