Crypto Assets company formation in UAE

Crypto Assets company formation in UAE

A study by Forex Suggest ranked UAE at the fourth position of the crypto-ready nations ranking in the world. 2022 has already seen many crypto exchanges, such as Binance, Kraken, Crypto.com, Bybit, etc., entering the UAE with necessary approvals. Many industry verticals like hotels, auctions, hospitals, traders, and government agencies accept crypto payments.
All these events and initiatives by the government show that it aims to expand the use of crypto assets in the country. The country is taking steps in the right direction to become a global crypto center by having adequate regulation to manage the crypto activities and, at the same time, attracting countries worldwide to invest and set up crypto businesses in the UAE.
In the future, it will serve as the crypto hub for Middle Eastern and North African countries and other nations. Let’s explore the licensing regulations for cryptocurrency in UAE.

A. UAE Mainland (Except Dubai and Free Zones)

The UAE Central Bank and the Securities and Commodities Authority (SCA) govern the financial sector and related activities in the UAE Mainland.
Cryptocurrencies are not yet licensed or considered legal tenders in the UAE. But there are no restrictions on crypto assets.The citizens already own cryptocurrencies to trade the same or use them for commercial transactions or deposit them as an investment.
To develop UAE as a crypto hub, the government has laid down the strategy and developed the required regulations to manage the same. The government is investing in regulating, controlling, and promoting the crypto assets business in the country. The government has licensed vendors, such as crypto assets service providers, metaverse service providers, and distributed ledger technology providers.
Regulations-for-crypto-assets-in-the-UAE

SCA Decision No. 23 of 2020 concerning the Crypto Assets Activities Regulation (CAAR):

CAAR has been issued to regulate the “Crypto Assets” related activities – offering, issuance, listing, and trading of the crypto assets. CAAR defines a crypto asset as “a record within an electronic network or distribution database functioning as a medium for exchange, storage of value, unit of account, representation of ownership, economic rights, or right of access or utility of any kind, when capable of being transferred electronically from one holder to another through the operation of computer software or an algorithm governing its use.”
The permitted activities include virtual assets’ custody services, trading platforms, crypto assets issue and promotion services, etc. It includes all types of cryptocurrencies recognized and accepted in the UAE for listing and trading purposes. Yet, items under the Central Bank’s purview are not included under the SCA’s scope.

Central Bank Circular No. 6/2020 – Stored Value Facilities Regulation (SVF Regulation):

The SVF Regulation has been issued to monitor the stored value facilities (SVFs) in the UAE Mainland. SVFs are defined as non-cash facilities into which users pre-pay money (which includes values, reward points, crypto-assets, or virtual assets) so that users can use that method to pay for goods and services.
The country is expected to see a local digital currency by 2026, as announced by the Central Bank of UAE. All these steps in the cryptocurrency world will make UAE a competitive economy in this space.

B. Abu Dhabi Global Market (ADGM)

The Financial Services and Markets Regulation 2015, along with the Regulation of Digital Security Offerings and Virtual Assets under the FSMR and Regulation of Digital Securities Activity in ADGM regulates crypto assets in ADGM. ADGM guidelines define a virtual asset as a digital representation of value that can be digitally traded and functions as a:
  • Medium of exchange and/or
  • A unit of account and/or
  • A store of value
It also clarifies that the virtual assets do not hold the status of legal tender and are:
  • Neither issued nor guaranteed by any jurisdiction and fulfills the above functions only by agreement within the community of users of the Virtual Asset and
  • Distinguished from Fiat Currency and E-money

Permitted Activities For Crypto In ADGM

The regulator, the Financial Services Regulatory Authority (FSRA), permits the following activities in ADGM:
  • Managing crypto assets of people
  • Crypto exchanges and operating a trading facility
  • Marketing of crypto assets
  • Providing custodial services for crypto assets
  • Crypto investment advisory and related activities conducted as an agent

