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UAE Removes VAT on Crypto Transfers, Boosting Ripple and XRP Adoption
Reinout te Brake | 08 Oct 2024 22:11 UTC
UAE Introduces New VAT Amendments Impacting cryptocurrency Transactions
On October 2, 2024, the United Arab Emirates Federal Tax Authority (FTA) made significant amendments to its Value Added Tax (VAT) regulations affecting businesses involved in Cryptocurrency and Digital asset transactions. These changes, outlined in cabinet decree no. 100 of 2024, are set to come into effect on November 15, 2024, with retroactive rules applied from January 1, 2018, marking a pivotal shift for companies operating in the digital asset space.
New Regulations Extend VAT Exemptions to Certain Transactions
The revised VAT laws in the UAE now provide clearer guidelines on the taxation of Virtual assets, defined by the FTA as "digital representations of value that can be traded, converted, or used for investment purposes." This category encompasses cryptocurrencies, excluding digital assets that mirror fiat money or financial instruments.
Prior to these amendments, cryptocurrency transactions were subject to a 5% VAT and treated as commercial transactions. However, one of the key highlights of the new regulations is the extension of VAT exemptions to specific transactions retroactively. Starting from January 1, 2018, Article 42 of the amended Regulation exempts activities related to virtual assets such as asset Ownership transfers and conversions from VAT.
Companies that engaged in these transactions over the past six years are advised to review their VAT returns, potentially necessitating additional filings or disclosures to ensure proper reporting. Entities involved in the trading and management of virtual assets must assess the impact of these new rules on tax compliance, requiring a proactive approach in adapting to the regulatory changes.
These amendments mandate companies to adapt both past and future transactions to adhere to the revised tax framework accurately. Additionally, there may be implications on input tax recovery conditions as companies evaluate their eligibility for VAT recovery under the updated legislation.
Cryptocurrency Market in UAE Displays Remarkable Growth
The amendments introduced reflect a substantial shift in the UAE's approach to taxing digital assets and cryptocurrencies, providing relief for companies grappling with initial uncertainties regarding VAT obligations on virtual assets.
In recent years, the UAE has positioned itself as a frontrunner in embracing cryptocurrencies and championing blockchain and digital asset technologies. According to Chainalysis, cryptocurrency transactions exceeding $30 billion were processed in the UAE between July 2023 and June 2024, placing the country third among the largest crypto economies in the MENA region.
Noteworthy developments include the significant increase in total assets locked in Decentralized Finance (DeFi) services, particularly Decentralized Exchanges (DEXs), which experienced an 87% surge. These statistics underscore the growing demand for Crypto services within the region.
Recently, Ripple secured approval from the Dubai Financial Services Authority (DFSA) to conduct operations in the Dubai International Financial Centre (DIFC). This regulatory green light allows Ripple to expand its offerings, including cross-border PaymentSolutions like Ripple Payments Direct (RPD), catering to the UAE and other markets. The DFSA authorization positions Ripple to enhance its customer base and deliver reliable digital services within the UAE and beyond.