The UAE’s Federal Tax Authority (FTA) announced key amendments to its value-added tax (VAT) regulations on October 2, 2024. The changes will exempt the transfer and conversion of digital assets, including cryptocurrencies, from VAT. This adjustment encourages growth and innovation within the UAE’s digital asset sector. The VAT exemptions will be applied retroactively from January 1, 2018. These allow businesses in the virtual asset sector to reclaim VAT on previous transactions.
The changes released by PwC also cover VAT reliefs for other related digital assets and services. Such services include investment fund management and exchanging or moving virtual assets. This change will be a relief to firms that have been operating in the virtual asset space.
PwC also reveals that, in the UAE, virtual assets are described as “any form of value that can be bought and sold in a digital environment.” These assets can also be used for investment purposes. However, fiat currencies and financial securities are not included according to the definition.
UAE VAT Exemption Boosts Crypto Sector
PPwC further emphasized that businesses involved in virtual assets should carefully analyze their VAT positions. These businesses should go through their previous tax returns. In record, they can check if they are in a position to reclaim VAT on qualifying business expenses.
In addition, businesses may need to adjust prior period returns, which may require filing supplemental returns with the tax authority. PwC recommended that virtual asset companies ensure their tax affairs are in order, as the exemption is retrospective.
This decision from the UAE government is seen as a sign of businesses’ willingness to develop the cryptocurrency and blockchain industries. This may lead to increased market entry or increased operations by firms because the tax on the transfer of digital assets has been lowered. Another UAE-based tax advisory firm Finanshels also pointed this provision as bringing much value to the business, especially those in the digital assets space.
Overall, the new VAT exemptions for digital asset transfers and conversions reflect the UAE’s continued efforts to create a favourable environment for the virtual asset industry. The changes aim to simplify tax processes, making the UAE an attractive destination for crypto-related ventures.
