Legal Compliance & Taxation Outlook of the Middle East - Espay Exchange

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Introduction

• The industry of Blockchain and Cryptocurrency,
  after gaining significant impact over the
  economics of the world, has reached a very
  crucial point. The global market is not evolving
  fast enough to deferring large financial for
  blockchain and Cryptocurrency and preventing
  major companies to support their claims. Some of
  the development had made investors progressively
  familiar with this fact that they must not take
  any using or buying digital currency decisions
  for granted.
• Undoubtedly, economic experts are confident about
  the hidden potential and power of this
  Cryptocurrency. Everyone is aware of the fact
  that it can bring solutions to many real-time
  issues and will earn its place in our everyday
  lives.
• However, some popular events occurred in 2018 had
  turned the global eyes to the Middle East in
  regards to the development of Cryptocurrency. The
  event that earned the first place in the list is
  the launch of Emirates Blockchain Strategy 2021
  in UAE in April 2018. This event highlighted the
  aim of the government to switch 50 percent of
  their transactions onto the blockchain. With this
  significant change, UAE will be capable of saving
  77 million working hours every year and 11
  billion in transaction costs.

Middle East
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Introduction

• Two Popular Jurisdictions in the Middle East
• There are two jurisdictions present in the Middle
  East that have sought to codify regulations of
  crypto exchanges, white label cryptocurrency
  exchange companies, crypto assets, and related
  businesses. 
• The Abu Dhabi Global Market (ADGM) A free zone
  in the Emirate of Abu Dhabi in the United Arab
  Emirates
• The Kingdom of Bahrain

Middle East
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ADGM

• ADGM has managed to be the first regulator in the
  region and has issued Guidelines on Regulation of
  ICOs and virtual currencies on 9 October 2017.
  And on 25 June 2018, this jurisdiction has also
  issued guidelines on Regulation of Crypto Asset
  Activities.
• The ADGM is currently licensing crypto-asset
  exchanged and has managed to become the first
  jurisdiction in the UAE to permit such a license.
• However, opening a crypto-asset exchange in the
  ADGM is time-consuming, complicated, and
  expensive. ADGM aims to set the highest standard
  for crypto-asset regulation in the Middle East.
• The authorization fee for crypto-asset exchange
  is 125,000. Additionally, license holders have
  to pay 60,000 per year as a supervision fee.

ADGM
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The Kingdom of Bahrain

• Middle East Bahrain has already launched several
  initiatives, including Central Bank of Bahrain
  Regulatory Sandbox (launched in May 2017), and
  Bahrain FinTech Bay a fintech ecosystem
  established on 30 Aug 2018.
• In February 2019, Bahrain managed to become the
  first Middle Eastern country that published
  regulations on crypto assets in the form of a
  crypto module of the Bahrain Rulebooks Central
  Bank. This Bahrain or directive governs matter
  regarding compliance, licensing, risk mitigation,
  security, and issues licenses for several
  regulated crypto asset services. 
• Now, lets discuss crypto regulations in
  different regions.

Bahrain
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Bahrain

• Crypto Regulatory Sandbox 30 companies are
  approved by the Central Bank of Bahrain (CBB) for
  its regulatory sandbox half of them are
  Cryptocurrency service providers including
  exchanges. The Bahraini Regulatory Sandbox
  permits companies to test their technology-based
  innovations solutions that are relevant to
  fintech or the financial sector.
• In Bahrain, the governor of the Central Bank has
  issued a warning against cryptocurrencies like
  bitcoin. A significance parliamentary session
  took place in the Shura Council, the governor of
  the Central Bank announced that the bitcoin is
  not recognized by any sort of financial
  institution. He also declared that using bitcoin
  in Bahrain is not legal nonetheless, Bharani
  citizens have the right to make investment in
  cryptocurrencies outside the limits of Bahrain. 
• Trading Ban No
• Banking Ban NO
• Tax Haven Region- No
• Best Place for License- No

Bahrain
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Egypt

• Crypto Regulatory Sandbox In January 2018, the
  Central Bank of Egypt also issued a warning
  against the buying and selling of the
  cryptocurrencies, like bitcoin. The major reason
  behind the issuance of this warning was the
  highest risk associated with Cryptocurrencies.
  The Central Bank of Egypt declared an EGP 1 Bill
  Fintech fund and regulartory sandbox (Innovative
  Financial Technology Application Lab for new
  applications). The Central Bank of Egypt also
  stated that commerce within the Arab Republic of
  Egypt is limited to the authorized paper
  currencies permitted by the Bank.
• Trading Ban only allows licensed Cryptocurrency
  companies
• Banking Ban NO
• Tax Haven Region- No
• Best Place for License- No since many regulatory
  laws are still unclear

