• UAE exempts cryptocurrency transfers and conversions from value-added tax (VAT)
• The exemption applies retrospectively from January 1, 2018
• Virtual asset businesses should analyze the exemption’s impact on their input tax recovery
The United Arab Emirates (UAE) has recently made amendments to its value-added tax (VAT) laws that are more favorable to cryptocurrency. The changes exempt cryptocurrency transfers and conversions from VAT, positioning the UAE as a crypto-friendly jurisdiction.
VAT Exemptions for Crypto Transactions
On October 2nd, the UAE’s Federal Tax Authority (FTA) published updates to the country’s VAT rules. The amendments include VAT exemptions for managing investment funds and transferring/converting virtual assets, according to consultancy PwC. The exemptions apply retroactively from January 1, 2018.
PwC noted that in the UAE, virtual assets are defined as digital representations of value that can be traded or converted and used for investment. However, the definition excludes fiat currencies and financial securities.
Input Tax Recovery for Virtual Asset Firms
PwC advised virtual asset businesses to analyze how the VAT exemption impacts them retrospectively. Firms should pay particular attention to input tax recovery, which allows registered UAE businesses to reclaim VAT already paid on business purchases.
According to PwC, correcting historical tax returns may require voluntary disclosures by virtual asset companies.
Recent Crypto Regulations in the UAE
In addition to VAT exemptions, UAE regulators have been updating crypto rules. On September 9th, Dubai’s Virtual Asset Regulatory Authority (VARA) and the Securities and Commodities Authority (SCA) agreed to jointly supervise virtual asset providers. Under the deal, VARA-licensed firms can also operate in the wider UAE.
VARA also tightened crypto marketing rules on September 26th, requiring disclaimers about volatility risks on promotions. The changes show the UAE’s continued efforts to develop crypto regulations.
Conclusion
The VAT exemptions and regulatory updates indicate the UAE is embracing cryptocurrency. By creating a welcoming environment for virtual asset transactions, the country is positioning itself as a crypto-friendly jurisdiction. The VAT and marketing rule changes are positive steps towards mainstream crypto adoption in the region.
