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United Arab Emirates redefines the rules: cryptocurrencies with no tax burden

The fiscal landscape of the United Arab Emirates has undergone a significant shift following the recent amendments to the value-added tax (VAT) regulations. This decision, which exempts transfers and conversions of digital assets, including cryptocurrencies, promises to boost the financial market and position the country as a benchmark in the realm of digital finance.

This measure arises in a global context where cryptocurrencies and digital assets are gaining prominence, and where regulatory frameworks seek to adapt to these new economic realities. The United Arab Emirates, aware of the importance of these emerging technologies, have chosen to facilitate their adoption through tax incentives.

Amendments to VAT: Boost for cryptocurrencies in the UAE

ENMIENDAS AL IVA: IMPULSO A LAS CRIPTOMONEDAS EN LOS EAU

On October 2, the Federal Tax Authority (FTA) of the United Arab Emirates announced significant changes to VAT regulations. These amendments, which include the exemption of the tax for transfers and conversions of digital assets, represent a decisive step in the country’s strategy to promote the growth of the cryptocurrency market.

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According to consultancy PwC, these new rules also encompass additional services such as investment fund management. The VAT exemption on virtual asset transactions will be applied retroactively from January 1, 2018. This measure could have a significant impact on companies that have been operating in this sector over the past few years.

The amendments aim not only to attract foreign investments but also to solidify the United Arab Emirates as a global hub for financial technologies. By eliminating tax burdens on cryptocurrencies, the country facilitates access to and adoption of these digital assets. This, in turn, could stimulate innovation and the development of new platforms and financial services.

VAT RECOVERY FOR VIRTUAL ASSET COMPANIES
The auditing firm PwC has highlighted the importance of virtual asset companies analyzing the exemption in their retrospective VAT position. In the United Arab Emirates, virtual assets are defined as a “representation of value that can be traded digitally or converted and can be used for investment purposes.” However, this definition expressly excludes fiat currencies and financial instruments.

PwC has advised companies to review their previous VAT returns, as correcting these may require the filing of voluntary declarations. Companies should pay special attention to the recovery of input VAT, a process that allows for the reclaiming of tax paid on qualifying business purchases. This process could represent significant savings for businesses in the sector.

The company Finanshels, based in the United Arab Emirates, has emphasized that recovering input VAT is a key benefit for registered companies. By taking advantage of this opportunity, virtual asset companies can optimize their tax situation and improve their liquidity. This further enhances the appeal of the United Arab Emirates as a destination for cryptocurrency and digital asset firms.

REGULATORY IMPROVEMENTS IN THE CRYPTOCURRENCY SECTOR IN THE UAE

MEJORAS REGULATORIAS EN EL SECTOR DE CRIPTOMONEDAS EN LOS EAU

In addition to VAT exemptions, regulators in the United Arab Emirates have been working on streamlining and updating the rules governing virtual assets. The aim is to create a robust regulatory environment that fosters innovation without compromising market safety and integrity.

On September 9, the Dubai Virtual Assets Regulatory Authority (VARA) and the Securities and Commodities Authority (SCA) signed an agreement to jointly supervise virtual asset service providers. This agreement allows providers operating in Dubai to obtain a license from VARA while also offering services throughout the United Arab Emirates by registering with the SCA. This collaboration facilitates the expansion of businesses across the country.

The harmonization of regulations among different government entities reflects the commitment of the United Arab Emirates to the sustainable development of the cryptocurrency market. By unifying criteria and simplifying processes, bureaucracy is reduced, creating a more favorable environment for business. This is especially relevant in such a dynamic and constantly evolving sector as digital assets.

STRICTER RULES FOR CRYPTOCURRENCY MARKETING

While the United Arab Emirates seeks to promote the cryptocurrency market, it is also implementing measures to protect investors. The Dubai Virtual Assets Regulatory Authority (VARA) has tightened the rules on cryptocurrency marketing. Companies that promote investments in digital assets must now include liability disclaimer clauses in their advertising materials.

This disclaimer clause must warn that “virtual assets can lose their total or partial value and are subject to extreme volatility.” This measure aims to ensure that investors are fully aware of the risks associated with cryptocurrencies. Transparency and investor protection become foundational pillars of the regulatory policy.

These actions demonstrate the balance that the United Arab Emirates seeks between fostering innovation and ensuring financial security. By establishing clear rules and appropriate safeguards, the country positions itself as a responsible leader in the realm of digital finance. This approach could serve as a model for other nations looking to integrate cryptocurrencies into their economies.

Diego Servente
Diego Servente
Apasionado por el periodismo, escribo de inversiones e inmuebles en Medio Oriente, especialmente en Dubai y Abu Dabi.

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