License needed to trade stocks/cryptos with own funds in Dubai/UAE?

[Thomas67]

Hi all,

It seems trading stocks, cryptos, etc... (being day or swing trading) with personal funds could be seen as a speculative activity in UAE and hence be categorized as a commercial business (and to CIT).

See thread and sources in: Tax on trading in the UAE

It also seems any virtual works (including trading cryptocurrencies) would be subject to tax. Though, this thread is NOT about tax related questions but the LEGAL aspects, especially the potential requirement of using a license to operate as a trader.

As penalties can be extremely high if an activity is conducted without proper license (if required) I believe the topic is quite important, even when originally operating as a natural person and without providing services.

If trading is seen as a speculative activity and a commercial business, what are your views on this question?

E.g. your experiences, sources, lawyers views, or communications with DED (Dubai department for economy and tourism) in charge of providing licenses? I've well contacted DED but they don't really seem to know or contradict themselves.

Based on reliable sources, is trading as a natural person and without license actually legit?

Thanks

 

[JackAlabama]

Hi all,

It seems trading stocks, cryptos, etc... (being day or swing trading) with personal funds could be seen as a speculative activity in UAE and hence be categorized as a commercial business (and to CIT).

See thread and sources in: Tax on trading in the UAE

It also seems any virtual works (including trading cryptocurrencies) would be subject to tax. Though, this thread is NOT about tax related questions but the LEGAL aspects, especially the potential requirement of using a license to operate as a trader.

As penalties can be extremely high if an activity is conducted without proper license (if required) I believe the topic is quite important, even when originally operating as a natural person and without providing services.

If trading is seen as a speculative activity and a commercial business, what are your views on this question?

E.g. your experiences, sources, lawyers views, or communications with DED (Dubai department for economy and tourism) in charge of providing licenses? I've well contacted DED but they don't really seem to know or contradict themselves.

Based on reliable sources, is trading as a natural person and without license actually legit?

Thanks

really hard to say and no one seems to know.

It does seem to be that trading looking like a business would requiring license/ cit while investing personal funds / being an investor does not. However how you separate these two things from each other is not known at all.

 

[Don]

really hard to say and no one seems to know.

It does seem to be that trading looking like a business would requiring license/ cit while investing personal funds / being an investor does not. However how you separate these two things from each other is not known at all.

Its a rather complex question and depends on many factors, e.g., f you limit your trading to the platforms that are locally regulated/licensed, do you trade just stablecoins against FIAT and vice versa or trade other tokens like utility tokens.

That being said UAE Cybercrime law criminalises acts related to unlicensed cryptocurrency trading and behaviour that promote or encourage the unlicensed dealing in cryptocurrency that is not officially recognised in the UAE. The full scope of federal civil and criminal penalties is applicable to all activities related to cryptoassets, and regulated persons must comply with AML/CFT laws.

 

[Thomas67]

Its a rather complex question and depends on many factors, e.g., f you limit your trading to the platforms that are locally regulated/licensed, do you trade just stablecoins against FIAT and vice versa or trade other tokens like utility tokens.

That being said UAE Cybercrime law criminalises acts related to unlicensed cryptocurrency trading and behaviour that promote or encourage the unlicensed dealing in cryptocurrency that is not officially recognised in the UAE. The full scope of federal civil and criminal penalties is applicable to all activities related to cryptoassets, and regulated persons must comply with AML/CFT laws.

Many factors could intervene indeed, those you're mentioning, and maybe 'badges' of trades (e.g. frequency, holding times, expertise, importance of revenue, etc...) to differentiate long term investment from short-term speculative trades as in other countries. Will search about this.

If UAE cybercrime and AML laws also apply to crypto traders as natural persons it's even a bigger dimension, even in absence of fraud or ML, as sanctions might be beyond penalties of not using a license (or using one with some delay)?

For now mainly referring to stock trading on Nasdaq/US markets, and crypto trading on the well known foreign exchanges (Binance, Kucoin, Mexc, Gate, etc...) and dex, usdt as base virtual currency (no conversion to fiat yet). Plus crypto investment/trading on foreign neo bank, usd being the base currency.

