FTA details Value Added Tax liabilities for creation of bitcoin and similar cryptocurrencies.
The Federal Tax Authority (FTA) of the United Arab Emirates (UAE) has issued a public clarification outlining the VAT treatment of cryptocurrency mining – covering digital currencies such as Bitcoin and Ethereum. This clarification provides essential guidance on the classification of activities associated with cryptocurrency mining directly or for others and their VAT implications within the UAE.
The UAE introduced a Value Added Tax (VAT) system in January 2018 at a standard rate of 5%. The tax applies to most goods and services, with certain exceptions, such as specific financial services and exports. Cryptocurrency transactions, including mining, have presented new challenges for VAT regulators due to their decentralized and innovative nature. This recent clarification reflects the UAE’s commitment to adapting its tax framework to accommodate emerging technologies while providing transparency to taxpayers.
In 2024, the FTA cryptocurrency VAT exemption was clarified. This new guidance covers creation or ‘mining’ for digital currencies:
- Input Tax Recovery Guidelines The FTA has clarified the recovery of input tax related to mining activities:
- Personal mining: Input tax on expenses like hardware purchases, real estate rental, or utility bills is non-recoverable as these costs are not tied to taxable supplies.
- Third-Party mining services: Registered miners providing services to others may recover input tax to the extent that it is incurred for taxable activities. Proper documentation, such as tax invoices, is required for this recovery.
- Mining for own account:
- The mining of cryptocurrency by a person for their own account is not considered a taxable supply and, therefore, falls outside the scope of VAT.
- Expenses incurred for mining activities under this category will not allow for the recovery of input VAT. This is because these expenses are not incurred for the purpose of making a taxable supply.
- Mining for third parties:
- When cryptocurrency mining is conducted on behalf of another person, such as providing computational power or other related services, it is deemed a taxable supply of services.
- Input VAT incurred in this scenario may be recoverable, provided the expenses directly relate to the provision of taxable supplies.
- Definition of Cryptocurrency Mining:
- Cryptocurrency mining is described as “the process where specialized computers, also known as mining rigs, validate blockchain transactions for a specific cryptocurrency, for which a reward may be received for the contribution of computational power.”
The clarification, issued on January 13, 2025, is available on the FTA’s official website and aims to address uncertainties faced by individuals and businesses engaged in cryptocurrency mining activities.
VAT Treatment of Bitcoin Mining in Other Countries
The VAT treatment of bitcoin and other cryptocurrency mining varies significantly across jurisdictions:
- European Union: The Court of Justice of the European Union (CJEU) has ruled that cryptocurrency transactions, including mining, are generally exempt from VAT as they are classified as financial services. However, if mining services are provided for a fee, such as leasing computational power, these may be subject to VAT, depending on the specific nature of the arrangement.
- United States: The U.S. does not have a VAT system but applies sales tax at the state level. Mining activities are generally not taxed unless the miner is selling the mined cryptocurrency in exchange for goods or services, in which case local sales tax rules may apply.
- Canada: The Canadian Revenue Agency (CRA) treats cryptocurrency mining differently depending on whether it is for personal purposes or business activities. Business mining activities may attract Goods and Services Tax (GST) or Harmonized Sales Tax (HST) on specific transactions.
- China: Although cryptocurrency mining has been heavily restricted in China, when permitted, the taxation of mining-related activities is typically subject to VAT. The standard VAT rate of 13% applies to taxable transactions, including the provision of computational services.
