Thomas Daniels
The United Arab Emirates (UAE) has introduced amendments to its value-added tax (VAT) regulations, exempting cryptocurrency transfers and conversions from VAT. This move aligns the UAE with global crypto-friendly jurisdictions, enhancing its appeal for digital asset transactions.
On October 2, the UAE’s Federal Tax Authority (FTA) published updates to its VAT rules. As outlined by PwC, a leading business consultancy, the new regulations provide VAT exemptions for additional financial services, including managing investment funds and the transfer and conversion of virtual assets, including cryptocurrencies. Importantly, these VAT exemptions will be applied retroactively from January 1, 2018.
Impact on Virtual Asset Companies
According to PwC, the UAE defines virtual assets as “a representation of value that can be digitally traded or converted and used for investment purposes.” This definition, however, excludes fiat currencies and financial securities. The consulting firm advises businesses dealing in virtual assets to reassess their retrospective VAT position in light of the new exemptions and to pay attention to input tax recovery.
In the UAE, registered businesses are allowed to claim back input VAT, which is the VAT paid on eligible business expenses, according to UAE-based firm Finanshels. PwC also noted that correcting historical returns may require voluntary disclosures from virtual asset companies.
UAE Strengthens Crypto Regulations
The UAE continues to refine its regulatory framework for virtual assets. On September 9, Dubai’s Virtual Asset Regulatory Authority (VARA) and the Securities and Commodities Authority (SCA), the UAE’s federal financial regulator, agreed to jointly supervise virtual asset service providers (VASPs). Under this agreement, VASPs seeking a license from VARA in Dubai will automatically be registered with the SCA, giving them the ability to service the wider UAE market.
Additionally, VARA has tightened its regulations on crypto marketing. As of September 26, firms promoting digital asset investments are required to include a disclaimer clearly stating that “virtual assets may lose their value in full or in part and are subject to extreme volatility.”