Would such laws and license apply, quite astonished the topic isn't more discussed in forums tbh, as many people invest/trade cryptos in UAE, even aside their main job.

 

[Don]

Many factors could intervene indeed, those you're mentioning, and maybe 'badges' of trades (e.g. frequency, holding times, expertise, importance of revenue, etc...) to differentiate long term investment from short-term speculative trades as in other countries. Will search about this.

If UAE cybercrime and AML laws also apply to crypto traders as natural persons it's even a bigger dimension, even in absence of fraud or ML, as sanctions might be beyond penalties of not using a license (or using one with some delay)?

For now mainly referring to stock trading on Nasdaq/US markets, and crypto trading on the well known foreign exchanges (Binance, Kucoin, Mexc, Gate, etc...) and dex, usdt as base virtual currency (no conversion to fiat yet). Plus crypto investment/trading on foreign neo bank, usd being the base currency.

Would such laws and license apply, quite astonished the topic isn't more discussed in forums tbh, as many people invest/trade cryptos in UAE, even aside their main job.

Based on my understanding, the general rule is that trading cryptocurrencies can be regarded as offering a service based on relevant regulations unless it is done through locally regulated platforms.

On 9 March 2022, Dubai Law No. 4 of 2022 Concerning the Regulation of Virtual Assets (the Virtual Asset Law) established the (onshore) Dubai Virtual Asset Regulatory Authority (VARA). VARA’s broad remit incorporates regulating and licensing issuers, exchanges and custodial and management services providers.

Under Article 15(a), the effect of the Virtual Assets Law is to prohibit, in lieu of a licence issued by VARA, any activity in respect of virtual currencies (among other operations) that falls under Article 16. The ‘activities requiring permits’ listed in Article 16 include:

1. provision of virtual asset platform operation and management services;
2. provision of services for the exchange between virtual assets and national or foreign currencies;
3. provision of services for the exchange between one or more forms of virtual assets;
4. provision of virtual asset transfer services;
5. provision of virtual asset safekeeping, management or control services;
6. provision of services related to virtual asset wallets; and
7. provision of services related to offering, and trading in, virtual tokens.

VARA’s jurisdiction does not extend to the DIFC and only covers activities in respect of virtual currencies that are carried out in onshore Dubai (but outside of the DIFC). Last time I checked, no passporting regime exists between Onshore Dubai and the DIFC, meaning that companies must choose in which jurisdiction to become licensed.

Fiat tokens (e.g. stablecoins whose value are fully backed by underlying fiat currencies) are treated as a form of digital representation of fiat currency. Where used as a payment instrument for the purposes of money transmission as defined under the FSMR, the activity will be licensed and regulated as providing money services.

 

[khinkali]

with personal funds

VARA mostly gets involved with regulated activities such as custody or trading signals for third parties. This gets quite expensive and time consuming. It would be surprising if trading on exchanges with your own personal funds would be a regulated activity.

Meanwhile "proprietary trading in crypto commodities" is a business activity for a corporation wishing to trade its own funds. This can be a non-regulated activity which tends to be much less expensive and time consuming.

The problem people seem concerned about is that because a company could be trading its own funds as a licensed (but not necessarily regulated) activity, a natural person doing the same might need a license and therefore accounting, CIT payment and VAT registration.

Does anyone know how the threshold can be stablished for an activity as a natural person, to require a license?

Maybe someone should get a quote for the work and fees needed for an Advance Ruling, make a GoFundMe page and let us all chip in. Obviously it would only relate to the person it applies to, but it could be a reasonable indication of whether it's worthwhile for other people.

 

[Thomas67]

Based on my understanding, the general rule is that trading cryptocurrencies can be regarded as offering a service based on relevant regulations unless it is done through locally regulated platforms.

On 9 March 2022, Dubai Law No. 4 of 2022 Concerning the Regulation of Virtual Assets (the Virtual Asset Law) established the (onshore) Dubai Virtual Asset Regulatory Authority (VARA). VARA’s broad remit incorporates regulating and licensing issuers, exchanges and custodial and management services providers.

