Legal Compliance & Taxation Outlook of the Middle East - Espay Exchange
                     
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.
Middle East
● 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.
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 Middle East
the United Arab Emirates
 The Kingdom of Bahrain
 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 ADGM
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.
 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 
Rulebook’s Central Bank. This Bahrain or directive governs matter regarding 
compliance, licensing, risk mitigation, security, and issues licenses for several 
regulated crypto asset services. 
● Now, let’s discuss crypto regulations in different regions.
Bahrain
 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. 
Bahrain
 Trading Ban – No
 Banking Ban – NO
 Tax Haven Region- No
 Best Place for License- No
 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 Egypt
 Tax Haven Region- No
 Best Place for License- No since many regulatory laws are still unclear
 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. Iran
● 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
 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. Israel
● 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
 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. UAE
● 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
 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 UAE
resources will be used to drive the future of the crypto.
 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.
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.
Thank You
[email protected] 
Espayexchange espay Espay Exchange