The United Arab Emirates has exempted cryptocurrency transfers and exchanges from VAT in an effort to position itself as a more crypto-friendly jurisdiction for digital asset trading, Cointelegraph reported.
Revisions to the UAE’s Value Added Tax (VAT) regulations will exempt the transfer and exchange of digital assets, including cryptocurrencies.
On October 2, the United Arab Emirates Federal Tax Authority (FTA) published revisions to the country’s VAT rules. According to business consulting firm PricewaterhouseCoopers (PwC), the new rules include VAT exemptions for additional services, including the management of investment funds and the transfer and exchange of virtual assets.
PwC noted that the exemption for virtual asset transfers and exchanges will apply retroactively to transactions on and after January 1, 2018.
Input tax recovery for virtual asset companies
The audit firm explained that in the UAE, virtual assets are defined as “representations of value that can be traded or exchanged digitally and can be used for investment purposes.” However, the definition does not include legal tender or financial securities.
The audit firm advises businesses dealing with virtual assets to analyse their exemptions from retroactive VAT status. PwC added that virtual asset companies should pay particular attention to the recovery of their input taxes.
In the UAE, input VAT recovery enables registered businesses to claim VAT already paid on qualifying business purchases, according to Finanshels, a UAE-based bookkeeping and tax firm.
In addition, PwC said that correcting historical tax returns may require voluntary disclosures by virtual asset companies.
UAE steps up regulation of crypto
In addition to VAT exemptions, regulators in the UAE have also recently simplified and updated the rules governing virtual assets.
On September 9, the Dubai Virtual Asset Regulatory Authority (VARA) and the UAE Federal Financial Institutions Securities and Commodities Authority (SCA) reached an agreement to jointly supervise virtual asset service providers (VASPs).
Thanks to the agreement, VASPs operating in Dubai who wish to obtain a license from VARA will also have the option to serve the wider UAE by becoming a registrar with the SCA by default.
At the same time, VARA has also tightened regulations on crypto marketing. On September 26, regulators said companies promoting digital asset investments should add prominent disclaimers to their materials.
The disclaimer must state that “virtual assets may lose their value in whole or in part and are subject to extreme volatility.”