Companies operating in the UAE that have engaged in cryptocurrency transactions since 2018 are now being urged to reassess their VAT eligibility and potentially reclaim past VAT costs. This follows the UAE’s decision to eliminate VAT on virtual assets, including cryptocurrencies like Bitcoin, a move that could have significant financial implications for businesses that have been trading in digital currencies.
With the new tax rules coming into effect on November 15, businesses can now determine whether they qualify to recover VAT paid on crypto-related transactions from the Federal Tax Authority (FTA), a development that has been welcomed by many in the industry.
“Financial assets had been an exempt category under the UAE VAT rules — but there was some ambiguity whether crypto or virtual assets fall under that,” said Girish Chand, senior partner at MCA Management Consultants. “With the new VAT updates issued by the Ministry of Finance, that ambiguity is no longer there.”
Chand further explained that under the updated rules, digital asset transactions will now be classified as “exempt supplies” for VAT if conducted within the UAE. Transactions conducted with customers outside the country will be subject to zero-rated VAT, meaning businesses will not have to charge VAT on these transactions.
Reclaiming VAT on Past Crypto Transactions
One of the most significant aspects of this new policy is the potential for companies to reclaim VAT paid on cryptocurrency-related transactions dating back to January 1, 2018. This could provide businesses with substantial financial relief, but there are challenges associated with the process.
“Companies must retrospectively evaluate their ability to recover input tax on crypto-based deals from January 2018,” said Nimish Goel, partner at Dhruva Consultants. “It is expected that a large percentage of the VAT incurred on these associated expenses may not be recoverable.”
Eligible virtual asset service providers (VASPs) will need to submit documentation for financial transactions going back to 2018. The process of submitting these documents, as well as the necessary information to the FTA, is expected to be complex, especially for businesses with extensive transaction histories.
“VASPs will need to assess their positions regarding VAT paid on eligible transactions dating back to 2018, which may introduce practical challenges in the process,” said Carolina Rios, associate partner and head of virtual assets at Karm Legal Consultants. “The complexity of navigating the requirements for reclaiming VAT from past transactions can be particularly challenging for VASPs with extensive transaction histories to review and prepare documentation.”
Easing Crypto Adoption
The UAE’s decision to exempt VAT on cryptocurrency transactions aligns with global trends that acknowledge the distinct nature of digital currencies. Countries like Canada, Denmark, Japan, Spain, and the UK have also implemented similar regulations, aiming to foster the growth of the digital economy.
“The VAT exemption aligns with the global trend that recognises the unique nature of digital currencies,” said Goel. “As a result, the sale of cryptocurrencies is not subject to VAT, similar to regulations in other nations. This is intended to foster the growth of the digital economy in the UAE, attracting investment in the blockchain and cryptocurrency sectors.”
The elimination of VAT on cryptocurrency transactions is expected to ease the tax burden for businesses and encourage further crypto adoption in the region. As the use of digital currencies continues to grow among businesses and individual investors, the UAE is positioning itself as a leading player in the digital asset space.
Cryptocurrencies are already some of the most heavily traded assets in the UAE, and the new VAT exemption is set to further bolster their appeal. This policy shift may also attract increased investment in blockchain and crypto-related industries, helping to cement the UAE’s reputation as a hub for innovation in the digital economy.
The UAE’s proactive approach to fostering cryptocurrency adoption is seen as a vital step toward creating a more vibrant and competitive digital landscape in the Middle East. With these new tax regulations, the country is laying the groundwork for future growth in the cryptocurrency and blockchain sectors, signalling a bright future for digital assets in the UAE.
