This is the initial part of a two-part exploration of cryptocurrency regulations within the Gulf Cooperation Council (GCC), authored by Muneera Al-Khalifa, a legal research fellow. Muneera collaborates with George Sadek, a Foreign Law Specialist, at the Global Legal Research Directorate of the Law Library of Congress. This piece is featured in our Frequently Asked Legal Questions (FALQs) series.
Digital currencies have become increasingly important from a regulatory perspective, both on a global scale and specifically within the member nations of the Gulf Cooperation Council (GCC). This importance stems from several factors, including the need for compliance, safeguarding consumers, addressing taxation, preventing financial crimes, and facilitating seamless international transactions.
The approach to cryptocurrency regulation differs significantly across the GCC countries. This article is presented in two parts. Part one examines the regulatory structures established in the United Arab Emirates, Saudi Arabia, and Bahrain. Part two will delve into the regulatory strategies implemented by Qatar, Kuwait, and Oman.
1. What are the cryptocurrency regulations in the UAE?
The United Arab Emirates (UAE) has put in place multiple laws and regulatory measures to govern activities related to virtual currencies.
UAE Federal Laws and Regulations
Federal Decree-Law No. (20) of 2018, concerning Anti-Money Laundering and Countering the Financing of Terrorism and Illegal Organizations (as amended), defines virtual assets (including virtual currencies) and virtual asset service providers (VASPs). Furthermore, the broadly defined term “funds” as detailed in Article 1 of the Decree-Law, is understood to include these assets, regardless of how they were acquired. This definition specifically includes tangible and intangible assets, including those existing in “digital or encrypted” formats.
By using these definitions, the Decree-Law makes virtual assets and VASPs subject to the UAE’s laws and rules designed to combat money laundering and terrorist financing (AML/CFT). This ensures that any organizations handling virtual currencies meet the same strict standards as traditional financial institutions. Such standards include implementing strong due diligence on customers, monitoring and reporting transactions that seem suspicious, and keeping detailed records for a set period of time. Moreover, Article (16)BIS of the Decree-Law prevents individuals and entities from acting as VASPs without securing a license from the appropriate regulatory bodies. The obligations of VASPs are further described in the Executive Regulation of Federal Decree-Law No. (20) of 2018, which outlines the requirements for VASPs.
In March 2022, Cabinet Resolution No. (24) of 2022 amended select provisions of Cabinet Resolution No. (10) of 2019 relating to the Executive Regulation of Federal Decree-Law No. (20) of 2018 (the Federal Decree-Law and the modified Resolution of 2022 together referred to as the “Executive Regulation” – note that minor translation variations may exist from the original Arabic). These changes broaden the definition of key terms, like “funds,” “virtual assets,” and “VASPs,” to encompass new financial instruments and service providers. This 2022 amendment bolsters regulatory oversight and increases the duty to assess risk and monitor ongoing business relationships and transactions. It also specifies the required reporting of suspicious transactions to the Financial Intelligence Unit, clarifies the obligations for record-keeping, and lays out the penalties for non-compliance. It’s key to recognize that this Cabinet Resolution isn’t exclusively for VASPs but primarily addresses AML/CFT protocols across different sectors, including digital assets, by modifying existing regulations.
In 2020, the UAE’s Security and Commodities Authority (SCA) published Decision No. (23) of 2020 regarding the regulation of crypto asset activities. This regulation seeks to govern the offering, issuance, listing, and trading of crypto assets within the UAE. It mandates that entities involved in activities related to crypto assets must obtain the required approvals and licenses from the SCA. The SCA performs thorough due diligence, in line with AML/CFT regulations. These due diligence checks are performed on anyone applying for licenses or approvals under this regulation. In 2021, the SCA further issued Administrative Decision No. (11) of 2021, which provides additional guidance on crypto asset regulations. This regulation applies to most types of virtual assets in the UAE, whether they are categorized as securities or not, provided they are listed and traded on an organized marketplace.
