Blockchain in the UAE: A country of business opportunities in the field of new technologies
How to start a blockchain and virtual asset business in an Arab country
The Ministry of Economy has recently announced Ukraine's interest in a digital partnership with the United Arab Emirates. At the moment, it is about the use of the Diya service architecture by Arab partners. Ukraine, on the other hand, is interested in using artificial intelligence (AI) tools to predict economic development. However, the UAE may also be of interest to Ukrainian companies for other innovative opportunities. For example, Dubai and the United Arab Emirates (UAE) as a whole aim to achieve global leadership in blockchain technologies. Yuriy Mosunov, Director of A1 Consulting in the UAE, told Mind how to start a blockchain business in the UAE and why it might be interesting for Ukrainian entrepreneurs.
By promoting the development of this technology in every possible way, the UAE aims to increase its attractiveness as a business jurisdiction and attract more investors from around the world. The UAE government has already been implementing various government programmes and initiatives to develop blockchain technology and virtual asset entrepreneurship for several years.
One of the first significant steps was the announcement of the Dubai Blockchain Strategy in 2016. This visionary project was one of the first government initiatives in this area and one of the first in the world.
The UAE is waiting for entrepreneurs and startups
Dubai's blockchain strategy is primarily aimed at attracting startups and entrepreneurs to open their businesses in Dubai. The government has created a favourable ecosystem that includes funding, mentorship, and regulatory support to encourage innovation and entrepreneurship in the blockchain space.
Dubai's strategic location, world-class infrastructure, and favourable government policies make it one of the best places for blockchain startups aiming to grow and scale. As part of this initiative, Dubai has already launched several projects, including a blockchain-based trade finance platform and a blockchain-based KYC platform that has been implemented in several UAE banks.
Dubai has also opened the Dubai Blockchain Centre, which, apart from supporting startups and entrepreneurs in the blockchain space, also focuses on research and development. The Blockchain Centre conducts research programmes and implements initiatives aimed at exploring the potential of blockchain technology in various industries, including finance, healthcare, and logistics.
One of the key initiatives launched by the Dubai Blockchain Centre is the Dubai Blockchain Challenge. It is an annual competition that invites startups worldwide to submit their ideas to the jury. The winners of the competition receive funding, mentorship, and support from the Blockchain Centre and its partners to implement their projects.
A clear legal regime for doing business and storing virtual assets has been provided
Dubai's free economic zones (FEZs) have also introduced some initiatives, such as the crypto centre within the Dubai Multi Commodities Centre (DMCC) and the innovation hub at the Dubai International Financial Centre (DIFC), which also aim to help entrepreneurs implement startups and technological developments using blockchain technology and virtual assets.
In the legislative space, the Dubai government is also taking steps to establish a clear legal regime for business in this area. Thus, in 2022, Law No. 4 on the regulation of virtual assets in the Emirate of Dubai was adopted, which established the Virtual Assets Regulatory Authority (VARA) as the authority for the regulation of virtual assets in the Emirate of Dubai.
In its turn, the Abu Dhabi Global Market (ADGM), a financial free zone located in the emirate of Abu Dhabi, has introduced several regulations on the exchange and storage of virtual assets, as well as the initial coin offering (ICO) of cryptocurrencies and other mechanisms for raising funds using virtual assets.
Of particular note, earlier this year, the UAE Cabinet of Ministers approved a resolution and established an independent regulatory body to regulate virtual assets and virtual asset service providers. It is the first decision to regulate the industry at the national level. Today, there are already several hundred blockchain and virtual asset companies operating in the UAE. The most famous names include: Binance, Kraken, Crypto.com, Bybit, and ConsenSys.
At the same time, Dubai and the UAE provide opportunities for the legal acquisition of real estate and other assets for cryptocurrency, as well as a wide range of tools for exchanging virtual assets for local currency. Some of the companies operating in this area have already gained a reputation as reliable and trusted organisations that are able to ensure the conclusion of completely safe transactions and secure operations with virtual assets.
Read also: Crypto exchanges: Why they should be regulated and how?
The UAE offers businesses a choice of several free economic zones
The process of opening a blockchain and virtual asset company in the UAE is generally similar to opening any company in a free economic zone. The key stage that should be paid the most attention to is the selection of the free economic zone and the types of activities that will be included in the licence after registration.
The cost of the licence is an important point, as it is a significant cost item when registering a company. Depending on the FEZ, the cost of the licence may vary significantly. For instance, the difference in the cost of a licence between one of the most famous free zones in Dubai – Dubai Multi Commodities Centre (DMCC) and other less advertised free zones may be almost twofold, despite the fact that the quality of services in such free zones and the speed of company establishment procedures are often better. It is also worth noting that companies in the UAE need to renew their licences annually. Thus, the lower cost of a licence when registering a company can significantly reduce the cost of maintaining the company in the future.
In total, there are more than 50 different free economic zones in the UAE, each of which has its own list of activities. It should be noted that a company incorporated under UAE law can only engage in the activities specified in its licence. In this aspect, the understanding of the legal personality of UAE companies differs significantly from the usual universality for our country, when a company has the right to carry out almost any type of activity. Given the above, it is crucial to choose a free economic zone that allows you to set up a company with the types of activities required for your business.
