UAE Exempts Crypto Transactions From Value Added Tax: Can The US Follow Suit?

The UAE announced an exemption of all cryptocurrency transactions from value-added tax (VAT) by the Federal Tax Authority (FTA) on 2 October 2024. 

The exemption by the UAE’s Ministry of Finance comes into effect from 15 November 2024. However, this change applies retroactively to transactions made as far back as 1 January 2018.

Hence, the crypto-related transfers and conversions will benefit from the 0% VAT rate.

The move marks quite a shift in the way virtual assets are treated within the UAE. Moreover, it aligns crypto transactions with traditional financial services, many of which are already exempt from VAT. 

Meanwhile, social media is abuzz. Can the US follow suit in order to be more competitive?

UAE ( Dubai) just eliminated ALL taxes on Crypto transactions

The US needs to follow if they want to be competitive pic.twitter.com/emNCRcYp7I

— borovik (@3orovik) October 6, 2024

Related: How to Buy Bitcoin in Dubai: The 4 Best Ways (Updated 2024)

Aspects Of Crypto Transactions The UAE Exemption Covers

The UAE imposed a 5% value added tax in January 2018 as part of the Gulf Cooperation Council (GCC)-wide framework that all GCC nations had agreed to. The levy was applied to goods and services in a number of industries.

But now, any transaction involving the buying or selling of virtual assets, whether through exchanges or peer-to-peer trading, will be exempt from the standard 5% VAT. 

This brings clarity to the tax treatment of digital currencies like Bitcoin and Ethereum, which are frequently traded in the UAE.

The VAT exemption also extends to cryptocurrency conversions, which have become common practice as investors and businesses seek to diversify their holdings across multiple digital assets.

In essence, this move brings digital assets into the same category as traditional financial services, many of which are already exempt from VAT under UAE tax law.

Related : New Cryptocurrencies to Invest in 2024 | 18 Newly Released Coins

Increasing Legitimacy Of Crypto In The Middle East

Commenting on UAE’s latest decision , Anurag Chaturvedi, Andersen CEO in UAE said, “This move enhances clarity around the taxation of, in particular, cryptocurrency, which is gaining traction as an investment option in the UAE.”  

One of the most significant aspects of this decision is the retrospective application of the VAT exemption. 

By extending the rule back to January 2018, the UAE government is simplifying the tax landscape for future transactions. It offers a level of relief for those who may have faced VAT-related uncertainty over the past several years.

This retrospective application may also have implications for companies and individuals who have paid VAT on crypto transactions during this period.

The UAE’s regulatory approach to crypto is setting a benchmark for other countries.

Related: Ripple Partners With UAE’s DIFC: Is It A Game Changer For Blockchain Adoption In Middle East?

In the recent past, Reece Merrick, managing director of Ripple’s Middle East and Africa operations, said, “In contrast to other jurisdictions that are yet to begin the process of setting clear regulatory guidelines for the industry, the UAE’s supportive regulatory environment creates a highly attractive environment for blockchain development.”

“Ripple’s business traction and growth is primarily outside of the US in regions such as the UAE, where there is regulatory clarity,” Merrick added.

Meanwhile, Ripple CEO Brad Garlinghouse said, “The UAE is one of the most advanced jurisdictions globally when it comes to offering regulatory clarity for licensed firms to offer virtual asset services and fostering an environment in which the next generation of financial innovation can flourish.”

Related: Bybit Launch Sharia-Compliant Crypto Accounts, A First Of Its Kind From A Major Exchange

Disclaimer: Crypto is a high-risk asset class. This article is provided for informational purposes and does not constitute investment advice. You could lose all of your capital.