MAYS IBRAHIM (ABU DHABI)
The UAE has solidified its position as a leading global crypto hub in the Middle East, driven by a progressive regulatory framework, competitive tax regime and an investment in innovation, according to industry experts.
In an interview with Aletihad, Nimish Goel, Managing Partner at Dhruva Consultants, noted that authorities like the Virtual Assets Regulatory Authority (VARA) in Dubai and the Abu Dhabi Global Market (ADGM) have developed robust frameworks that emphasise transparency, investor security, and regulatory compliance, creating a trusted ecosystem that attracts global crypto businesses.
The UAE's evolving regulatory framework aims to strike a balance between fostering innovation in the crypto space and ensuring compliance with tax laws, according to Goel. He offered an overview of the key VAT and corporate tax (CT) considerations in the UAE.
Virtual assets like cryptocurrencies are generally treated as exempt financial services for VAT purposes, similar to fiat currency. Transactions involving exchange, transfer, or brokerage of cryptocurrencies are VAT-exempt.
Ancillary services, such as advisory, wallet management, may be subject to VAT at the standard 5% rate if consumed in the UAE. Services rendered to non-residents may qualify as zero-rated exports, provided they meet specific conditions under the VAT law.
Crypto companies generating income from activities within the UAE, including mining, trading, or consultancy, are subject to the standard CT rate of 9% on taxable profits above Dh375,000.
However, crypto firms established in free zones may benefit from CT exemptions on qualifying income if they comply with regulatory requirements and do not conduct business with the UAE mainland.
The volatility of crypto assets can complicate the determination of taxable income, necessitating robust accounting and valuation practices, Goel noted.
Jakub Zurawinski, Head of Business Development in Dubai at Air10, a Poland-based provider of Crypto-fiat solutions, also commended the UAE's proactive approach to regulation, positioning it as a leading crypto hub in the Middle East.
"This clear and supportive regulatory framework has attracted major global players like Binance and OKX, allowing them to operate with confidence. For entrepreneurs navigating the complexities of business, a stable regulatory environment is essential," he said.
The UAE's favourable tax regime along with its strong talent pool have fuelled the growth of this dynamic sector, added Zurawinski.
"As of last year, the UAE's Web3 ecosystem encompassed over 1,800 organisations, employing more than 8,650 professionals. This thriving ecosystem is a testament to the UAE's commitment to becoming a global leader in blockchain and crypto innovation," he said.
Both experts noted that the UAE's advanced technological and financial infrastructure provides a dynamic foundation for crypto businesses and investors.
"Innovation is woven into the very fabric of the UAE's DNA," Zurawinski said. "The country's ambitious vision and openness to new technologies have made it a magnet for disruptors and entrepreneurs."
This forward-thinking mindset is evident in the launch of neobanks like Wio with futuristic infrastructure projects, such as flying taxis in the pipeline, he added.
"Dubai, in particular, has become a hub for tech enthusiasts, with daily events and meetups focused on AI, blockchain, and emerging technologies - something truly unique on the global stage."
Goel views that the UAE's commitment to innovation is reflected in its cutting-edge data centres, seamless blockchain integration across public services, and robust digital ecosystem.
"On the financial front, the UAE boasts a well-developed banking sector, abundant access to venture capital, and strategic free zones like the Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM). These hubs offer regulatory clarity and a business-friendly environment for virtual asset service providers," he said.
The introduction of corporate tax and the application of VAT to specific crypto activities further enhance regulatory sophistication, attracting institutional investors and fostering sustainable growth, according to Goel.
Following Donald Trump's election victory, Bitcoin hit a record high, rallying above $90,000.
Zurawinski estimates that this was driven by investor optimism about a potentially pro-crypto regulatory environment under the new administration.
He noted that US President-elect Trump's campaign promises, including the establishment of a national Bitcoin reserve and transforming the US into a "crypto capital," have sparked hopes for favourable policies toward digital assets.
The replacement of SEC Chairman Gary Gensler, known for his "stringent stance" on crypto, has further boosted market confidence, he added.
Zurawinski expects the sentiment to remain "very optimistic", provided the US follows through on its plans.
As of September 2024, the crypto industry has already seen over $2.1 billion lost to hacks and thefts - surpassing the total losses for all of 2023, according to Zurawinski.
"The reality is that hackers are becoming more creative, and the tools at their disposal are increasingly sophisticated," he said.
Some of the most prevalent scams include sophisticated phishing attacks (like fake SMS from exchanges), fake investment platforms, and "rug pulls" in the decentralised finance (DeFi) space, Zurawinski noted.
"Social engineering remains a major threat, with scammers impersonating influencers or trusted entities to deceive victims into transferring their funds. There's also been a surge in the use of AI-generated deepfakes, which can be incredibly convincing and are used to trick individuals into parting with their crypto assets," he added.
Zurawinski noted that it's important to conduct thorough due diligence on potential investments to avoid falling victim to fraud in the crypto space. This includes checking who is behind the project, where it's listed, and whether it has undergone audits by cybersecurity experts.
Prioritising the use of hardware wallets, enabling multi-factor authentication, and being wary of suspicious links are also crucial steps in safeguarding assets, he said.
On a broader industry level, there's a need for more advanced solutions leveraging cryptographic proofs to enhance user protection, according to Zurawinski.
"A significant technological gap still exists, making it difficult to verify counterparties with certainty in the blockchain space. Additionally, complex alphanumeric addresses can lead to human error. For widespread, safe adoption, we need technologies that seamlessly combine security, privacy, and regulatory compliance," he explained.