Introduction
With its claim of anonymity and absolute financial independence, Cryptocurrency has left many governments wondering how beneficial it is to their large-scale economies. Its apparent application to fraud, crime, and terrorism is also a significant concern, especially in countries vulnerable to such. This has led to several efforts to tax and regulate cryptocurrencies and, in some cases, to outright ban their interaction with public systems (banks).
For the above-stated reasons, some countries in the MENA region have implemented regulations and a taxation system for cryptocurrencies in their region. This article gives an in-depth review of the latest crypto regulations and taxation trends in the MENA region.
Trends in Countries Regulating Crypto in the MENA region
UAE
The UAE is one of the few countries in the MENA region to have clear-cut regulations on using Cryptocurrency in their country. In May 2019, the Financial Services Regulatory Authority issued a set of guidelines concerning cryptocurrency usage. The guidelines address issues such as
Safe Custody
Consumer Protection
Technology Governance
Market Abuse
Following the guide, any person (custodian, market operator, or intermediary) with interest in the business of operating crypto assets needs to be approved by the FSRA as a Financial Services Permission (FSP) holder, otherwise known as an OCAB. Apart from the guidelines, authorized persons must comply with the following additional rules generally stipulated by the country’s laws:
Anti-Money Laundering and Sanctions Rules and Guidance under the FSRA (AML)
The FSRA’s Conduct of Business Rulebook (COBS)
The FSRA Rules of Market Conduct (RMC)
The FSRA’s General Rulebook (GEN)
However, recent news has it that the UAE’s Securities and Commodities Authority (SCA) is in the final stage of amending legislation to regulate virtual asset service providers (VASPs). The government hopes to attract big financial companies to the region by using a nationwide crypto licensing system. The goal is to have started issuing federal licenses to VASPs by the end of the first quarter of 2022.
The country completed a risk assessment of crypto assets late in 2021. The assessment involved 14 public-sector agencies and 16 private-sector entities. Based on that analysis, the government concluded that proper regulation could reduce the risks of cryptocurrencies being used in illegal finance schemes rather than an outright ban.
The UAE official told the news outlet that the country’s crypto regulation considers the latest guidance from the Financial Action Task Force (FATF) and regulatory strategies used in the U.S., U.K., and Singapore.
Bahrain
Just like the UAE, Bahrain embraces the use of digital currencies and, as such, has clear guidelines as to their usage in the country. They intend to compete with the UAE as the top-most fin-tech center in the region, and this is evident from the number of existing and start-up crypto-based companies currently existing in Bahrain.
In terms of regulation, the Central Bank of Bahrain (CBB) announced a legislative framework in 2019 to oversee and operate “regulated crypto-asset services” in Bahrain. The CBB Crypto-asset rules include rules for licensing, risk management, governance, control environment, minimum capital, AML/CFT, standards of business conduct, avoidance of conflicts of interest, reporting, and cyber security for crypto-asset services. They also cover enforcement standards and supervision, including those provided by a platform operator as a principal, agent, portfolio manager, adviser, and custodian within or from the Kingdom of Bahrain.
Entities or individuals intending to engage in crypto financing are expected to get licensed in any of the four categories by the CBB. Depending on which category, investment capital ranges between BHD 25,000 and BHD 300,000. They would be expected to pay a compulsory registration fee of BHD 100. After that, they would pay an annual fee charge equal to 0.25% of the operational cost. This could span between BHD 2000 and BHD 6000, depending on the investor’s functioning capacity.
Iran
In 2018, Iran banned the trading and possession of Cryptocurrency due to money laundering and terrorism financing concerns. It was thus imposed on all Iranian financial institutions, like banks, currency exchanges, credit facilities, etc., to abstain from handling cryptocurrencies or promoting them in any form or way.
In 2019, due to a steady devaluation of the local Iranian currency caused by sanctions, Cryptocurrency was seen as a means of relief from the reliance on the dollar. Thus, the government began to roll back on its crypto ban and began accepting cryptocurrencies as a means of payment.
Towards the end of 2020, with the rise of bitcoin, the Iranian stock market and currency fell heavily, making the Iranian government seek ways to regulate its usage further. However, the significant change implemented was more restrictions on cryptocurrency miners due to heavy energy usage.
EGYPT
In 2018, Egypt’s Dar al-Ifta, the primary Islamic legislator in Egypt, issued a religious decree classifying commercial transactions in bitcoin as haram (prohibited under Islamic law).
He was explicit in his opinion that Cryptocurrency can affect national security and central financial systems. He also mentioned that it could fund terrorism and terrorist activities.
The Central Bank of Egypt (CBE) then issued a warning in January 2018 against trading cryptocurrencies, such as bitcoin, due to the extremely high risk associated with such currencies. They thus took their position on the issue, as they clarified that commerce within the Arab Republic of Egypt would be confined only to the official paper currencies approved by the Bank.
In 2019, however, the CBE announced that it was working on a draft law that would only ban the creation, trading, or promotion of cryptocurrencies without a license. The statement revealed the CBE’s changing outlook on digital currencies and cryptocurrencies in particular.
In 2020, the Egyptian Parliament enacted the Central Bank and Banking Sector Law No. 194 of 2020. Law No. 194 introduced several technological and digital means to aid in Egypt’s digital transformation of the banking and financial sector. These means include digital finance, digital settlement of cheques, E-Money, cryptocurrency, FinTech, and RegTech. The new CBE Law also sets forth definitions and licensing instructions about “Digital Banks.”
Kuwait
In January 2018, the Central Bank of Kuwait (CBK) confirmed the news that it was creating an infrastructure for the financial and banking sector in the country, including the issuance of an e-currency, which is distinguished from virtual currencies. The statement said that establishing a local digital currency will fall under the umbrella of e-payments. The Central Bank highlighted that the local digital currency would have the same characteristics as paper money, such as an issuance number. The Kuwaiti government will also monitor it. Furthermore, it could be exchanged with other currencies and used to pay for goods and services.
Others
In some other countries in the MENA region, there is either an outright ban on Cryptocurrency or illegal. Some of those countries include Iraq, Morocco, Saudi Arabia, Qatar, Libya, and Algeria. In a country like Lebanon, where Cryptocurrency is not banned, it is not recognized or regulated as a means of payment.
Crypto Regulations and Taxation Wrap Up
The MENA region is steadily growing in acceptance of blockchain-related solutions. As done in the UAE and some other areas, recent reviews signal an expected increase in crypto activity in the coming years.
With a steady increase in understanding of Cryptocurrency, its usage, and advantages, regulation to curb its use for illicit activities can become more accessible, especially in the MENA region.