The Middle East cryptocurrency market has seen a major positive change as the UAE government officially announced a value-added tax (VAT) exemption for the transfer and conversion of cryptocurrencies. This not only redefines the tax obligations of companies in the digital asset field but also further promotes the country’s position as a leading global digital asset-friendly region.
According to Bitcoin.com, the UAE Federal Tax Authority (FTA) made important revisions to the executive regulations of the 8th Federal Decree-Law on VAT on October 2, 2017. These changes, which are in accordance with Cabinet Decision No. 100 of 2024, will take effect on November 15, 2024, aiming to clarify key provisions of the value-added tax.
One of the most affected areas is virtual assets, including their definition, exemptions, and impact on businesses. Companies involved in virtual asset trading should thoroughly assess how these revisions will affect their VAT obligations and input tax refund conditions.
Article 42 exempts value-added tax on certain activities related to virtual assets, 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 transferred and can be used for investment purposes,” with cryptocurrencies being a prime example. This definition does not include digital representations of legal tender or financial securities.
The exemption for virtual asset transactions applies retroactively from January 1, 2018, which means that businesses may need to reanalyze their VAT declarations since that date. Additionally, companies involved in these transactions may need to submit voluntary disclosures to rectify previous declarations. These changes represent a significant shift in the taxation of digital and cryptocurrency-related transactions in the UAE.
In the UAE, virtual assets are defined as “digital representations of value that can be digitally traded or transferred and can be used for investment purposes,” but this definition does not include digital representations of legal tender or financial securities.
PwC advises companies involved in virtual assets to carefully review their retrospective VAT positions and adjust their tax declarations based on the new regulations. Additionally, businesses need to pay special attention to the issue of input tax recovery to ensure compliance and tax optimization.
Finanshels, a tax advisory firm in the UAE, states that registered businesses can claim VAT paid on eligible business expenses and achieve tax optimization through the UAE’s input VAT recovery mechanism. PwC further adds that virtual asset companies may need to make voluntary disclosures to ensure compliance when amending past tax declarations.
In addition to the VAT exemption measures, the regulatory framework for virtual assets in the UAE is also being strengthened.
On September 9, the Dubai Virtual Asset Regulatory Authority (VARA) reached a cooperation agreement with the UAE Securities and Commodities Authority (SCA) to jointly regulate virtual asset service providers (VASPs).
Under this agreement, virtual asset service providers operating in Dubai can expand their operations to the entire UAE market by obtaining a license from VARA and registering with SCA.
Furthermore, VARA has also strengthened regulations on cryptocurrency marketing activities.
Since September 26, all companies promoting digital asset investments must include prominent risk warnings in their marketing messages, reminding investors that “virtual assets may lose all or part of their value and have extreme volatility.”
