The UAE is making progress in integrating digital currency into its financial system. But there’s still a limit it hasn’t crossed, which is the full payment of salaries in digital currencies.
The UAE has recently passed a court decision that allows Crypto Benefits to be included as part of employment benefits. However, salary payments must still be made in UAE dirhams. This decision reflects the UAE’s cautious yet forward-thinking approach towards digital assets
Highlights from the Ruling
In a landmark decision, a UAE Court ordered an employer to pay their employee in digital EcoWatt Tokens as part of a benefits package. This decision is important because it is one of the very first times that a court acknowledged the use of cryptocurrency within an employment contract.
This ruling does not apply to the full payment of salaries in cryptocurrency. The Wage Protection System of the UAE (WPS) mandates that salaries be registered and paid in AED. However, this system is intended to safeguard employees against the volatility associated with digital assets, by paying their wages in an accepted stable currency.
Legal Context & Implications
The ruling conforms to the existing legal structure, specifically article 22 of Federal Decree/Law No. This law (33) from 2021 allows salaries to be paid out in AED, but also permits other currencies with both parties consent. WPS, despite its flexibility, has yet to adapt to include cryptocurrency, so full crypto salaries are not on the table.
Anna Zeitlin of Addleshaw Goddard’s Fintech and Financial Services group also highlighted the risks associated with paying salaries using volatile cryptocurrencies.
She stated: “Allowing employees to be paid in cryptocurrencies which have seen significant value fluctuation may prove to be risky and could leave employees vulnerable to the market drops.”
Crypto adoption in the UAE
Although the ruling doesn’t allow full salary payments using cryptocurrency, it may pave the path for greater crypto adoption within the UAE. Experts are already looking at potential applications in areas like retail and real estate, where digital assets can streamline transactions and attract investors from a wider range.
Zeitlin expressed optimism over the future implications this ruling will have. It is hoped that the case will pave a way for salaries, not just employment benefit payments, to be made in cryptocurrency and for WPS to allow the registration of other currencies than AED, said Zeitlin. She suggested that in order to reduce the risk of volatility, authorities should consider using Central Bank Digital Currencies for salary payments.
Wider Adoption: A Glimpse Into the Future
It is no doubt very clear that UAE also desires to become a crypto-friendly country, and the court ruling also represents a significant step in this direction. Zeitlin also sees a day when cryptocurrency will be accepted in all forms of payments, including retail purchases and utility bills. She sees a particular potential for the real estate industry, where blockchain could dramatically reduce transaction times.
She explained, If land departments tokenized title deeds, and added them to blockchains, real estate deals could be completed in seconds instead of weeks.
The UAE could also become a leader of crypto adoption by allowing real-estate transactions in cryptocurrency.
Conclusion
The court’s decision is an important step towards integrating cryptocurrency in the UAE financial ecosystem. However, it also highlights that regulators have to maintain a careful balance between innovations and maintaining financial stability. While the world continues to watch these developments, the UAE has continued to position itself as an international hub for digital assets, with potential for even greater adoption on the horizon.
This cautious but progressive approach could be a model for countries struggling with the challenges and possibilities presented by cryptocurrencies.
FAQs
What has the UAE court allowed in terms of cryptocurrency as a form of employment benefit?
The ruling allows for the use of digital currencies, such as EcoWatt Tokens in lieu of full salaries, but not all.
Why is salary still paid in UAE Dirhams (AED)?
The Wage System requires employees to receive their salaries in AED as a way to protect them from the volatility of digital assets.
How does this ruling fit in with the UAE Labor Law?
The decision is consistent with Article 22 Federal Decree-Law No. WPS allows salaries to be paid in AED or other currencies agreed upon, but does not include cryptocurrency.
What does the ruling mean to future cryptocurrency use in UAE?
The integration of digital assets with transactions could result in a wider adoption of cryptocurrency, and have an impact on industries like retail or real estate.
What are the risks associated with paying salaries using volatile cryptocurrencies?
Volatile cryptocurrency can affect employee compensation, making it unstable and exposing employees to market fluctuations.
