Virtual assets exempt from value-added tax, UAE attracts crypto companies
Dubai and the UAE have always shown a more proactive and supportive attitude towards startups and the cryptocurrency industry. In addition to establishing the Virtual Asset Regulatory Authority (VARA) responsible for regulating cryptocurrency and related service providers, they also passed the Cryptocurrency Law in 2022, providing a clear legal framework for the crypto industry. Major exchanges such as Binance, Crypto.com, and OKX have obtained their VASP licenses. According to the Value Added Tax (VAT) rules amendment published by the UAE Federal Tax Authority (FTA), the transfer and conversion of virtual assets are exempt from VAT, retroactively applicable from January 1, 2018, which could be another attractive condition for the crypto industry.
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Exemption of Value-Added Tax for Transfer and Conversion of Virtual Assets
The Federal Tax Authority (FTA) of the United Arab Emirates announced amendments to the country's value-added tax regulations. PwC, one of the Big Four accounting firms globally, represented in Taiwan by PricewaterhouseCoopers Taiwan, stated in a report that the new regulations include an exemption from value-added tax for additional services, such as managing investment funds and transferring and converting virtual assets. The exemption for the transfer and conversion of virtual assets will be retroactively applicable from January 1, 2018.
Note: Value-Added Tax (VAT) is a type of consumption tax levied during the production, circulation, and sale of goods or services. For example, if a company produces a product and sells it to a wholesaler for 100 units, the company needs to pay VAT. Assuming a tax rate of 10%, the VAT would be 10 units.
The definition of virtual assets is: digital transactions or conversions used for investment purposes, excluding digital forms of legal tender or financial securities.
PwC recommends that fund managers analyze whether their services qualify for VAT exemption and the impact on their VAT recovery status. Funds purchasing services from fund management companies should also analyze whether the purchased fund management services meet the exemption criteria, especially when these services are purchased from outside the UAE. These impacts, especially in terms of input tax recovery, may require voluntary disclosure by companies to claim exemptions from previously deducted VAT.
Dubai and UAE Collaborate to Regulate VASP
In addition, the regulatory authority of the UAE has recently simplified and updated rules regarding virtual assets.
The Dubai Virtual Assets Regulatory Authority (VARA) and the Securities and Commodities Authority (SCA) of the UAE Federal Financial Institutions have reached an agreement on the mutual supervision of Virtual Asset Service Providers (VASPs). According to this agreement, VASPs operating in Dubai or intending to provide services to the Emirate of Dubai need to obtain a license from VARA and can optionally register with SCA to provide services to a wider UAE audience. The agreement covers cooperation mechanisms for mutual supervision of VASPs, penalties and fines, exchange of information and statistics, as well as employee training and certification.