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The United Arab Emirates (UAE) is taking significant strides to become a leading crypto-friendly jurisdiction by exempting cryptocurrency transfers and conversions from value-added tax (VAT). This new regulation is set to enhance the appeal of digital asset transactions in the region.
On October 2, the UAE’s Federal Tax Authority (FTA) announced amendments to its VAT regulations. As highlighted by business consultancy firm PwC, these updates include VAT exemptions for various services, such as managing investment funds and the transfer and conversion of virtual assets. Notably, these exemptions will be applied retroactively from January 1, 2018, providing potential tax relief for crypto businesses.
According to PwC, virtual assets are defined as “representations of value that can be digitally traded or converted for investment purposes.” It’s important to note that this definition excludes fiat currencies and financial securities. Virtual asset companies in the UAE are advised to carefully analyze their VAT positions to benefit from the new exemptions. The possibility of recovering input tax—VAT paid on eligible business purchases—can significantly impact these firms’ financial health.
Registered businesses can claim back the VAT they have previously paid, but they may need to make voluntary disclosures to correct any historical tax returns.
In addition to VAT exemptions, the UAE is enhancing its regulatory framework for virtual assets. On September 9, Dubai’s Virtual Asset Regulatory Authority (VARA) and the Securities and Commodities Authority (SCA) agreed to jointly supervise virtual asset service providers (VASPs). This collaborative approach allows VASPs licensed in Dubai to automatically register with the SCA, streamlining operations across the UAE.
Furthermore, on September 26, VARA announced tighter regulations on crypto marketing, requiring firms to include a prominent disclaimer in promotional materials. This disclaimer must inform potential investors that “virtual assets may lose their value in full or in part and are subject to extreme volatility.”
With these regulatory changes, the UAE is positioning itself as a global leader in cryptocurrency innovation and adoption. By exempting crypto transfers and conversions from VAT, the UAE not only encourages growth in the digital asset sector but also fosters a more inclusive financial environment for virtual asset companies. As regulations continue to evolve, stakeholders in the crypto space should remain informed to capitalize on these opportunities.