UAE exempts crypto from VAT
The United Arab Emirates (UAE) is updating its tax policy such that cryptocurrency-related transfers and conversions will be exempt from value-added tax (VAT).
News of the policy change emerged via the UAE’s Federal Tax Authority (FTA), which published an Arabic version of the updated tax code on Oct. 2, followed by the publication of an English version on Oct. 4.
Exemption backdated to 2018
British multinational consulting firm PricewaterhouseCoopers (PwC) published a review of the UAE tax code update on Oct. 4. The auditing firm noted that virtual assets are defined within the UAE tax code as a “representation of value that can be digitally traded or converted and can be used for investment purposes.”
It noted that Article 42 of the update dealt with the crypto VAT exemption. The firm suggested that entities dealing with crypto should “analyze the impact of the exemption on their (retrospective) VAT position, especially in respect to their input tax recovery,” adding that voluntary disclosures may be required to correct previous tax returns.
Additionally, a VAT exemption has been introduced on services extended to fund managers relative to licensed funds.
Younis Haji Al Khoori, a UAE Ministry of Finance official, stated that the amendments have been made with a view towards easing the burden on businesses. He stated:
“These amendments help minimise misunderstandings, simplify procedures, and ultimately contribute to an improved quality of life for all.”
Crypto-friendly
Abdulla Al Dhaheri, CEO of the Blockchain Center in Abu Dhabi, commented on the development on X, stating:
”The UAE, driven by visionary leadership, continues to set the global standard by becoming the number 1 destination for blockchain innovation. With the elimination of VAT on crypto transfers and conversions, the UAE reinforce their commitment to building a world-leading digital economy, attracting the best talent and investment from around the globe.”
The UAE, and particularly Dubai and Abu Dhabi, have taken great strides forward in ensuring regulatory clarity for the virtual assets sector over the course of the past two years. Regulatory frameworks have been put in place, leading to many participants in the crypto sector praising the regulatory stance taken within the UAE.
This latest addition has equally being welcomed within the crypto sector. Many crypto sector participants have highlighted it as a wake-up call for other jurisdictions to follow suit or see crypto enterprises move to the UAE.
The Indian authorities, in particular, have an unfavorable tax policy in place relative to digital assets, with a 1% tax deducted at source (TDS) being applied. This latest development in the UAE prompted some to consider if India would learn from the UAE’s example. Earlier this year, the Indonesian tax framework, which subjects crypto assets to both income tax and VAT, was cited as the main reason for a slump in crypto trading.
A recently published report by blockchain data platform Chainalysis found that the Middle East & North Africa (MENA) region accounts for 7.5% of crypto trading volume, with the report noting that the UAE, alongside Saudi Arabia, is showing a strong interest in decentralized platforms.
