Crypto VAT regulation changes
Definition:
Virtual assets are now defined as "digital representations of value that can be traded or transferred digitally and used for investment purposes, excluding fiat currencies or securities".
Briefing:
The Middle East is making advances in the safe use and innovation of digital/virtual assets and cryptocurrencies by investing in research and passing legislation in this area. As part of the drive for innovation, new authorities will be established to supervise virtual assets and virtual assets service providers (VASPs), the growth of innovation hubs, technology and regulatory sandboxes, or public-private partnerships in the blockchain and digital asset space, and the modification of current regulatory frameworks to incorporate virtual asset activities and business models, with public consultations serving as a prerequisite in the majority of instances.
This is a significant development, as it brings clarity and structure to the taxation of digital assets, which have been a growing area of interest and investment in the UAE.
Exemption Criteria:
Financial Services Classification:
Virtual assets may be eligible for VAT exemption if they are classified in a manner that is comparable to traditional financial services, such as currency exchange. VAT is generally waived for financial services in the UAE, including currency exchange.
The trading of virtual assets, such as cryptocurrencies, may be exempt from VAT if it is considered a transfer of ownership like conventional currencies.
Custodial Services or Digital Wallet Provision:
Services associated with the storage, protection, or administration of virtual assets (digital wallets) may be subject to VAT. Nevertheless, if these services are classified as pecuniary in nature, they may be considered exempt services, similar to bank account management services.
The imposition of VAT on service fees:
The fees levied for consulting, brokerage, or advisory services related to virtual assets are typically subject to VAT, as they are considered services rather than financial transactions.
Purely advisory or transactional services that facilitate virtual asset trading without transmitting the asset itself may not be exempt.
Cross-Border Transactions:
If the recipient is VAT-registered in the UAE and the supplier is non-resident, the Reverse Charge Mechanism (RCM) may be applicable for cross-border transactions involving virtual assets. This may affect the treatment of any associated service fees.
For expert guidance on regulated activities related to virtual assets and digital security, please feel free to reach out at: info@sscoglobal.com
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