Choosing a permanent home for your company is a decision not to be taken lightly. This three-part series explores global hubs for Web3 companies, comparing regulations and tax incentives. Part I focused on Switzerland and Bermuda, in this second part, we will focus on Dubai, United Arab Emirates.
Dubai is an appealing jurisdiction that combines innovation with strategic access to the Middle East market. It is home to around 800 AI companies, with 66% using Dubai as their global hub. As of 2024, there are over 700 blockchain companies operating in Dubai, and the MENA blockchain market is projected to reach $40 billion by 2027. Crypto companies can operate under the mainland framework, governed by the Virtual Assets Regulatory Authority (VARA) or within free zones like the Dubai International Financial Centre (DIFC).
Regulation
Dubai’s VARA is recognized as the world’s first independent regulator specifically established for virtual assets, and it has a strong reputation for providing regulatory clarity by establishing activity-based rulebooks that offer detailed yet flexible guidance on virtual asset services such as exchanges, custody, and advisory. VARA’s regulations define licensable virtual asset activities: advisory, broker-dealer, custody, exchange, lending and borrowing, payments and remittance, and virtual asset management and investment services.
All Virtual Asset Service Providers (VASPs) operating in Dubai are required to obtain a license from VARA. To qualify, VASPs are required to demonstrate sufficient financial resources to sustain their operations, implement robust customer due diligence procedures, establish comprehensive policies and procedures to manage virtual asset-related risks, maintain adequate anti-money laundering and counter-terrorist financing systems, ensure effective governance controls, and confirm that senior management and staff are fit for their respective roles. In addition to the regulations, VARA has issued several Rulebooks that licensed VASPs must follow, including the Company Rulebook, Compliance and Risk Management Rulebook, Technology and Information Rulebook, and Market Conduct Rulebook.
The DIFC has developed its own regulatory framework for digital assets. The Digital Assets Law (DIFC Law No. 2 of 2024), establishes a comprehensive regulatory framework for digital assets and defines a digital asset as a virtual unit created through software and network data that cannot be copied and exists independently of any individual or legal system. Its main objective is to eliminate uncertainties surrounding the legal status of digital assets, providing clear guidance on how they can be controlled, transferred, and managed. The law also amends existing DIFC legislation, including the Contracts Law and the Law of Obligations, to include provisions specific to digital assets, ensuring they are recognized within the legal system and can be treated similarly to traditional forms of property.
Most recently, the Dubai Financial Services Authority (DFSA), the primary regulatory body overseeing the virtual assets space in the DIFC, launched a consultation on reforms to cryptocurrency regulation in the DIFC, aiming to align the financial free zone’s framework with international best practices. Under the proposed changes, the DFSA would replace its central recognized token list with a system in which firms assess and publish the suitability of non-fiat crypto tokens. Restrictions on funds investing in crypto tokens would be removed, along with limits on the types and percentages of tokens used for assessed professional clients. The DFSA will continue to oversee fiat crypto tokens and plans to issue a policy statement to clarify its approach, while also removing the recognized jurisdictions list to expand market access.
Taxation
Businesses with profits exceeding AED 375,000 are subject to a 9% corporate tax, commonly referred to as the UAE corporate tax threshold. Certain free zones offer tax incentives for qualifying crypto businesses under the “Qualifying Free Zone Person” regime. Additionally, a 5% VAT may apply to specific goods and services.
The third and final part of this series will focus on Panama, examining why it is emerging as a competitive jurisdiction for Web3 enterprises.