Under Article 15(a), the effect of the Virtual Assets Law is to prohibit, in lieu of a license issued by VARA, any activity in respect of virtual currencies (among other operations) that falls under Article 16. The ‘activities requiring permits’ listed in Article 16 include:

1. provision of virtual asset platform operation and management services;
2. provision of services for the exchange between virtual assets and national or foreign currencies;
3. provision of services for the exchange between one or more forms of virtual assets;
4. provision of virtual asset transfer services;
5. provision of virtual asset safekeeping, management or control services;
6. provision of services related to virtual asset wallets; and
7. provision of services related to offering, and trading in, virtual tokens.

VARA’s jurisdiction does not extend to the DIFC and only covers activities in respect of virtual currencies that are carried out in onshore Dubai (but outside of the DIFC). Last time I checked, no passporting regime exists between Onshore Dubai and the DIFC, meaning that companies must choose in which jurisdiction to become licensed.

Fiat tokens (e.g. stablecoins whose value are fully backed by underlying fiat currencies) are treated as a form of digital representation of fiat currency. Where used as a payment instrument for the purposes of money transmission as defined under the FSMR, the activity will be licensed and regulated as providing money services.

Thanks for your view. The virtual asset law defined by VARA has the merit of making things much clearer for normal businesses involving virtual currencies. The entire list actually makes full sense for me, as each of these activities is a service as such.

Though, in the case of trading this is not as explicit I believe. Trading own funds, like investing, means buying/selling tokens like everyone could do with shares, e.g. buying and selling several Apple or Google shares during the same day or month. No service or client is involved in the activity; profit is only capital gains derived from own capital (e.g. using savings from previous employment).

Regarding the last sentence perhaps is it also important to bring a nuance. Stable coins are indeed a digital representation of fiat currency. Natural persons can also transfer them between their own wallets (own, i.e. not related to a third party/client). But what you're describing is a service of money transmission/transfer relying on cryptocurrencies/stable coins, a service benefitting some clients, I guess ready to pay a commission/fee for it too. The context of this thread is slightly different I believe.

Another way to address the question is probably to know:
- if every commercial business (trading own funds might be qualified in this way as per the sources mentioned in the above link) requires a license and if a decree describes it - preferably also mentioning the case of capital gains/speculative operations on financial markets.
- if trading shares (the above mentioned example with buying/selling Apple of Google shares) with own funds requires a license; if it does, it's quite likely trading cryptocurrencies will require a license as well.

VARA mostly gets involved with regulated activities such as custody or trading signals for third parties. This gets quite expensive and time consuming. It would be surprising if trading on exchanges with your own personal funds would be a regulated activity.

Meanwhile "proprietary trading in crypto commodities" is a business activity for a corporation wishing to trade its own funds. This can be a non-regulated activity which tends to be much less expensive and time consuming.

The problem people seem concerned about is that because a company could be trading its own funds as a licensed (but not necessarily regulated) activity, a natural person doing the same might need a license and therefore accounting, CIT payment and VAT registration.

Does anyone know how the threshold can be stablished for an activity as a natural person, to require a license?

Maybe someone should get a quote for the work and fees needed for an Advance Ruling, make a GoFundMe page and let us all chip in. Obviously it would only relate to the person it applies to, but it could be a reasonable indication of whether it's worthwhile for other people.

This is my current understanding as well for the first part.

As a comment though, I wouldn't say (at this stage at least - more info would be needed) that only a license requirement could lead to accounting and CIT payment. This has been addressed/discussed and sourced in the thread of my first message (the question of the taxation being out of scope for this thread).

"Does anyone know how the threshold can be stablished for an activity as a natural person, to require a license?" : this is the main question indeed.

 

[khinkali]

I wouldn't say (at this stage at least - more info would be needed) that only a license requirement could lead to accounting and CIT payment

I try to be careful with the word "license". I think you're referring to "business activity" as opposed to regulated activities and to quote the Ministry of Economy "There are six types of licenses, namely industrial license, commercial license, crafts license, tourism license, agricultural license, and professional license" so pretty much anything you do commercially can require a license.