Currently, free economic zones within the UAE can offer licences for the following types of activities related to blockchain technology and virtual assets:
- trading of own crypto assets (DMCC, DWTC, DAFZA, DSO);
- providing services in the field of blockchain technologies (DMCC, DWTC, DSO);
- providing NFT marketplace services (DMCC);
- supply of metaverse services (DMCC, DSO);
- crypto mining (DMCC);
- providing mining infrastructure operator services (DMCC).
Read also: Cryptocurrencies go underground: NBU bans withdrawals from crypto wallets. Why is it a sign that the market is being prepared for strict regulation?
Possibilities of a particular FEZ – Abu Dhabi Global Markets
One should consider separately the FEZ called Abu Dhabi Global Markets (ADGM), which, due to separate regulation by a specially created body, the Financial Services Regulatory Authority (FSRA), provides for the possibility of obtaining licences for:
- operating a cryptocurrency exchange;
- operating as a storage facility for virtual assets;
- management of virtual assets of other individuals;
- marketing of virtual assets;
- conducting initial cryptocurrency offerings (ICOs) and other fundraising mechanisms using virtual assets.
For example, in accordance with the ADGM's rules, in order to obtain licences for the above-mentioned activities, companies must have financial services permit from the FSRA, comply with several operational and security requirements, as well as anti-money laundering (AML) and counter-terrorist financing (CFT) rules. For cryptocurrency exchanges, the ADGM additionally requires robust systems and controls to be implemented to prevent market manipulation and ensure fair and transparent trading.
The ADGM rules also cover the usage of blockchain technology by other companies. Businesses that use this technology to provide financial services must obtain the appropriate permission from the FSRA and comply with the AML/CFT rules.
Overall, the ADGM's blockchain and virtual asset rules are designed to promote a secure and transparent market for such assets. By establishing requirements and rules for the issuance, holding, and exchange of virtual assets, the ADGM primarily seeks to prevent financial crime and ensure investor protection. The rules also create a safe space for companies to operate in this area, which should have a positive impact on consumer and investor trust.
Regulation of the virtual assets industry
The Virtual Assets Regulatory Authority (VARA) was established in accordance with the Virtual Assets Regulation Law adopted by the Government of Dubai in 2022. It regulates the virtual assets industry in the Emirate of Dubai. VARA's rules are aimed at protecting investors, preventing financial crime and promoting a fair and transparent market. VARA's rules cover all aspects of virtual assets, including exchanges, holders, cryptocurrency wallet service providers, and virtual asset issuers.
The rules established by VARA are similarly aimed at ensuring that companies operating in the industry comply with anti-money laundering, anti-terrorist financing, data protection and cybersecurity standards. The regulations that set out specific rules and requirements for companies in the virtual asset industry were issued by VARA only in February this year. Therefore, it is too early to make conclusions about their impact on the industry. It is worth noting that the rules established by the VARA currently cover the following areas of activity:
- the operation of cryptocurrency exchanges;
- brokerage and dealer services;
- storage of virtual assets;
- lending and borrowing services;
- asset management and investment services;
- consulting services in the field of virtual assets.
It is interesting to note that currently, the Dubai free economic zones do not have these areas of activity in the list of activities that can be included in the licence when opening a company. Most likely, the reason for this is only the recent publication of the aforementioned regulations. It is expected that the free economic zones will bring their lists of permitted activities into compliance and supplement them soon.
According to the rules established by the VARA, all companies wishing to carry out activities related to virtual assets must obtain a permit from the VARA before carrying out such activities. In fact, by creating this body, the Dubai government has introduced an additional stage of verification of companies intending to engage in such activities.
Advantages of the UAE for doing business
What is the most positive aspect of the introduced regulatory framework, that it allows companies in the virtual asset industry to confirm their compliance with international standards of financial security and information protection. In the future, it should significantly simplify their access to banking services and create a foundation for legitimate fundraising from investors.
To summarise, the process of starting a business in the field of blockchain technologies and virtual assets in the UAE can be divided into several main steps:
- Identification of specific types of activities and selection of a free economic zone. At this stage, it is necessary to choose the UAE free economic zone that is able to offer a licence for the required types of activities, as well as the optimal balance between cost, the convenience of registration, further maintenance of the company and the range of services, as well as other options that may be useful in further activities.
- Filing an application for starting a company. After making a decision on the list of activities and selecting a free economic zone, one can submit an application with the appropriate package of documents to establish a company and obtain a licence for the relevant activities.
- Ensure the company's compliance with regulatory requirements and obtain regulatory approvals. Depending on the chosen free economic zone, the company will be obliged to ensure compliance with the requirements and regulations established by the VARA (in the case of a free economic zone in the Emirate of Dubai) or the FSRA (in the case of ADGM). These are the regulatory authorities that will decide whether to grant a permit for the company's chosen type of activity in the field of blockchain technology and virtual assets.
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