Licensing Process For Crypto In ADGM

Following are the steps and requirements to register and operate in ADGM for permitted activities in virtual assets:
  • Due Diligence: You must give valid reasons and explanations to FSRA about your business model, technology infrastructure, and compliance with FSRA rules.
  • Application: You must submit the fees and a completed Virtual Asset Application form. You must take these steps only after FSRA approves your proposed technologies, business processes, and capabilities to run a virtual assets business.
  • In-principal approval: Upon careful assessment of your documents and forms, the FSRA will give you an in-principal approval.
  • Final Approval: Final approval is subject to FSRA’s satisfaction regarding the business’s operational testing and capabilities and the system verification by a third party, which is suggested by the FSRA while granting in-principal approval.
  • “Operational Launch” Test: FSRA engages in operational launch testing to closely supervise the applicant’s infrastructure and readiness, as the risks in virtual assets businesses are very high.
  • Bank Account opening: Upon review and approval of the applicant’s AML Policy and customer onboarding process, including the procedures for identifying the source and destination of funds, FSRA will allow the applicant to open a bank account.

Additional requirements For Crypto In ADGM

1. Appointment of Officers:

Any legal entity in the crypto space in ADGM must appoint a Money Laundering Reporting Officer (MLRO) and a Senior Executive Officer, who must be UAE residents. A Compliance Officer (in-house & external consultant) and a Finance Officer (which can be outsourced) should also be appointed.
Regarding auditing requirements, external auditors need to be from the ADGM-approved panel of external auditors, while internal audit functions can be outsourced.

2. Capital requirement:

The capital required ranges from 12 to 6 months of operational expenses (determined as per IFRS), depending on the nature of virtual assets activities. FSRA may also require the induction of additional capital as a buffer.

3. Marketing jurisdictions:

No restriction on marketing activities outside your free zone, subject to adherence to the marketing rules of the relevant jurisdiction where marketing is conducted.

C. Dubai International Financial Centre (DIFC)

Dubai Financial Services Authority (DFSA) exercises control on regulating and supervising the activities of the virtual asset in DIFC. It launched the regulatory framework for investment tokens on October 25, 2021. In 2022, consultations are in the process of broadening the scope of accepted crypto assets and covering regulations for related activities.
Crypto players in DIFC enjoy several legal, taxation, and regulatory benefits. 100% foreign ownership is permitted in the crypto business. Also, you can carry out cross-border crypto activities easily. There is no restriction on capital repatriation and recruitment of foreign employees.

Permitted Activities For Crypto In DIFC

Permitted Activities For Crypto In DIFC:
  • Management of crypto assets
  • Dealing in Investments as Principal or Agent
  • Advising on Financial Products and assistance in deals
  • Operating an Exchange, Clearing House, and Alternative Trading System
  • Providing Custodial services

Licensing Process For Crypto In DIFC

To obtain a crypto license for operating in DIFC, an applicant has to follow the below-mentioned steps:
  • Introduction: There will be a formal introduction with DIFC and DFSA.
  • Business Plan: You will prepare a comprehensive regulatory business plan, including financial projections. It shall be reviewed by the DFSA and may provide suggestions for necessary changes to be incorporated.
  • Application: You must prepare the application form, updated business plan, relevant identity documents, and other proofs and submit them to DFSA. 
  • Review by DFSA: DFSA reviews the application and documentation for 7-10 days and accepts it. The detailed review takes 90-120 days for checking and processing. 
  • DFSA meeting the officers: DFSA meets the CEO, MLRO, Compliance Officer, Technology Head, and Finance Officer to interview them. 
  • In-principal approval: DFSA grants an in-principal approval. 
  • Other critical requirementsOnce you receive the in-principal approval, you need to set up a legal structure, open a bank account, deposit the share capital amount in the account, appoint auditors and get professional indemnity insurance for the legal structure. You must submit all these proofs to the DFSA. 
  • Final Service Permission: When DFSA receives all the above documents, it issues the final Financial Service Permissions. 

