October 10, 2024
UAE’s VAT Exemption on Virtual Assets: A Game Changer for Digital Assets
1. Introduction
The United Arab Emirates (“UAE“) has established itself as a progressive jurisdiction for financial innovation, particularly in the realm of virtual assets and cryptocurrencies. In line with its reputation as a global fintech hub, on 2 October 2024, the UAE made a significant update to its tax rules, amending the treatment of virtual assets[1] under Value Added Tax (“VAT“) (“Amendment“).[2] This Amendment, effective retroactively from 1 January 2018, exempts the transfer and conversion of virtual assets—including cryptocurrencies—from VAT.
The change clarifies that virtual assets—including cryptocurrencies—will no longer be subject to the usual 5% VAT, reducing the tax burden for individuals and businesses engaged in crypto activities.
Prior to this Amendment, uncertainty surrounding VAT treatment created challenges for those in the crypto sector. The Amendment now aligns digital asset tax treatment with traditional financial services, which are already VAT-exempt. This alignment encourages the growth of the crypto industry, offering much-needed stability for all market participants and facilitating a more robust environment for innovation and investment in the UAE’s cryptocurrency sector.
In this article, the authors explore the recent VAT exemption on virtual assets in the UAE. Part 1 provides an overview of the tax Amendment. Part 2 assesses its impact on crypto businesses. Part 3 compares cryptocurrency VAT treatments in various jurisdictions. Finally, Part 4 highlights the strategic advantages of pivoting to the UAE market for digital asset companies. Please note, in this article, wherever the term “virtual assets” is used in reference to VAT exemption, it includes the term “cryptocurrency.”
2. Impact of VAT Exemption on Crypto Businesses
The recent Amendment to the VAT treatment of virtual assets represents a transformative shift for businesses operating in the UAE’s crypto sector. By eliminating the 5% VAT on the transfer and conversion of virtual assets, the UAE has significantly reduced the operational costs associated with crypto transactions. With the new VAT exemption in place, businesses can now operate with greater confidence, knowing that their cryptocurrency transactions will not be subject to additional tax costs. This change is expected to stimulate growth in the digital asset sector, making the UAE an even more attractive destination for crypto investments and innovation.
As a result of the retroactive application of the VAT exemption from 1 January 2018, businesses that engaged in cryptocurrency transactions during this period will need to review their tax history. Those who have previously incurred VAT on these transactions may now have the opportunity to amend their tax filings. This process may involve voluntary disclosures to rectify past returns, ensuring compliance with the updated regulations. By taking these steps, individuals can potentially recover previously paid VAT, further enhancing the financial benefits of the new tax framework.
3. Jurisdictional Analysis of Cryptocurrency VAT Treatment
| Jurisdiction | Exempted Crypto | Explanation[3] |
| Australia | Yes (partially) | In Australia, sales and purchases of digital currency are exempt from Goods and Services Tax (“GST“) (equivalent to VAT).[4] While transactions involving cryptocurrencies are generally not subject to GST, businesses must still charge GST on goods and services purchased using cryptocurrency. |
| European Union | Yes (partially) | The European Court of Justice[5] ruled in 2015 that cryptocurrency is simply an alternative means of payment and, therefore, should be considered a currency which is not subject to VAT. While buying and selling cryptocurrencies is not subject to VAT, activities such as mining and consulting services may still incur taxes. |
| Japan | Yes | Since 2017, Japan has exempted cryptocurrency transactions from its consumption tax (equivalent to VAT), as they are recognised as a means of payment. As such, buying, selling, and trading cryptocurrencies fall outside the scope of Japan’s consumption tax.[6] |
| Singapore | Yes (partially) | Singapore treats cryptocurrencies as intangible property, and transactions involving cryptocurrencies are exempt from GST. However, GST still applies to goods and services purchased using cryptocurrencies based on their taxable value. |
| United Arab Emirates | Yes | The UAE exempted the transfer and conversion of virtual assets, including cryptocurrencies, from VAT as of 1 January 2018. This change reduces tax burdens for businesses and individuals in the sector and aligns crypto transactions with the treatment of traditional financial services. |
| United Kingdom | Yes (partially) | The UK follows the EU’s approach, exempting cryptocurrency transactions from VAT. If cryptocurrencies are used as payment for goods or services, VAT is applied based on the underlying value of the goods or services, but crypto trading itself is VAT-exempt. |
| United States | No | Although the US does not impose VAT at the federal level, state-level sales tax can still apply. Cryptocurrencies are treated as property for tax purposes, and using them for purchases may trigger capital gains tax but not VAT. State sales tax might be applicable to goods and services purchased using crypto. |
4. Why Choose the UAE for Crypto Businesses?
The UAE has firmly established itself as a hub for innovation and technology, recognised globally as a crypto-friendly jurisdiction that attracts crypto-native businesses. By creating effective regulatory frameworks within a largely tax-free environment, the UAE offers a highly favourable landscape for virtual asset companies. Its strategic location, strong economy, and pro-business environment make it an ideal destination for businesses looking to expand or establish themselves. With the recent VAT Amendment exempting businesses involved in virtual asset activities from the 5% VAT, the UAE further enhances its appeal, offering even more incentive for companies to pivot to this forward-thinking jurisdiction.
With the new VAT exemption in place, businesses can now operate with greater confidence, knowing that their cryptocurrency transactions will not be subject to additional tax costs. This change is expected to stimulate growth in the digital asset sector, making the UAE an even more attractive destination for crypto investments and innovation.
Overall, the Amendment reflects the UAE’s commitment to creating a supportive environment for the fintech industry, ensuring that it remains competitive globally while fostering responsible growth within the virtual asset market.
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[1] Virtual assets refer to digital representation of value that can be digitally traded or converted and can be used for investment purposes and does not include digital representations of fiat currencies or financial securities.
[2] Amendment to the Article 42, Executive Regulation of Federal Decree-Law No. 8 of 2017.
[3] Aradhana Gole, UAE Cryptocurrency Exemption, VATCalc (08 October 2024).
[4] GST and trading digital currency, Australian Taxation Office, Australian Government (04 July 2023), https://www.ato.gov.au/businesses-and-organisations/gst-excise-and-indirect-taxes/gst/in-detail/your-industry/gst-and-crypto-assets/gst-and-trading-digital-currency
[5] Skatteverket v. David Hedqvist, Judgment of the Court (Fifth Chamber), Case C-264/14.
[6] Katsufumi Kurihara, Taxation to Crypto Assets in Japan, The Twelfth IMF-Japan High-Level Tax Conference For Asian Countries in Tokyo, International Monetary Fund (26 October 2022).