Clarifications regarding Virtual Assets and the Value Added Tax

Introduction of Virtual Assets under UAE VAT Law

Cabinet Decision No. 100 of 2024 clarifies that Virtual Asset transactions may qualify for VAT exemptions based on transaction nature, not automatically based on the asset type.

Definition of Virtual Assets under UAE VAT Framework

Following the Cabinet Decision No. 100 of 2024 on the Federal Decree-Law No. 8 of 2017 on Value Added Tax that introduced the definition of Virtual Assets as a: “Digital representation of value that can be digitally traded or converted and can be used for investment purposes, and does not include digital representations of fiat currencies or financial securities”.

Key Clarifications on VAT Exemptions

• Operations involving Virtual Assets are not automatically exempt from Value Added Tax (“VAT”).
• Whether a sale or purchase qualifies for exemption depends on the nature of the transaction, regardless of whether it is conducted using fiat currencies or virtual assets.

Financial Services and Article 42 Expansion

• Article 42 of the Federal Decree-Law presents a non-exhaustive list of financial services, which encompasses activities related to money transactions (or equivalents) and the provision of credit.
• In accordance with Cabinet Decision No. 100 of 2024, Article 42 has expanded the list of financial services to include: i) the transfer of ownership of Virtual Assets, including virtual currencies, ii) the conversion of Virtual Assets, and iii) keeping and managing Virtual Assets and enabling control thereof.

Fee-Free Financial Services and VAT Implications

Financial services provided without the expectation of an explicit fee, discount, commission, rebate, or similar compensation are deemed exempt from VAT.

Conclusion: VAT Exemption Depends on Transaction Nature

The Federal Tax Authority has clarified, through Cabinet Decision No. 100 of 2024, that under certain circumstances, transactions involving virtual assets will be exempt from VAT.