• The UAE has introduced new VAT amendments that impact cryptocurrency transactions.
  • The amendments are effective November 15, 2024, and have retroactive rules from 2018.

On October 2, 2024, the United Arab Emirates Federal Tax Authority (FTA) introduced crucial amendments to its Value Added Tax (VAT) regulations, impacting businesses dealing with cryptocurrencies and other digital assets. 

These amendments were made as per cabinet decree no. 100 of 2024, are intended to provide further directions in the application of VAT on virtual asset transactions. The new rules will come into force on November 15, 2024, and apply with retroactive effect from January 1, 2018, which will be a big change for companies operating in the digital asset sector.

New Regulations Extend VAT Exemptions to Certain Transactions

The recent changes in the VAT laws give a clear framework for how virtual assets will be taxed, as defined by the FTA as “digital representation of value that can be traded, converted, or used for investment purposes.” 

This category includes cryptocurrencies, although digital assets that are analogues of fiat money or financial instruments are not included. Prior to this, the UAE charged a 5% VAT on cryptocurrency transactions and regarded them as commercial transactions. 

However, one of the most significant features of these changes is the extension of VAT exemptions to some transactions with retroactive effect. From January 1, 2018, Article 42 of the amended regulation exempts Virtual asset-related activities like transfer of ownership and conversion of assets from VAT. 

Companies that have engaged in these transactions in the past six years should review their VAT returns and may require filing of additional returns or disclosures to report the transactions properly. Companies engaged in trading and management of virtual assets have to consider what impact these new rules have on tax regulation. 

The amendments mandate companies to develop retroactive and future transactions to ensure correct taxation compliance. It may also affect input tax recovery positions as companies come forward to review their eligibility regarding VAT recovery under the new law.

Cryptocurrency Market in UAE Shows Significant Growth

These amendments are a major change in the UAE’s policy regarding the taxation of digital assets and cryptocurrencies. The adoption of retroactive tax exemptions may help companies that initially did not know how to address their VAT obligations regarding virtual assets.

In the recent past, the UAE has embraced cryptocurrency and has aimed to be at the forefront of blockchain and digital asset technologies. According to Chainalysis, the UAE processed more than $30 billion worth of cryptocurrency between July 2023 and June 2024, ranking third among the MENA region’s largest crypto economies. Notably, in the last year alone, the total assets locked in DeFi services, including DEXs, rose by 74%. DEXs alone experienced an 87% increase, proving the need for crypto services within the area.

As previously reported by Crypto News Flash, Ripple recently received approval from DFSA to operate in the Dubai International Financial Centre (DIFC). This approval will allow Ripple to expand its services and provide cross-border payment solutions in the UAE and other regions, including Ripple Payments Direct (RPD). The DFSA authorization enables Ripple to expand its potential customer base in the UAE and provide the company with reliable digital services.