In December 2022, to further improve the regulatory landscape for virtual assets, the UAE Cabinet introduced a specific framework for this sector through Cabinet Resolution No. (111) of 2022, which regulates virtual assets and related service providers. This resolution addresses a wider variety of virtual assets and related services, offering a more all-encompassing regulatory strategy throughout the UAE, which also includes free zones. The SCA is identified as the main regulatory body, with local licensing authorities also involved to promote a harmonized regulatory environment. Article 4 of the resolution states that no one can engage in virtual asset activities within the UAE, including its free zones, without the necessary approval and a license from either the SCA or the relevant local licensing bodies. Its main goals are to:
- Establish a legislative framework for the digital asset sector, related activities, and VASPs within the UAE, ensuring clear definition and protection of the rights and obligations for all involved parties.
- Regulate the virtual assets sector, related activities, and VASPs through necessary licensing requirements.
- Ensure adherence to Federal Decree-Law No. (20) of 2018 (as amended), its Executive Regulation, and other applicable legislation concerning the virtual asset sector.
- Support the UAE government’s initiatives to attract international firms operating in the digital assets sector.
- Protect investors in the virtual asset sector from illegal activities.
Moreover, in February 2023, the Central Bank of the UAE issued extensive guidelines for licensed financial institutions on how to manage the risks associated with virtual assets and VASPs. These guidelines aim to assist licensed financial organizations in understanding the risks involved and effectively meeting their legal responsibilities regarding AML/CFT controls. The guidelines outline measures like customer due diligence and enhanced due diligence for dealing with potential VASP clients and counterparties. They emphasize the need to minimize associated risks, support organizations through training, and provide a structure for governance and record-keeping obligations.
In October 2024, per Cabinet Decision No. (100) of 2024, the UAE amended the Executive Regulation of Federal Decree-Law No. (8) of 2017 regarding Value Added Tax (VAT). Starting November 15, 2024, many transactions involving virtual assets, including virtual currencies, are exempt from the standard 5% VAT. As stated in article 42 of the Executive Regulation, this exemption is for activities such as transferring ownership of virtual assets (including virtual currencies), as well as the custody, management, and conversion of virtual assets. However, services related to virtual assets that charge explicit fees, commissions, discounts, rebates, or similar charges will still be subject to VAT. Individual Emirates within the UAE have also enacted their own specific laws and rules governing cryptocurrencies, for example, in Abu Dhabi, Dubai, and Ras Al Khaimah.
2. What are the cryptocurrency regulations in Saudi Arabia?
Saudi Arabia is taking a cautious approach to digital currencies. As of December 2024, Saudi Arabia hasn’t introduced specific laws for cryptocurrencies. Although it is not expressly forbidden, virtual currencies lack official legal recognition and are operated under a risk-conscious regulatory framework by the Saudi Central Bank, previously known as the Saudi Arabian Monetary Authority (SAMA), and the Capital Market Authority (CMA).
SAMA has issued several warnings concerning the risks linked to virtual currencies. In 2018, the Standing Committee for Raising Awareness about Dealing in Securities Activities in the Unauthorized Foreign Exchange Market (Forex), including SAMA, released a warning. It highlighted the considerable risks and potential negative outcomes for traders resulting from the lack of government supervision over virtual currencies. Also, in 2019, the Ministry of Finance issued a similar warning, advising against dealing in or investing in virtual currencies, including virtual currencies, as they are neither legally recognized nor regulated by any official entities in Saudi Arabia.
The Anti-Money Laundering Law (AML), enacted by Royal Decree No. (M/20) on October 25, 2017, and the Law on Combating Terrorist Crimes and its Financing (CFT), issued by Royal Decree No. (M/21) on November 1, 2017, do not specifically mention virtual assets. However, the expansive definition of “funds” in both laws implies that these assets are covered, as the definition includes tangible and intangible assets, economic resources, or properties of any value or type, regardless of how they are obtained, including via “electronic or digital systems.”
