Changes to Value Added Tax (VAT) regulations in the United Arab Emirates (UAE) will exempt transfers and conversions of digital assets, including cryptocurrencies.
The UAE’s Federal Tax Authority (FTA) announced the changes last week, which also include VAT exemptions for the management of investment funds and the transfer of virtual assets.
According to business consultancy PwC, VAT exemptions for transfers and conversions of virtual assets will be applied retroactively from January 1, 2018. The FTA defines virtual assets as “representations of value that can be exchanged or converted digitally and can be used for investment purposes. » excluding fiat currencies and financial securities.
PwC has advised businesses involved in virtual assets to assess the impact of this exemption on their historical VAT positions. They also highlighted the importance of input tax recovery for virtual asset businesses, allowing registered businesses to reclaim VAT paid on eligible purchases.
Additionally, the auditing firm mentioned that correcting historical returns might require voluntary disclosures from virtual asset companies.
Beyond VAT changes, UAE regulators are improving their crypto regulations. On September 9, Dubai’s Virtual Asset Regulatory Authority (VARA) and the Securities and Commodities Authority (SCA) established a framework for mutual supervision of virtual asset service providers (VASP). This allows VASPs operating in Dubai to automatically register with the SCA when seeking a VARA license.
Additionally, VARA has strengthened marketing rules for crypto investments. Since September 26, companies promoting digital assets must include a prominent disclaimer in their materials, warning that “virtual assets may lose their value in whole or in part and are subject to extreme volatility “.
The Dubai Financial Services Authority (DFSA) has also amended its cryptocurrency token regime to advance the regulatory framework for tokens within the UAE Special Economic Zone.
The DFSA has revised its crypto token regime to incorporate the changes proposed in Consultation Paper 153, published in January 2024. The changes address key areas such as the regulation of funds investing in crypto tokens and the process for recognizing such tokens.
The changes impact the ability of external and foreign funds to offer units in recognized cryptographic tokens. Previously, the DFSA limited financing activities involving crypto tokens. However, feedback from fund and asset managers indicated that existing regulations were too strict.
Additionally, the changes now allow domestic accredited investor funds to invest in non-recognized tokens, provided the exposure does not exceed 10% of the fund’s gross net asset value (GAV). Until now, the DFSA had only recognized five crypto tokens: Bitcoin (BTC), Ether (ETH), Litecoin (LTC), XRP (XRP) and Toncoin (TON).
Previously, the token recognition application fee was $10,000 per token, which many companies considered prohibitively high, especially for those seeking recognition of multiple tokens. In response to these comments, the DFSA reduced the fee to $5,000 and introduced additional recognition criteria for stablecoins, which are cryptographic tokens linked to fiat currencies.
The DFSA said these changes do not represent a more lenient regulatory position. Instead, they provide the flexibility to recognize fiat-anchored crypto tokens issued in jurisdictions with comparable regulation.