Additional requirements For Crypto In DIFC

1. Appointment of Officers:

Any legal entity operating in DIFC must appoint a Money Laundering Reporting Officer (MLRO) and a Senior Executive Officer, who must be UAE residents. A Compliance Officer (in-house & external consultant) and a Finance Officer (which can be outsourced) should also be appointed.
Regarding auditing requirements, external auditors need to be from the DFSA-approved panel of external auditors, while internal audit functions can be outsourced.

2. Capital requirement:

The capital required for operating a crypto assets business in DIFC is USD 1,000,000 plus the 18/52 expenditure-based minimum capital.

3. Marketing jurisdictions:

There is no restriction on marketing activities outside DIFC, subject to the marketing rules of the relevant jurisdiction where marketing is conducted.

D. Dubai, except DIFC

The Virtual Asset Regulatory Authority (VARA) has been established to supervise and govern the crypto activities in the Dubai Mainland, including free and special development zones, except DIFC. VARA shall supplement the CBUAE and the SCA on crypto regulation and monitoring activities.
In February 2022, Law No. 4 of 2022 on the Regulation of Virtual Assets in the Emirate of Dubai was issued. Establishing VARA and enacting the new law will help set up Dubai as a crypto center with international crypto standards. The critical responsibility of VARA includes the classification of virtual assets and monitoring the activities and operations of crypto players.
The law defines “virtual assets” as “a digital representation of value which can be digitally traded, transferred, or used as an exchange or payment instrument or for investment purposes” and include cryptocurrencies, tokens, non-fungible tokens, and any other virtual asset determined by VARA.

Permitted Activities For Crypto In Dubai, Except DIFC

Following activities would be permitted, subject to monitoring by VARA:
  • Operation and management of virtual asset platform
  • Operation of exchange between virtual assets and crypto
  • Virtual assets safekeeping, management, and control services
  • Activities related to virtual asset wallet
  • Services related to virtual token listing and trading

Licensing Process For Crypto In Dubai, Except DIFC

The process for crypto business registration in Dubai involves the following steps:
  • Finalization of business activities and name: Identify the business activity in the crypto domain you want to operate and select the business name in compliance with naming convention guidelines.
  • Business Plan: Prepare a detailed business plan. It must include information on your activities, goals, target audience, management team, business structure, sales strategy, funding requirements, and financial projections.
  • Selection of free zone: Select the free zone where you want to establish your company and apply to the relevant registration authority.
  • Document submission: Comply with the stipulated regulatory requirements by submitting all the relevant documents, such as passport copies, photographs, and business legal documents.
  • Office space: Choose a suitable space for your business and prepare the rent agreement. Make the necessary payment of rent and application fees.
  • Application: Obtain your license from the authority after your documents and eligibility requirements are approved.
  • Visa and bank account: Apply for a UAE residence visa. Also, apply to open a bank account for your business transactions.

Additional requirements For Crypto In Dubai, Except DIFC

1. Meeting the compliance requirement:

Crypto businesses in Dubai must comply with Anti-Money Laundering requirements and get the books of accounts audited regularly.

2. Clean crypto wallet:

An applicant shall not have any reported fraudulent transactions or activities related to the crypto wallet and shall hold a completely clean and genuine crypto wallet.

E. DAFZA

Dubai Airport Free Zone Authority (DAFZA) signed an agreement with SCA for regulations supporting entrepreneurs and businesses in the crypto segment. Thus, SCA shall govern the crypto offering, listing, and trading of crypto in DAFZA. A crypto license in DAFZA would allow one to provide crypto services to international investors related to trading and associated services.

F. SRTIP

Sharjah Research Technology Innovation Park (SRTIP) provides crypto licenses to companies to operate in this space. They can operate in crypto trading and crypto managing.

About the Author

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Pathik Shah

FCA, CAMS, CISA, CS, DISA (ICAI), FAFP (ICAI)

Pathik is a Chartered Accountant with more than 25+ years of experience in compliance management, Anti-Money Laundering, tax consultancy, risk management, accounting, system audits, IT consultancy, and digital marketing.

He has extensive knowledge of local and international Anti-Money Laundering rules and regulations. He helps companies with end-to-end AML compliance services, from understanding the AML business-specific risk to implementing the robust AML Compliance framework.