The UAE announced that cryptocurrency transactions are exempt from VAT, a major policy benefit

Author: It is Fengyue Jiangwan

The Middle East cryptocurrency market has ushered in a major positive change. The UAE government has officially announced the exemption of value-added tax (VAT) on the transfer and conversion of cryptocurrencies, which not only redefines the tax obligations of companies in the digital asset field, but also promotes the country to further become the world's leading digital asset-friendly region.

According to Bitcoin.com, the UAE Federal Tax Authority (FTA) made important revisions to the Executive Regulations of Federal Decree No. 8 of 2017 on VAT on October 2. According to Cabinet Decision No. 100 of 2024, these changes will take effect on November 15, 2024, and are intended to clarify key provisions of VAT.

One ​​of the most affected areas is virtual assets, including their definition, exemptions and impact on businesses. Companies engaged in virtual asset transactions should thoroughly assess how these amendments will affect their VAT obligations and input tax recovery position.

Article 42 exempts certain virtual asset related activities from VAT, including the transfer of ownership and conversion of virtual assets. Virtual assets are defined as "digital representations of value that can be digitally traded or converted and used for investment purposes", with cryptocurrencies being a prime example, and the definition does not include digital representations of fiat currencies or financial securities.

The exemption for virtual asset transactions is retroactively effective from January 1, 2018, which means that businesses may need to reanalyze their VAT returns since that date. In addition, companies involved in these transactions may need to submit voluntary disclosures to correct previous returns. The changes represent a significant shift in the UAE’s taxation of digital and cryptocurrency-related transactions.

In the UAE, virtual assets are defined as “representations of value that can be digitally traded or converted and used for investment purposes,” but this definition does not include legal tender or financial securities.

PwC recommends that companies involved in virtual assets should carefully review their retrospective VAT position and adjust their tax filings in accordance with the new regulations. In addition, companies need to pay special attention to the recovery of input tax to ensure compliance and tax optimization.

Finanshels, a UAE tax services company, said that under the UAE’s input VAT recovery mechanism, registered companies can claim VAT paid on eligible business expenses, thereby achieving tax optimization. PwC further added that amending past tax filings may require virtual asset companies to make voluntary disclosures to ensure compliance.

In addition to the VAT exemption measures, the UAE’s regulatory framework in the virtual asset sector is also being strengthened.

On September 9, the Dubai Virtual Asset Regulatory Authority (VARA) and the UAE Federal Securities and Commodities Authority (SCA) reached a cooperation agreement, and the two parties will jointly regulate virtual asset service providers (VASPs).

According to this agreement, virtual asset service providers operating in Dubai who wish to obtain a license from VARA can also further expand their business to the entire UAE market by registering with SCA.

In addition, VARA has also strengthened the regulation of cryptocurrency marketing activities.

From September 26, all companies promoting digital asset investments must include obvious risk warnings in their marketing scripts, reminding investors that "virtual assets may lose their value in full or in part and have extreme volatility."