Cryptocurrencies Exempted from VAT in the United Arab Emirates
The UAE has exempted cryptocurrency transfers and conversions from value-added tax (VAT), making it a more cryptocurrency-friendly jurisdiction for digital asset transactions. The amendments to the UAE’s VAT regulations will exempt transfers and conversions of digital assets, including cryptocurrencies.
On October 2, the UAE’s Federal Tax Authority (FTA) made public the amendments to the country’s VAT rules. According to business consultancy PwC, the new rules provide for VAT exemptions for additional services, including investment fund management and the transfer and conversion of virtual assets. PwC highlighted that the exemptions on the transfer and conversion of virtual assets will apply retroactively as of January 1, 2018.
Tax Recovery for Virtual Asset Companies
The audit firm detailed that in the UAE, virtual assets are defined as a “representation of value that can be traded or digitally transferred and can be used for investment purposes.”
However, the definition does not cover fiat currencies or financial securities.
The audit firm recommended that companies dealing in virtual assets analyze the exemption in their past VAT filings. PwC added that virtual asset companies should pay particular attention to the collection of their input tax.
UAE-based accounting and tax firm Finanshels noted that in the UAE, input tax collection authorizes registered companies to refund the VAT they have already paid on eligible business purchases.
In addition, PwC said that correcting historical returns may require voluntary disclosures by virtual asset companies.
United Arab Emirates Improves Cryptocurrency Regulations
In addition to VAT exemptions, UAE regulators have been modernizing and simplifying their rules on virtual assets. On September 9, the Dubai Virtual Assets Regulatory Authority (VARA) and the Securities and Commodities Authority (SCA), the UAE’s federal financial agency, reached an agreement to jointly supervise virtual asset service providers (VASPs). Under the agreement, VASPs operating in Dubai that acquire a license from VARA can also provide services in the rest of the UAE by being registered by default with the SCA.
Meanwhile, VARA has also tightened its rules on cryptocurrency trading. On September 26, the regulator stated that companies promoting investments in digital assets must incorporate a prominent notice in their material. The notice must highlight that “virtual assets may lose their value in whole or in part and are subject to extreme volatility.”
The new tax policies come amid efforts by the United Arab Emirates (UAE) to push for new regulations in the digital currency sector and transform itself into the next financial technology innovation hub. In 2022, Dubai became a pioneer in the region by establishing the Virtual Assets Regulatory Authority (VARA) and issuing a cryptocurrency regulatory framework.
The rules set a specific licensing regime for exchanges. Recently, the VARA tightened its rules on cryptocurrency trading, requiring companies promoting investments in digital assets to add a disclaimer to their material.