Legal status of cryptocurrency: how to trade and pay taxes in UAE

Taxes in UAE

Legal status of cryptocurrency

A cryptocurrency or crypto-asset in the UAE is recognized as property (as a commodity for VAT purposes). General rules on the legal status of crypto assets have been developed, such as the UAE Securities and Commodities Authority's (SCA) Virtual Assets Regulation (The Chairman of the Authority's Board of Directors' Decision No. (23/ Chairman) of 2020 Concerning Crypto Assets Activities Regulation).

Also, bitcoin mining in Dubai is regulated by local acts, such as in the free zone ADGM (Abu Dhabi Global Market) for the regulation of cryptocurrencies by the authorized body - Financial Services Regulatory Authority (FSRA) - on February 24, 2020 issued a Guidance - Regulation of Virtual Asset Activities in ADGM.

Taxation of cryptocurrency transactions in the UAE

There is a VAT in the UAE. The rate of VAT in the UAE is 5%. However, not all goods are subject to VAT.

Crypto-assets are subject to VAT as they are not on the list of exemptions. The sale of crypto-assets may be a taxable transaction under value-added tax legislation, and as of November 2021, the UAE Federal Tax Authority has not issued any official rules regarding crypto-assets.

The calculation of the exchange rate of cryptocurrency to fiat currency for tax purposes has also not yet been established.

Companies must register as a VAT payer if their taxable supplies and imports exceed 375,000 UAE dirhams per year. Companies that reach the AED 187,500 threshold can voluntarily join the registry. As a general rule, companies registered as VAT payers must:

Charge VAT on the taxable goods they supply;
Refund VAT on any purchased business goods and services;
Keep records for government purposes.

However, foreign companies can reimburse VAT expenses while in the United Arab Emirates.

Income Tax

There is no federal income tax in the UAE.

Corporate Tax

Corporate taxes are levied only on oil companies and branches of foreign banks. There is no corporate tax for other businesses.

In addition, there are more than 40 free zones in the country. Companies that register in free zones are exempt from tax for a period of 15-50 years (depending on the rules of the particular free zone), which can be extended.

Capital Gains Tax

There is no capital gains tax if the company is not subject to other income tax.

Currency control

There is no withholding tax or exchange controls in the UAE that affect cross-border payments using crypto-assets.

Double Taxation Avoidance Agreements

It should be noted that the UAE is expanding its network of double tax treaties (DTAs) and bilateral investment treaties (BITs) to encourage strategic global partnerships. Thus, as of 2021, the UAE has entered into some 193 DTAs and BITs to exempt or reduce taxes on investments and profits from direct and indirect taxes.

Thus, the UAE's tax system - or rather the absence of taxes - is one of the region's main advantages. There is no income tax paid by employees and, in particular, no system of corporate and inheritance taxes. There are no currency controls.

Therefore, the UAE is a good choice for registering companies planning to conduct cryptocurrency transactions.

Dubai passes first law to regulate cryptocurrency

The Dubai authorities passed the first law to regulate cryptocurrencies in the emirate and created an oversight body that will be responsible for digital assets and crypto-service providers. This was announced in a tweet by UAE Prime Minister and Emir of Dubai Sheikh Mohammed. The oversight body is called the Virtual Asset Regulatory Authority.

In particular, the supervisory body will monitor the trading and issuance of "virtual assets and virtual coins.

Mohammed also promised to provide the crypto business with "the best environment in the world" in terms of licensing, regulation and governance.

The new law will apply throughout the emirate with the exception of the Dubai International Financial Center, where there are plans to develop their own crypto-regulation rules.

The law obliges any crypto-exchange that intends to operate in Dubai to obtain a license issued by the new supervisory authority.

No other specific provisions of the new law have been reported, only that it is known to create a legal framework for the use of cryptocurrency.

Following the announcement of Dubai's cryptocurrency regulation law, the world's largest cryptocurrency exchange, Binance, applied for a license to operate in the emirate.

As noted by Bloomberg, some special economic zones in the UAE are already issuing licenses for crypto-service providers.