Crypto Legal Compliance and Taxation Outlook of the Middle East

 

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.

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

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.

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

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

 

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The reasons why Legal Audits should not be undermined for Your ICO Project

 

In several instances, the barriers in the path of your innovative notions might not be technical, the legal landscape may solely restrict you.

In the changing environment of cryptocurrency regulations, you often have to contemplate the present rules and plan for the vastest risks, and those with the most substantial possibility.

Nonetheless, you may face situations where dynamic shifts in the law will overwhelm you.

For instance, due to new legal regulations in the US, people were not able to use direct funding through application and had to whirl to accommodate to the brand-new rules.

In short, be alert, investigate, consult, and hold a thumb on the beat. It has a notable influence on the technology you use. Be sure that your company knows this and recognizes the legal hazards of your project.

KYC/AML Procedures

The uncertainty connected with uncertain law regulations is an integral element of cryptocurrency markets, exhibited in the stock exchange. Still, there is one consistent component of these regulations that can impact your project and wreak a lot of extra work; the Know Your Customer process.

The decentralized and autonomous nature of cryptocurrencies is known for being an ideal source for criminal pursuit. The KYC process is a means to shield your business from money laundering exercises. It enables you to understand your customers thoroughly and is obligatory for US banks as well as several companies in the UK.

There are some alternatives to accomplish compliance with these rules.

The fastest and most straightforward resolution is outsourcing, although it may also be an expensive one. Businesses that specialize in KYC charge up to $8 per customer, even when they buy a token worth only $5 from you. You may think that it is not the best deal, and your internal team could easily manage it.

Although it all occurs with risks, by administering the KYC process, you have to manage the sensitive data and stringent legal regulations. As it is said, with high statutory regulations comes high accountability. Ensuring it and guaranteeing compliance may devour a notable chunk of your budget.

To summarize, a process that many people don’t realize exists might take out a big piece of your budget.

In some instances, generating a custom resolution may be worth it; however, in some, it may not. If you need some personal advice on your case, simply contact any ICO Consulting Services of your choice. You can either develop a custom resolution to manage the entire process of gathering information or secure a prudish alliance with an external vendor.

Various governments and authorities throughout the world have already recognized, or are sincerely acknowledging the potential of ICOs, as a lucrative venture-funding paradigm. Increasingly there are different levels of ICO regulations, and the “unregulated securities” label that is often credited to ICOs is withering away. Japan, Switzerland, Germany, Canada, the UK, and the US are amongst the nations where ICO regulations are available.

It is nothing but due diligence procedure that validates the identification of clients and determines that the money being used for the specific transaction was procured legitimately.

While the national legislation for ICO is hitting up, KYC/AML is a universal notion that is broadly recognized in global finance. Consequently, willingly complying with KYC/AML regulations renders many benefits to the ICO issuers and its investors, even if they are not presently explicitly mandated to pass such a process.

From an auditing viewpoint, an objective evaluation of the KYC/AML processes must be conducted to establish whether a relevant KYC/AML program is in position. The New York Institute of Finance recognizes the following four pillars for an efficient KYC/AML program.

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Legal Compliance and Taxation Outlook of America

 

Introduction

Cryptocurrencies in America are not considered legal tender. However, Cryptocurrency exchanges are legal and the regulations vary by state. In this article, we will be discussing the entire regulation and taxation situation in the US, along with state laws that pertain to Cryptocurrency and blockchain technology. Let’s get started!

Cryptocurrency Regulation Outlook

It is quite overwhelming to find a reliable lawful approach to Cryptocurrencies in the US. Every law that is governing centralized crypto exchanges varies by state. Moreover, federal authorities differ in their definition of the term – Cryptocurrency. The FinCEN (Financial Crimes Enforcement Network) doesn’t consider Cryptocurrencies to be a legal tender. However, FinCEN has been considering exchanges as money transmitters since 2013, based on the fact the tokens are other value that substitutes for currency. On the contrary, the IRS considers Cryptocurrencies as property and has issued tax regulation for that reason.  

Regulatory laws for Cryptocurrency exchange in the US are also in an indecisive lawful territory. Many of the federal regulators allege jurisdiction. The Securities and Exchange Commission has indicated that it considers Cryptocurrencies as securities. In March 2018, SEC stated that it was seeking to apply securities laws comprehensively for exchanges and digital wallets. On the contrary, the Commodities Futures Trading Commission has adopted a friendly and do-no-harm approach, explaining Bitcoin as a commodity and permitting Cryptocurrency derivatives to buy and sell openly. 

The Justice Department is working with the CFTC and SEC over future Cryptocurrency regulations to make sure that the customers are effectively protected and regulatory oversight is more streamlined. Treasury of the US has emphasized an urgent need for crypto regulation to combat domestic and global criminal activities. In January 2018, Steve Mnuchin and Treasury Secretary declared a new FSOC working group to look at the progressively more crowded Cryptocurrency marketplace.

