The newest VAT exemptions for UAE crypto, investment firms

Changes to the UAE’s Value Added Tax (VAT) system are set to take effect on November 15, 2024, says the Federal Tax Authority (FTA).

These updates will impact several sectors, with investment fund management and virtual assets receiving key exemptions.

The amendments, following Cabinet Decision No. 100 of 2024, aim to streamline VAT regulations, stimulate investment, and align the system with international standards. These changes are expected to benefit businesses dealing with virtual assets and investment funds, further boosting the UAE’s position as a global financial hub.

According to a recent note from auditing firm PwC, “Additional services are exempt from VAT: The management of investment funds [and] transferring ownership of virtual assets, including cryptocurrencies.”

The note also highlighted that converting virtual assets is exempt from VAT as well, with the last two exemptions being applied retrospectively from 1 January 2018.

One of the key changes includes a VAT exemption on services provided by fund managers to licensed funds. This exemption covers “services provided by the fund manager independently for a consideration, to funds licensed by a competent authority in the State, including but not limited to, management of the fund’s operations, management of investments for or on behalf of the fund, [and] monitoring and improvement of the fund’s performance,” PwC stated.

The firm further urged fund managers and the funds they serve to “analyse whether (and to what extent) their services qualify for the VAT exemption and the impact on their VAT recovery position.”

In the cryptocurrency space, the transfer and conversion of virtual assets, such as digital currencies, will also be exempt from VAT.

PwC advised businesses dealing with virtual assets to “analyse the impact of the exemption on their (retrospective) VAT position, especially in respect to their input tax recovery,” and noted that some businesses may need to file voluntary disclosures to correct historic returns.

UAE focuses on business friendliness

Younis Haji Al Khoori, undersecretary of the Ministry of Finance, noted that these changes aim to improve clarity and ensure a smoother experience for businesses. “These amendments help minimise misunderstandings, simplify procedures, and ultimately contribute to an improved quality of life for all,” he said.

Other notable changes include revisions to the rules for exporting goods and services and clearer definitions for supply-related terms. Charitable and government entities also benefit from VAT exemptions on certain in-kind donations, valued up to Dhs 5 mn.

While the investment and crypto sectors are expected to benefit the most, PwC advised businesses in all industries to carefully review the amendments.

“Businesses should analyse the impact of the amendments on their VAT position,” the firm said, emphasising the importance of understanding the potential changes to their VAT recovery.

These reforms are seen as a strategic step to balance revenue collection while enhancing the country’s investment landscape.