Egypt
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Iran

• Crypto Regulatory Sandbox On April 22, 2018, The
  Central Bank of Iran declared that it is
  forbidden the handling cryptocurrencies by every
  Iranian Financial Institution, including credit
  institutions and banks. The Central Bank also
  banned currency exchanges from trading virtual
  currencies or adopting measures to promote and
  facilitate them.
• This decision made by the bank cause many
  difficulties for many individuals or financial
  institutions who thought virtual currencies can
  be a solution for the business industry and
  international sanctions. They also thought
  virtual currencies can help in shaping the future
  of banking especially when such currencies are
  transparently and precisely regulated so that
  people in the country can be stopped from trading
  them fraudulently and secretly.
• Before the ban was declared, the IT chief of The
  Central Bank had reported that the Central Bank
  had considered the adoption of a national virtual
  currency, either to be made by the Bank or other
  entities. The major motivation for establishing
  such a currency was that it could be used as a
  replacement for the US dollar.
• Trading Ban Yes
• Banking Ban Yes
• Tax Haven Region- No
• Best Place for License- No

Iran
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Israel

• Crypto Regulatory Sandbox The supervision by
  Israel on regulated Financial Services Law
  requires individuals that are engaging in
  offering services involving financial assets to
  get a license from Financial Services
  Supervision. Virtual Currency is incorporated in
  the definition of Financial Assets.
• A license will be issued to the citizen of Israel
  or any resident who has managed to reach the age
  of majority, is lawfully competent, and has not
  been announced bankrupt or, is not needed to
  dissolve in the case of a corporation.
• Some additional prerequisites for licensing
  comprises that the license has a minimum amount
  of equity and, if a person, has not been
  condemned of a crime that due to its nature makes
  the license incompetent to handle financial
  transactions.
• The Bank of Israel also issued a statement on
  February, 19, 2014, which warned the public
  against the handling of virtual currencies. This
  warning was able to lay out the risks associated
  with buying and selling in virtual currencies,
  including money laundering, fraud, and financing
  of terrorism, between others.
• Trading Ban No
• Banking Ban No
• Tax Haven Region- No
• Best Place for License- Yes, you can easily get a
  crypto exchange license in Israel

Israel
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UAE

• Crypto Regulatory Sandbox In a bid to become a
  leader in blockchain technology, the UAE launched
  the UAE Blockchain Strategy 2021 pursuant to
  which 50 of government transactions will be
  conducted using Blockchain technology by 2021.
  The Financial Services Regulatory Authority has
  become the first regulator in the UAE that issued
  detailed guidance and regulations based on
  carrying out Cryptocurrency related activities.
  The FSRA also issued supplementary guidelines to
  regulate ICOs and virtual currencies.
•  In 2017, The Central Bank of UAE issued stored
  value regulations. According to these
  regulations, all types of virtual currencies and
  their transactions are prohibited in UAE. All
  types of currencies and bitcoin that could be
  used as a medium of exchange are defined as a
  virtual currency in the regulation of Central
  Bank. Nonetheless, there is no definition for the
  functionality of virtual currency as a currency,
  security, or commodity.
• The governor of the Central bank stated that
  currencies like Bitcoin do not come under these
  regulations. According to the governor, a digital
  unit can be used as a medium to exchange and any
  kind of stored value can be described as Virtual
  Currency. Therefore, these regulations can not
  apply to bitcoin or any other cryptocurrencies.

UAE
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UAE

• Trading Ban No
• Banking Ban No
• Tax Haven Region- No
• Best Place for License- Yes
• Currently, Cryptocurrency has managed to gain
  support in the Middle East and the desire for the
  innovation of this technology is progressively
  growing. This region has opportunities and the
  potential to become a big player in advancement
  in this technology and to lead the way for its
  regulation that offers immense benefits to all.
• In the Middle East, a strong foundation is laid
  in the first ten years of blockchain technology
  and Cryptocurrency. Especially, in the UAE, a
  skilled workforce and vast resources will be used
  to drive the future of the crypto.

UAE
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Crypto Taxation Outlook

• One of the most significant questions that come
  from permitting investments in and the usage of
  cryptocurrencies is the problem of taxation. In
  this situation, the major challenge arises to be
  how the cryptocurrencies and specific activities
  can be categorized for the purpose of taxation.
  This is important because whether profits made
  from selling or mining cryptocurrencies are
  categorized as capital gains or income
  consistently finds out the application tax
  bracket.
• According to a survey, Israel has categorized
  cryptocurrencies differently for tax purposes.
  Israel has managed to tax Cryptocurrency as an
  asset.
• Even though virtual currencies are not
  acknowledged as actual currency by the Bank of
  Israel, the Israel Tax Authority has planned that
  the utilization of cryptocurrencies must be
  defined as a means of virtual payment and
  should also subject to taxation.
• Particularly, for the main idea of income tax and
  value-added tax prerequisites, virtual currency
  is considered as an asset and is taxed
  according to the appropriate transaction
  classifications under the Income Tax and the
  Value Added Tax Law, 5736-1975.
• The Israel Tax Authority needs trade
  transactions documentation including virtual
  currency to facilitate authentication of their
  existence as well as scope.

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Final Thoughts

• Whether you are planning for establishing a white
  label crypto exchange software development
  company or a centralized trading development in
  the Middle East, you must know about compliance
  and taxation outlook in this region. This article
  will give you a better understanding of legal
  regulation and taxation in the Middle East.

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