In June 2015, New York managed to become the first state of the US to regulate virtual currency companies via state agency rulemaking. In 2019, there were 32 states of the US that introduced legislation accepting or encourage the utilization of Bitcoin and blockchain distributed ledger technology (DLT). A few states passed them into law. However, some of them established task forces to revise the further use of technology. In 2017, the FTC gave LedgerX – Crypto trading platform operator in the US, permission to become the first federally regulated digital currency options exchange and clearinghouse.

State Regulations Pertaining to Cryptocurrency and the Blockchain Technology

New York

Crypto Regulatory Sandbox – In 2015, New York released the “BitLicense” that is needed by any virtual currency company serving New York business owners or residents. The New York State Department of Financial Services (NYDFS) established the BitLicense to provide guardrails that safeguard customers and root out illegal doings without stifling advantageous improvement.  According to the legislation, any individual or company who is involved in any of the following activities in New York should obtain a BitLicense:

1. Performing exchange services as a customer business
2. Trading virtual currency as a customer business
3. Virtual currency transmission
4. Issuing, controlling or administering a virtual currency
5. Maintaining custody of virtual currency on the behalf of others

Trading Ban – No

Banking Ban – No

Tax Haven Region – No

Is it best Place for License – Yes, BitLicense can be acquired by following simple instructions in New York

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Know About the Best Regions for Legal Crypto Business

 

Well, we have already discussed legal crypto compliance and taxation outlook in our previous articles. In this article, to conclude, we will be discussing the best regions for legal crypto business across the globe.

Let’s get started!

Establishing a business in the best countries that can welcome it with open arms can be overwhelming. Especially, when you are talking about setting up centralized crypto exchanges or white label Cryptocurrency exchange platform, it is important to place the best region. Since the governments around the world are now aware of cryptocurrencies, their legal compliance and taxation guidelines, you have to think twice before launching any crypto startup. The government can either crackdown on your company or allow it to flourish in the crypto ecosystem approved by the government’s laws. 

However, there are some jurisdictions that emerged as being a lot better than others for individuals who want to launch a crypto startup. 

In countries like India or China, you would find yourself stuck in a situation if you are dealing with Cryptocurrency. Reason – In India, Reverse Bank announced in 2018, it would not provide services to any individual who is in the business of cryptocurrencies. In China, all domestic authorities banned ICOs and local crypto exchanges in September 2017.

Therefore, if you are planning to launch a crypto startup, it is important for you to study the regulatory framework as well as the government policy in a number of jurisdictions. You should also know about the current taxation outlook, a number of fintech companies that would support your business in the region you are considering to set up a business. In this article, we will be sharing some of the best regions that are worthy of consideration before you settle your crypto startup. Please take a look!

USA

Undoubtedly, the USA is counted amongst the hotbeds for crypto companies. In this country, you can find renowned and successful crypto exchanges, wallet developers, and crypto miners. The government of the USA has enacted straight-forward legal compliance for crypto businesses or companies. However, crypto regulations and policies vary from state to state and a few taxation guidelines are being unclear in the USA.

In 2019, lawmakers filed a bill to generate tax exemption for specific Cryptocurrency transactions. All-in-all, the crypto community in this country is still booming and the technology is managing to enter the mainstream. For instance, in 2018, Ohio allowed companies to pay a variety of tax with bitcoin, including tobacco sales tax and employee withholding tax.

Japan

Invariably, Japan is being able to have some amazingly progressive Cryptocurrency regulations across the world. Consequently, around 10% of the total worldwide traffic to Cryptocurrency exchanges comes from Japan. Amazed?

In 2017, Japan has recognized crypto assets as a legal tender and launched straight-forward tax guidelines for aspired investors. This was the big deal since launching detailed guidance by the national tax authority of any region on virtual assets has been a noteworthy concern for businesses as well as individuals.

The crypto industry in Japan has also been given the leverage to self-govern in a way that is adaptive and accommodating. The Japanese Virtual Currency Exchange Association includes more than twenty organizations having collective authority to enforce and pass regulations for crypto exchanges in Japan.

Switzerland

Switzerland is also counted amongst the best nations that have been in favor of the Cryptocurrency business. In this region, many crypto startups have been encouraged to get settled there and in 2019, Switzerland declared a new legislative approach to Blockchain.

Generally, Switzerland managed to provide a low-tax ecosystem for businesses and bitcoin startups that are already based in Switzerland. Tax regulators of this country consider cryptocurrencies to be assets, subject to wealth taxes that should be announced in annual returns.

Zug is a canton in Switzerland, popular by the name of ‘Crypto Valley’ after it issued various progressive laws regulating the usage of Cryptocurrency and related businesses.

According to a report in 2018, it was declared that the top 50 blockchain and cryptocurrencies based companies in this country’s Crypto Valley alone to be worth $44 billion. The state railway even accepts BTC for payments of tickets. Swiss Banks like Julius Baer also permit direct transfer and deposits of select cryptocurrencies.