Article 1(4) of the Implementing Regulations of the CFT law states that regulated financial activities or transactions include “electronic currencies.” Although the implementing regulations do not specifically define “electronic currencies,” the term is generally understood to encompass digital forms of currency, including virtual currencies. While individual ownership and trading of virtual currencies are not explicitly prohibited, local financial organizations do not trade in them because they are not recognized by legal bodies in Saudi Arabia.
3. What are the cryptocurrency regulations in Bahrain?
Bahrain has adopted a proactive approach to cryptocurrencies by introducing comprehensive frameworks to encourage innovation while ensuring adherence to anti-money laundering regulations, maintaining market integrity, and protecting investors.
Legislative Decree No. (4) of 2021 amended Legislative Decree No. (4) of 2001 on Anti-Money Laundering and Combating the Financing of Terrorism. The amendment revised the term “money” in Article 1(a) to include all assets, property, economic resources, and items of value, whether tangible or intangible. This expanded definition expressly includes “digital currencies” and “virtual assets,” such as cryptocurrencies. By including this definition, the law makes digital currencies and virtual assets subject to Bahrain’s AML/CFT regulations. This guarantees that any organizations handling virtual currencies comply with the same stringent standards as traditional financial institutions.
The Central Bank of Bahrain (CBB) is responsible for overseeing the regulatory framework for virtual currencies, making sure that crypto-asset activities comply with international standards and best practices. In February 2019, the CBB introduced its Crypto-Asset Module to put in place detailed regulatory and supervisory measures for activities related to crypto-assets. In 2023, the CBB amended the Crypto-Asset Module to include “Digital Token Offerings” and expanded the scope of the licensees’ activities.
The Crypto-Asset Module governs a broad spectrum of crypto-asset-related activities, including the licensing (CRA 1.1.8) and supervision of crypto-asset exchanges in Bahrain, and other services such as trading, dealing, advisory services, and portfolio management of crypto-assets. It also regulates technology governance and cybersecurity, risk management, AML/CFT requirements, crypto-asset custody services, corporate governance, prevention of market abuse and manipulation, and reporting, notifications, and approvals. This crypto-asset module must be used in combination with other sections of the CBB Rulebook to ensure a complete understanding of the relevant rules and guidelines. These include provisions on high-level controls (corporate governance), market intermediaries and representatives, AML/CFT controls, and international cooperation and exchange of information.
In Bahrain, the application of VAT to virtual currencies depends on the nature of the transaction. The National Bureau of Revenue’s VAT Financial Services Guide on Credit and Financing Services (Version 1.3), which came into effect on January 1, 2022, presents specific guidelines for VAT applicable to four types of tokens recognized in Bahrain. These tokens are payment tokens (or cryptocurrencies), utility tokens, asset tokens, and hybrid tokens. The following applies to payment tokens (or cryptocurrencies):
- Mining Rewards: Tokens earned by miners for their mining activities are outside the scope of VAT. This exemption occurs because mining isn’t considered an economic activity, due to the insufficient link between the service provided and the consideration received.
- Exchange for Legal Tender or Other Tokens: Exempt from VAT, as these transactions are classified as financial services.
- Used to Acquire Goods or Services: Exempt from VAT, as these tokens serve solely as a means of payment.
- Supply of Goods and Services Paid with Tokens: Subject to VAT under applicable laws and regulations, as they are treated the same way as transactions remunerated in traditional currencies.
- Charges Over and Above Token Value (e.g., fees, and commissions): Exempt from VAT unless the consideration is expressly categorized as a fee, commission, or commercial discount; in these cases, the supply will be subject to VAT.
For VAT compliance, when converting payment token cryptocurrencies to Bahraini Dinars, the exchange rate used must be the rate published on the CBB website.
4. Where can I access more resources?
The Law Library has compiled and updated a report on virtual currency regulation globally.
For additional legal developments in the jurisdictions mentioned above, consult the Law Library’s Global Legal Monitor, which features subject-specific topics.
For questions concerning Bahraini, Saudi, or UAE law, you can submit them using the Ask a Librarian form on our website.
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