UAE introduces 2018 retrospective VAT exemption for crypto currencies and virtual assets
The UAE Federal Tax Authority recently issued an updated version of the Executive Regulation of the Federal Decree-Law No. 8 of 2017 on Value Added Tax (VAT), reflecting changes in Cabinet Decision No. 100 of 2024.
These amendments, particularly impactful on virtual currencies, redefine “virtual assets” as a digital representation of value that can be traded or converted digitally, excluding fiat currencies or financial securities.
The key VAT updates in this regulation focus on virtual currencies, such as Bitcoin or Ethereum, which are now recognized as distinct taxable assets. Notably, VAT exemptions have been introduced retroactively for transactions involving the transfer of ownership or conversion of virtual currencies, applicable from January 1, 2018. This ensures that historical transactions involving the exchange or transfer of virtual currencies are exempt from VAT, reflecting the UAE’s progressive approach to regulating cryptocurrency-related activities.
These provisions aim to clarify the VAT treatment of crypto-assets, ensuring that digital investments and trading activities are aligned with broader tax policies. The VAT exemptions enhance clarity for businesses and investors engaging in virtual currency transactions, providing a clear framework for compliance while fostering growth in the UAE’s burgeoning digital economy.
UAE falls into line with rest of world on VAT
The VAT treatment of cryptocurrencies varies across major economies, reflecting differing views on their legal status.
European Union (EU): The European Court of Justice ruled in 2015 that cryptocurrency exchange services are considered financial transactions and are exempt from VAT. Buying or selling cryptocurrencies is VAT-free, though services like mining or consulting may still be taxable. There is an ongoing EU VAT cryptocurrency review.
United Kingdom: The UK follows the EU’s VAT exemption for cryptocurrency transactions. Cryptocurrencies used as a payment method for goods or services are subject to VAT based on the underlying value, but trading in crypto itself is VAT-exempt.
United States: The U.S. does not have a federal VAT, but sales tax may apply at the state level. Cryptocurrencies are treated as property, meaning using them for purchases could trigger capital gains tax, but not VAT. Sales tax may still apply to goods and services bought with cryptocurrency.
Australia: Cryptocurrencies are treated as digital property, and while transactions involving cryptocurrencies are typically GST-exempt (similar to VAT), businesses must charge GST on goods and services bought using crypto.
Japan: Since 2017, Japan has exempted cryptocurrency transactions from consumption tax (its equivalent of VAT). Trading, buying, and selling cryptocurrencies are tax-free under Japanese consumption tax law.
Singapore: Singapore considers cryptocurrencies as intangible property. Cryptocurrencies used as a payment method are exempt from GST (Goods and Services Tax). However, GST may still apply to goods and services purchased using crypto based on their regular taxable value.
These policies reflect how governments adapt to the evolving role of cryptocurrencies in commerce.