Vancouver

In Canada, Bitcoin has a solid community. Canada has also taken some serious regulatory steps to embrace the virtual currency. Vancouver is home to QuadrigaCX – a defunct crypto exchange that lost C$180 in customer funds after its founder’s alleged death.

More than 2 dozens merchants in this region can accept bitcoin. Residents of Vancouver can purchase Bitcoin at nearly 40 ATMs. Waves Coffee House is the world’s first Bitcoin ATM that was begun on 29, October 2003, in downtown Vancouver. This city is home to more than 631,000 citizens.

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Legal Crypto Compliance and Taxation Outlook of Asia

The dramatic increase of retail and institutional investor interest in the crypto markets has resulted in an unavoidable need to reposition the current financial regulatory platforms to integrate regulation of digital asset markets. Since the existing Bitcoin surge is above $10,000 per bitcoin, it quite obvious that crypto markets have become easily accessible and significant to the public for supervisions to not intrude. 

Currently, crypto markets are facing many crucial operational challenges, resulting in undermined investor confidence. Most recently, many significantly serious cybersecurity breaches, hackers infiltrating crypto markets and exchanges, have been widely reported on. Millions of dollars’ of virtual currency have also been stolen in recent years. Moreover, many crypto exchanges are reported to be involved in voracious and unreliable practices, insider abuses, and market manipulations. 

According to recent research conducted by TIE, 75% of crypto exchanges are reporting doubtful volumes. Hong Kong and Singapore have introduced new licensing compliance with a requirement to acquire approval from regulatory before trading is permitted. The assessment covers an evaluation of an exchange monitoring system – which further includes market supervision for the identification of market abuse behavior, along with KYC (Know Your Customer), AML (Anti-Money Laundering), and CFT (Combating the Financing of Terrorism).

In Hong Kong, the Securities and Future Commission classifies ICOs as security, subject to the securities laws of the country. Cryptocurrency assets are treated no differently than any other regulated security assets. In Singapore, the Monetary Authority of Singapore (MAS) has issued several guidelines. These guidelines explain the ICO resembles capital market products’ regulation under the Securities and Future Act. Crypto platforms are subjected to a licensing acquiring regime and are limited to serve only accredited investors. 

Similarly, other regions like China, South Korea, Taiwan, and the Philippines have issued different regulatory laws and guidelines for crypto exchanges and platforms. Some of them are comprehensively discussed in the following section

China

All the activities concerning Cryptocurrency have received a little amount of tolerance from the government of China. ICOs were banned in China in September 2017. Exchange platforms trading cryptocurrencies were not allowed to continue with the ICOs. Many exchange platforms decided to relocate to jurisdictions that are permitting cryptocurrencies than China. 

In China, it is legitimate to hold Bitcoins and other types of cryptocurrencies. Moreover, buying and selling are also legal in China. Here, the government also supports the applications and development of blockchain technology. They have also made it quite clear that this technology must service the actual economy of China.  

In September 2017, government agencies of China issued the Notice related to the Prevention of Token offering and financing risks. The notice banned ICOs and ordered that any firm or individual who had previously conducted or completed an ICO for making arrangements including the return of token assets to the investors to guide investor rights. 

According to the Article-6 of PRC Criminal Law in China, if any illegal activities or consequences of such activities happen to occur in China, the crime is deemed to have occurred in China’s territory.

Policies for Exchanges

The issued by Government agencies of China ordered that any fundraising and traditional platforms must not provide exchange services between tokens, fiat currency, and virtual currencies. They are also not allowed to buy or sell tokens and virtual currencies, or buy or sell virtual currencies as a CCP (the central counterparty) or provide information intermediary or price determination services for virtual currencies or tokens. 

As a result of this notice, many crypto exchanges shut down their platforms in China. Moreover, they made some significant adjustments to their business models. However, these improved business models are not completely safe from the criminal law perspective of China. Exchanges also continued their exchange business via platforms that were registered in foreign jurisdictions and were more biased to exchange business than China. 

According to the law of China, no individual willing to invest in white label crypto exchange software is allowed to use the internet to check the information that violates Chinese laws and regulations. Therefore, Chinese investors cannot buy or trade cryptocurrencies on overseas exchanges. 

Trading Ban – Yes

Banking Ban – yes

Best Place for License – No

Tax Haven Region – No

Japan

Japan’s Financial Services Agency (FSA) has set up a few guidelines to divide ICOs and denote investment limits to guard investors, having initially permitted its crypto market to operate on a self-regulatory basis. In 2018, a cybersecurity breach stole around $530 million of Coincheck – one of the biggest crypto exchanges of Japan. As a result, Japan’s Financial Services Agency has tightened regulations on crypto exchanges. This agency also introduced new screening requirements, along with a new licensing obligation. 

Trading Ban – No

Banking Ban – No

Best Place for License – Yes 

Tax Haven Region – No

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