UAE removes VAT on all crypto transactions

UAE removes VAT in significant areas as the Federal Tax Authority (FTA) announces updates to the Executive Regulation of Federal Decree-Law No. 8 of 2017, which governs the Value Added Tax (VAT) system. These changes, effective from November 15, 2024, aim to modernize VAT regulations, particularly in the areas of virtual assets, export goods, and financial services. The set of amendments was introduced in Cabinet Decision No. (100) of 2024, which is another step forward by the UAE regarding streamlined tax procedures as well as clarification in various sectors.

Virtual assets and cryptocurrencies now VAT-exempt

One of the most notable changes under the new regulation is the VAT exemption for the transfer and conversion of virtual assets, including cryptocurrencies. Article 42 has been updated to explicitly exempt these transactions from VAT, with the exemption applying retroactively from January 1, 2018. This gives much-needed clarity to those businesses engaged with virtual assets as they can now adjust their tax positions accordingly.

Businesses that have previously paid VAT on dealings involving cryptocurrencies should thus be expected to make a voluntary disclosure of previous records to get such past filings right. The amendment will further exempt the management of investment funds from VAT, relieving further pressure on the managers and potentially making investments cheaper to manage.

Simplified VAT requirements for exporters

Article 30 of the Executive Regulation has also been amended to facilitate exporting business in the VAT procedures. Previously, businesses faced stringent documentation requirements to prove an export and qualify for the zero-rated VAT treatment. Now, all this has been eased by the FTA, which allowed presenting any of the following proofs of export, i.e., customs declarations, shipping certificates, or commercial evidence. The change is aimed at relaxing the bureaucratic load on exportators and boosting foreign trade.

Additionally, the amendments bring VAT regulations in line with the Excise Tax law, particularly concerning exemptions for excise goods exported out of the country.The updated rules make it easier for businesses to comply with VAT regulations while benefiting from tax exemptions on exports.

Narrowed scope for exported services

Article 31 of the regulation introduces a significant change in the VAT treatment of exported services. Under the new rule, services can only qualify for the zero rate if they are not considered to be performed within the UAE or designated zones. This actually reduces the scope of services qualified for zero-rated VAT treatment. Most specifically, this affects the real estate, telecommunications, and electronic services, where the location of use or enjoyment of services plays a key role in determining VAT treatment.

Clarification on financial services and composite supplies

The FTA has also added more clarity on tax treatment of financial services in Article 42 with the extension of VAT exemption to cover transfer of ownership and conversion of virtual assets. Fund managers, particularly those overseeing investment funds licensed in the UAE, can now benefit from VAT exemptions on services related to fund operations, investments, and performance monitoring. However, these exemptions may impact the VAT recovery position for funds, potentially reducing costs for managing investments.

Another new provision under Article 46 pertains to composite supplies, which include several components. This new provision clarifies that if there is no principal supply, then the VAT treatment shall follow the general nature of the supply. This way, the VAT computation for bundled services or products will be relatively simplified and less potential for complications.

With these sweeping changes, the FTA expects businesses, particularly those dealing in virtual assets and exports, to reassess their VAT positions to ensure compliance. The new rules facilitate some of the processes, and yet, they offer more correct direction towards matters related to complicated VAT laws to the respective industries.

As businesses adjust to the new tax landscape, these amendments mark a step forward in aligning the UAE’s VAT system with evolving market needs and ensuring the country remains an attractive hub for international trade and investment.

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