In a major move, the UAE Cabinet has exempted certain cryptocurrency and virtual asset-related activities from Value Added Tax (VAT). The exemption, which comes into effect on November 15, 2024, applies to digital representations of value, such as cryptocurrencies and non-fungible tokens (NFTs), that are used for trading or investment purposes. However, it excludes fiat currencies and financial securities.
This regulatory update aims to provide clarity for businesses operating in the virtual assets space, allowing them to engage in activities like the transfer, conversion, and management of cryptocurrencies without VAT liabilities. As explained by Nimish Goel, a partner at Dhruva Consultants, this move strengthens the UAE’s position as a hub for financial innovation and investment in the region. It is also expected to spur the growth of the local crypto market, which has already seen a year-on-year increase of 42%.
Additionally, the VAT exemption extends to investment fund management services, covering operations such as fund performance monitoring and investment management. While the new regulations offer benefits, financial experts caution businesses to review their VAT recoverability strategies. Many of the VAT expenses related to these services may not be recoverable, potentially affecting profitability.
This VAT exemption is part of a broader set of amendments under Decision No. 100 of 2024, aimed at enhancing the competitiveness of the UAE’s financial sector while fostering the growth of virtual assets. Investors and businesses alike are encouraged to review the new regulations carefully to understand their financial implications fully.
