UAE Exempts Crypto and Fund Management Services from VAT, Effective 2024

Companies involved in digital assets received a push from the United Arab Emirates (UAE) government, which is working hard to position itself as one of the top, if not the top, countries for crypto in the world. 

At the beginning of October, the Federal Tax Authority published the Executive Regulation of the Federal Decree (Decree), updating the VAT legislation regarding the VAT treatment of digital assets and investment fund management.

Impact on Crypto and Fund Management Services

Starting November 15, 2024, the 5% VAT rate applicable to most digital asset transfers, including crypto, will be removed. From that date onwards, the ownership, transfer, and conversion or management of digital assets, such as crypto, will be treated as financial services. Therefore, these services will fall under the scope of VAT-exempt supplies.

Interestingly, this decision to remove the 5% VAT rate will be implemented retroactively. So, the date from which the VAT exemption is applied will be January 1, 2018. 

This is important for businesses and individuals who paid VAT on digital asset-related transactions in the past six years since they can now claim it back. However, as is always the case with VAT refunds, those who request a refund may face tax audits.

Also, managing investment funds services are now exempt from VAT. This affects both the fund managers and those who appoint them, that is, those who use the service provided by the fund managers.

Conclusion

These changes set a new direction for businesses involved in the blockchain sector and further certify the UAE as one of the leading countries. As the Web3 community grows, more companies and individual investors participate in developing blockchain technologies. Therefore, all of them might take advantage of VAT exemptions provided by the latest regulatory changes in the UAE to ensure greater cash flow.

Also, businesses that already operate in this field in the UAE should analyze if and to what extent new rules apply to them.

Source: PwC, BDO, The Executive Regulation of the Federal Decree-Law No. 8