So how to differentiate between someone buying and selling tokens as a non business activity vs buying and selling tokens a non business activity? For example the UK had a Royal Commission and then a gradual adoption in case law, which is a very different process from a civil law jurisdiction such as UAE. Some places have definitions with more clarity (US, CA, AU) but I doubt you can find this in UAE, I'm not trying to obfuscate as such, just to point out that there are quite different approaches in different places and that UAE does not seem to have clarity.

Sorry, maybe I'm wrong to conflate this distinction with the "capital gains vs trading income" (or long term vs short term capital gains) issue that in other places leads to a "badges of trade" distinction or some thresholds on frequency, etc. The licensing issue would presumably be down the local DED at first and ultimately judicial review in the Federal Courts. It can be hard to predict what distinction will be applied in a civil law jurisdiction if the distinction has not been defined explicitly,

If anyone has a good answer for UAE I'd be most interested. I doubt there is one yet. And that is why I am writing this message from Tbilisi, not Dubai.

 

[Thomas67]

I try to be careful with the word "license". I think you're referring to "business activity" as opposed to regulated activities and to quote the Ministry of Economy "There are six types of licenses, namely industrial license, commercial license, crafts license, tourism license, agricultural license, and professional license" so pretty much anything you do commercially can require a license.

So how to differentiate between someone buying and selling tokens as a non business activity vs buying and selling tokens a non business activity? For example the UK had a Royal Commission and then a gradual adoption in case law, which is a very different process from a civil law jurisdiction such as UAE. Some places have definitions with more clarity (US, CA, AU) but I doubt you can find this in UAE, I'm not trying to obfuscate as such, just to point out that there are quite different approaches in different places and that UAE does not seem to have clarity.

Sorry, maybe I'm wrong to conflate this distinction with the "capital gains vs trading income" (or long term vs short term capital gains) issue that in other places leads to a "badges of trade" distinction or some thresholds on frequency, etc. The licensing issue would presumably be down the local DED at first and ultimately judicial review in the Federal Courts. It can be hard to predict what distinction will be applied in a civil law jurisdiction if the distinction has not been defined explicitly,

If anyone has a good answer for UAE I'd be most interested. I doubt there is one yet. And that is why I am writing this message from Tbilisi, not Dubai.

Thanks for the nuances.

Based on the sources I could read so far, and as summarized by @Tom85 :

Cabinet Decision No. (49) of 2023 clarifies what is considered as 'Business' or 'Business Activity' by individual person. It states that wage, personal investment and real estate income are not 'Business' or 'Business Activity'. We can argue that day/swing trading falls under personal investment income. However, the Cabinet Decision defines personal investment as an activity that is not considered as commercial business in accordance with the Federal Decree-Law No. 50 of 2022. Article 4 from that Decree Law says that commercial business is "Speculation works practiced by a person, whether or not a trader, for purpose of realizing profit".​

Personally, it isn't a big issue if trading on financial markets with own funds and as a natural person is seen as a commercial business and if CIT needs to be paid. I'm Ok with it.

What is a more important question and more the scope here is to know if the activity (trading stocks and crypto) needs to be regulated through a license (to be law compliant, also given penalties) and if AML related proofs need to be provided in a given framework (also given existing laws; unless in the latter case, as a natural person, it would be mainly checked by banks if some of the personal traded funds were transfered to UAE).

 

[khinkali]

I think that "license" is being used in different contexts in the same conversation, and I am wary about that.

Getting a license from DED for an unregulated business activity is very different from being regulated by VARA. I would be interested to know if DED have any experience when it comes to licensing a natural person who trades his own funds on exchanges.

if AML related proofs need to be provided in a given framework

This seems more like VARA territory than DED. It's your own funds. Getting a business license from DED for trading your own assets is likely to be very different from being regulated by VARA for custody, financial advice and trading third party funds.

It would be great if someone could contribute to this discussion, who has a business license as a natural person. I'd be surprised if anyone has yet.

