The United Arab Emirates (UAE) has amended its value-added tax (VAT) regulations to exempt cryptocurrency transfers and conversions, further solidifying its position as a crypto-friendly hub for digital asset transactions.
UAE Updates VAT Regulations for Digital Assets
On October 2, the UAE’s Federal Tax Authority (FTA) announced changes to the country’s VAT rules. These updates specifically exempt digital asset transactions, including crypto transfers and conversions, from VAT. According to PwC, a leading business consultancy, the changes also cover other financial services, such as managing investment funds.
The new VAT exemptions are being applied retroactively, effective from January 1, 2018. This retrospective application offers a significant advantage to businesses in the digital asset space, enabling them to revisit and potentially recover VAT paid on past transactions.
Input Tax Recovery Opportunities for Crypto Firms
PwC emphasized that businesses involved in virtual assets should carefully assess the impact of these changes on their historical VAT positions. They recommend that virtual asset firms evaluate opportunities for input tax recovery, which allows them to claim back VAT previously paid on qualifying business expenses.
The UAE defines virtual assets as a “representation of value that can be digitally traded or converted and used for investment,” excluding fiat currencies and financial securities. PwC advises firms to consider voluntary disclosures to correct historical VAT filings and claim any eligible refunds.
Bookkeeping firm Finanshels highlighted the UAE’s input VAT recovery system, which enables registered businesses to reclaim VAT on eligible purchases. For virtual asset companies, this can represent significant savings, especially with the retroactive application of the VAT exemption.
Strengthened Regulatory Framework for Virtual Assets
Beyond VAT exemptions, the UAE continues to enhance its regulations for the digital asset sector. On September 9, Dubai’s Virtual Asset Regulatory Authority (VARA) and the Securities and Commodities Authority (SCA), the UAE’s federal financial regulatory agency, established a cooperative agreement for overseeing virtual asset service providers (VASPs).
The agreement allows VASPs licensed by VARA in Dubai to operate across the UAE under the supervision of the SCA, streamlining licensing and regulatory processes. This move enhances the regulatory consistency for VASPs and facilitates wider market access within the country.
In addition to these measures, VARA has recently tightened its crypto marketing regulations. As of September 26, any firm promoting digital asset investments must include a clear disclaimer stating that “virtual assets may lose their value in full or in part and are subject to extreme volatility.”
