Changes to the UAE’s Executive Regulations relating to VAT that were published by the Federal Tax Authority on 2 October 2024 include revisions to the VAT treatment of virtual assets and investment fund management (for an analysis of all of the changes, see the tax alert drafted by BDO in the United Arab Emirates).
A transfer of the ownership of virtual assets, including virtual currencies and the conversion/ management of such assets, will be considered a financial service and the tax treatment should be evaluated accordingly, as an exempt supply. This exemption—which applies retroactively to supplies made on or after 1 January 2018—relieves businesses from charging the 5% VAT on crypto-related transactions but will limit the VAT recovery of business expenses. Aligning the VAT treatment of virtual assets with that of financial services brings clarity to the tax treatment of such assets. However, with the VAT-exempt treatment applying as from 2018, affected businesses may need to re-assess their VAT obligations for the relevant years and determine whether previously filed VAT returns need to be amended.
In addition to VAT-exempt treatment for virtual assets, the updated Executive Regulations provide for a VAT exemption for the management of investment funds, specifically services independently provided for consideration to UAE-licensed investment funds. This change should help domestic funds manage VAT costs associated with fund management fees and foster the establishment of new funds.
Ashish Athavale
BDO in United Arab Emirates