Regulation of cryptocurrencies in the Middle East: legal status, restrictions and prospects

Cryptocurrencies are confidently conquering the world, and the Middle East region is not staying away from the global trend. Countries in this region demonstrate different approaches: from supporting and stimulating innovation to prohibitions and cautious control. Economic ambitions, technological initiatives and religious traditions are intertwined here, which creates a unique landscape for crypto business and investors. The Antwort Law team has prepared for you a detailed review of the legal status of cryptocurrencies in the Middle East, the historical context, development prospects and specific recommendations for investors and businesses.

Historical context: from prohibitions to innovations

Until the mid-2010s: cryptocurrencies were viewed with suspicion in the Middle East: their high volatility and the risk of being used for illegal transactions forced many countries to take a conservative position.

2014–2016: countries in the region began to issue the first warnings about the risks of cryptocurrencies. For example, the Saudi Arabian Central Bank (SAMA) advised citizens to avoid transactions with digital assets.

2017–2019: A wave of interest in blockchain and fintech led to a change in course. For example, the UAE launched the Dubai Blockchain Strategy, aimed at introducing blockchain into public services, and Bahrain was the first in the region to offer a regulatory sandbox for cryptocurrency startups.

2020–2024: Countries in the region began to develop legal norms, introducing licensing, anti-money laundering (AML) requirements, and testing government digital currencies (CBDCs). For example, Saudi Arabia and the UAE jointly developed a pilot project for a digital currency called Aber, which was tested for cross-border settlements.

The United Arab Emirates has confidently taken a leading position in the Middle East, becoming a hub for crypto businesses and blockchain projects.

Dubai

• In 2022, VARA (Virtual Assets Regulatory Authority) was created — a body regulating all operations with cryptocurrencies.
• Companies working with digital assets are required to obtain licenses and comply with AML/KYC requirements.
• VARA controls crypto exchanges, wallet providers, NFT platforms and asset tokenization.

Abu Dhabi (ADGM)

• Abu Dhabi Global Market (ADGM) is a financial zone with transparent legislation for crypto businesses.
• ADGM requires licensing and reporting according to strict international standards.

The world's largest crypto exchanges, such as Binance, Kraken and Crypto.com, have already received licenses to operate in Dubai and Abu Dhabi, confirming the attractiveness of the UAE for crypto businesses. The future includes the development of a digital dirham (CBDC) for domestic and international payments and an ambitious plan to turn Dubai into a global crypto hub by 2030.

Saudi Arabia: While it is taking a low-key stance, it is actively testing the potential of blockchain and digital currencies.

• Cryptocurrencies are not banned, but they are not regulated. The Saudi Arabian Central Bank has issued a warning about the risks associated with investing in digital assets.
• Individuals are allowed to own and use cryptocurrencies, but at their own risk.

Saudi Arabia is investing billions of dollars in the development of blockchain technologies as part of the Vision 2030 program aimed at diversifying the economy. Prospects include active testing of a national digital currency and the possible creation of a regulatory framework for crypto businesses in the coming years.

Bahrain: The first country in the Middle East to create a favorable environment for crypto companies.

• The Central Bank of Bahrain (CBB) regulates crypto companies and requires strict AML/KYC compliance.
• Companies are required to obtain licenses to work with digital assets.

The first licensed crypto exchange in the region, Rain, has received approval from the Central Bank of Bahrain (CBB) and has successfully attracted investments for development. With flexible regulations and low taxation, Bahrain is becoming an attractive hub for crypto companies, actively supporting the growth of the industry.

Qatar and Kuwait: Strict restrictions in the world of cryptocurrencies

In Qatar, since 2020, cryptocurrency transactions, including trading and exchange, are completely prohibited by the decision of the Central Bank. Financial institutions are also prohibited from participating in any transactions with digital assets, making the country one of the strictest in the region regarding cryptocurrencies.

In Kuwait, the situation is more ambiguous. Although the legislation does not prohibit the use of cryptocurrencies, the Central Bank strongly recommends avoiding such transactions, creating an atmosphere of caution and uncertainty for market participants.

Taxation of cryptocurrencies

In the Middle East, taxation of cryptocurrencies is still in its early stages:

• UAE and Bahrain: crypto activities are exempt from income and capital gains taxes.
• Saudi Arabia and Qatar: there is no clear tax regulation, but taxes can be levied through a general corporationative legislation.

The role of Islamic finance

In the Middle East, religious norms play an important role in shaping legislation.

• The Islamic Council in the UAE has already recognized cryptocurrencies as compatible with Sharia, provided they are transparent and free of speculation.
• In Saudi Arabia and Qatar, debates continue on the status of cryptocurrencies from a Sharia perspective.

Some blockchain startups are even developing halal tokens for Islamic markets that comply with the principles of Sharia law.

Our recommendations:

1. Choose a jurisdiction: The UAE and Bahrain offer the best conditions for registering a crypto business.
2. Get a license VARA in Dubai and CBB in Bahrain offer clear conditions for working with digital assets.
3. Comply with AML/KYC requirements: strict control over the transparency of operations is becoming the norm.
4. Consult with experts: Antwort Law specialists will help you develop a strategy for entering the Middle East market and comply with all regulatory requirements.

The Middle East is a region of opportunities for cryptocurrencies and blockchain projects. Countries such as the UAE and Bahrain have already become hubs for crypto business, offering transparent legislation and tax incentives. Saudi Arabia and Qatar are still taking a cautious approach, but their ambitious plans indicate changes in the coming years.

The Antwort Law team is ready to provide full legal support for companies and investors wishing to successfully enter the Middle East markets. Contact us today to take your first steps in this promising region!

Lidia Ivanova

International lawyer
Antwort Law

Diana Gulevskaya

Partner
Antwort Law