The United Arab Emirates (UAE) has introduced significant changes to its tax regulations, exempting all cryptocurrency transactions from Value Added Tax (VAT).
The Federal Tax Authority (FTA) announced these amendments, which will come into effect on November 15, 2024. The updates are part of broader reforms to the VAT system, simplifying processes for businesses and citizens dealing with virtual assets.
VAT exemption on virtual assets
One of the key changes under the new law is the VAT exemption for the transfer and conversion of virtual assets, including cryptocurrencies. This amendment, outlined in the updated Executive Regulation of Federal Decree-Law No. 8 of 2017, means that individuals and businesses involved in crypto-related activities will no longer have to pay VAT on virtual asset transactions. The exemption applies retroactively from January 1, 2018, meaning businesses may need to adjust their past VAT filings if they previously paid tax on these transactions.
Changes to VAT on exports
In addition to the updates on crypto, the UAE has also made amendments to the VAT treatment of exported goods and services. Article 30 focuses on easing the requirements for applying the zero rate to goods exports. Exporters now have more flexibility in the types of documentation they can present to prove an export, such as customs declarations, shipping certificates, or other commercial evidence. This simplification is aimed at reducing administrative burdens on businesses involved in exports.
Article 31 narrows the scope for applying the zero rate to exported services. The new condition specifies that exported services cannot be performed within the UAE or its designated zones. This revision may affect services like real estate, telecommunications, and electronic services, which could now be subject to standard VAT rates depending on their location of use or enjoyment.
Financial services and fund management
The amendments also impact the financial services sector, particularly regarding the tax treatment of investment funds and virtual assets. Article 42 extends VAT exemptions to additional financial services, including managing investment funds, transferring ownership of virtual assets, and converting virtual assets. Fund managers overseeing UAE-licensed investment funds will now benefit from these exemptions, which could reduce the overall costs associated with managing investments.
However, businesses involved in cryptocurrency must reassess their VAT obligations under this new framework. Companies that have previously paid VAT on virtual asset transactions may need to file voluntary disclosures to correct past tax filings. The FTA expects businesses to ensure compliance with the new rules and review their VAT positions accordingly.
The updated regulations also include changes to composite supplies, addressing the VAT treatment for transactions that involve multiple components. The new guidelines clarify that when no principal component can be identified, the VAT treatment should be based on the overall nature of the supply.
These amendments reflect the UAE’s ongoing efforts to streamline its tax system and reduce burdens on businesses, especially those in emerging sectors like cryptocurrency and financial services.