One thing that hasn't been mentioned is what coins and tokens are acceptable to be traded and/or held by a UAE licensed resident. This gets far more complicated as there can be shariah aspects. I believe that there is some uncertainty around which tokens are shariah compliant, as one gets into discussions about what is usury....

edit: We've been discussing the (potentially unwritten) letter of the law. The application and enforcement might well be another story. I'm not sure how much UAE actually cares about enforcing when it comes to a foreigner who trades crypto on Binance or Kucoin on the Internet. They might well have bigger priorities.

 

[Thomas67]

Getting a license from DED for an unregulated business activity is very different from being regulated by VARA.

I never said the contrary. Though to me license means the business is de facto properly registered and regulated (by the department in charge of mainland businesses or by freezone authorities).

I would be interested to know if DED have any experience when it comes to licensing a natural person who trades his own funds on exchanges.

See above, they don't know or contradict themselves. Will further investigate, unless someone has a view.

It would be great if someone could contribute to this discussion, who has a business license as a natural person. I'd be surprised if anyone has yet.

Looking forward to it.

One thing that hasn't been mentioned is what coins and tokens are acceptable to be traded and/or held by a UAE licensed resident. This gets far more complicated as there can be shariah aspects. I believe that there is some uncertainty around which tokens are shariah compliant, as one gets into discussions about what is usury....

Let's see this in a second step.

edit: We've been discussing the (potentially unwritten) letter of the law. The application and enforcement might well be another story. I'm not sure how much UAE actually cares about enforcing when it comes to a foreigner who trades crypto on Binance or Kucoin on the Internet. They might well have bigger priorities.

UAE is not a country where you want to be borderline or neglect/forget something imo

Any trader residing in UAE who has a rather good/documented view on these questions?

 

[mon0sk]

Interesting topic and what I see 99% of crypto traders in Dubai assume they dont have to pay taxes and most dont. Even the local OTC desks have information that individual selling is not treated under CT 9%. I highly doubt they would enforce it for individual traders but the way freezones turned out anything is possible. Just keep your trading records in check if you trading everyday.

 

[Thomas67]

Interesting topic and what I see 99% of crypto traders in Dubai assume they dont have to pay taxes and most dont. Even the local OTC desks have information that individual selling is not treated under CT 9%. I highly doubt they would enforce it for individual traders but the way freezones turned out anything is possible. Just keep your trading records in check if you trading everyday.

Thanks for your view. I'm by default considering CIT will apply to individual traders based on the above sources. Will Reassess in 2025 (CIT registration and tax return filing).

Though (kindly let me insist on this), this thread is only related to the legal aspects behind the activity, such as license requirement/exemption, for which sources are currently missing.

 

[uranium]

On personal level no need license but on corporate yes .

 

[Thomas67]

On personal level no need license but on corporate yes .

Thanks for your view mate. May I ask how/where you did learn it?

My accountant wrote me yesterday any business in UAE would require a trade license (company) or a freelance license. And since Federal Decree-Law No. 50 of 2022 considers any speculation works as a commercial business, it makes me feel more and more confused tbh. Perhaps more sources will need to be examined.

 

[uranium]

Thanks for your view mate. May I ask how/where you did learn it?

My accountant wrote me yesterday any business in UAE would require a trade license (company) or a freelance license. And since Federal Decree-Law No. 50 of 2022 considers any speculation works as a commercial business, it makes me feel more and more confused tbh. Perhaps more sources will need to be examined.

It is commonly known anywhere in the world
If you have a business and you want to trade with company funds. You need trading license
So to trade. Use personal account and personal money . No license required.

 

[Thomas67]

It is commonly known anywhere in the world
If you have a business and you want to trade with company funds. You need trading license
So to trade. Use personal account and personal money . No license required.

This isn't what my accountant indicates. There might also be a difference between someone having a job and trading limited amounts and occasionally, and a full-time trader imo.

I'm only interested in UAE sources (also for those who'll read this thread afterwards), if someone has one for full-time traders? Will further search as well.