UAE exempts VAT for some crypto activities; here's what you need to know

The exemption applies as long as these services are not provided for a fee, discount, commission, or similar compensation

Waheed Abbas

Published: Mon 7 Oct 2024, 1:20 PM

Last updated: Mon 7 Oct 2024, 8:37 PM

The UAE has exempted certain activities around cryptocurrencies and virtual assets from the Value-Added Tax (VAT) in the latest amendments to Executive Regulations approved by the UAE Cabinet.

Nimish Goel, partner at Dhruva Consultants, said virtual assets have been exempted from VAT and this exemption applies to digital representations of value that can be digitally traded or converted and are intended for investment purposes.

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"However, this exemption does not extend to digital representations of fiat currencies or financial securities. This regulatory update establishes clear distinctions regarding the types of virtual assets eligible for VAT exemption,” said Goel.

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The Ministry of Finance recently announced that the UAE Cabinet has approved Decision No. 100 of 2024, which amends certain provisions of the Executive Regulations of Federal Decree-Law No. 8 of 2017 on Value Added Tax (VAT).

Introduced in January 2018, 5 per cent VAT was implemented in the UAE as part of the GCC-wide framework agreed by all Gulf Cooperation Council countries. The tax was levied on goods and services across various sectors.

Anurag Chaturvedi, chief executive officer, Andersen in UAE, the amendment to the VAT Executive Regulations covers virtual assets i.e., cryptocurrencies and NFTs which are defined as digital representations of value that can be digitally traded or converted and can be used for investment purposes, and does not include digital representations of fiat currencies or financial securities.

“The scope of the exemption from VAT includes transfers, conversion, keeping and managing virtual assets – essentially trading of cryptocurrency. The scope of exemption must meet the criteria of the definition set forth for virtual assets – in cases where activities related to digital fiat currency (e.g., conversion of Bitcoin to USD), the transaction shall not fall within the definition, and the VAT treatment must be assessed independently,” he said.

Anurag Chaturvedi

He added that this exemption applies if these services are not provided for a fee, discount, commission, or similar compensation. This move enhances clarity around the taxation of, in particular, cryptocurrency, which is gaining traction as an investment option in the UAE.

Financial services

In addition, the new amendments include exemptions on investment fund management services.

Nimish Goel elaborated that this exemption covers services such as the management of the fund's operations, the management of investments on behalf of the fund, and the monitoring and improvement of the fund’s performance as exempt services. “This update aims to enhance the UAE as a hub for investment activities while supporting the growth of the financial sector.”

Nimish Goel

“While these exemptions represent positive advancements, companies must also conduct an assessment of their ability to recover input tax since it is anticipated that a significant portion of the VAT incurred on related expenses may not be recoverable. Thus, businesses should carefully analyse their financial strategies in light of these exemptions to understand their implications on profitability,” he added.

The amendments are effective from November 15, 2024.

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