The United Arab Emirates (UAE) has updated its value-added tax (VAT) regulations to make it a more favorable environment for cryptocurrency transactions. The Federal Tax Authority (FTA) in the country has announced that it would exempt virtual asset transfers and conversions from VAT. The new statutes cover a broader range of services, including the management of investment funds, and will apply retrospectively from January 1, 2018.
The term ‘virtual assets’ in the UAE refers to a value that can be digitally traded, exchanged, and used for investment. However, this does not consider fiat currencies or financial securities. The auditing firm, PwC, advises firms that work with virtual assets to examine this VAT exemption and pay special attention to their input tax recovery, which is a mechanism that allows businesses to reclaim the VAT already paid on eligible business purchases.
The UAE is also putting considerable effort into enhancing its regulations on digital assets. In September, mutual supervision of virtual asset service providers (VASPs) was agreed upon between Dubai’s Virtual Asset Regulatory Authority (VARA) and the Securities And Commodities Authority (SCA), the UAE’s federal financial body. This arrangement allows VASPs that are licensed through VARA to also service the wider UAE, as they are automatically registered with the SCA.
Furthermore, VARA has introduced stricter rules on the marketing of cryptocurrencies. Firms advertising digital asset investments are required to include a clear disclaimer in their promotional materials, explaining the potential risks involved, such as the possibility that virtual assets may lose their entire value or experience significant volatility.