UAE clarifies VAT applicability on cryptocurrency mining.

As cryptocurrencies gain popularity in the United Arab Emirates, locals are becoming more concerned about how mining is treated tax-wise

The Federal Tax Authority (FTA) announced on Tuesday that cryptocurrency mining for residents’ personal accounts will not be subject to value-added tax (VAT) in the United Arab Emirates.

However, the authority clarified in its most recent public document, VATP039. It stated that mining cryptocurrencies on behalf of another individual, that is, providing computational power, is a taxable supply of services and is subject to 5% VAT.

In contrast to many well-known tax jurisdictions where VAT regulations pertaining to virtual assets might be ambiguous, the FTA has clarified the situation to strengthen the UAE’s standing as a top option for miners, according to Nirav Rajput, partner at Aurifer.

The VAT regulation in the United Arab Emirates does not apply to cryptocurrency mining on a personal account. This is due to the fact that an individual’s network’s computational efforts cannot be connected to a particular receiver or a set reward (such as cryptocurrency), he stated.

He said that even though the VAT treatment for individual miners has been clarified, it is still unclear if mining cryptocurrencies on personal accounts by individuals is considered a business activity subject to corporate income tax (CIT) or if it is merely personal investment income, which is not considered a business activity.

The issue of how cryptocurrency mining is treated tax-wise has grown in importance for locals as cryptocurrencies gain popularity in the United Arab Emirates.

The UAE ranks third in adoption and has a significant percentage of the population that owns cryptocurrencies, according to the Henley and Partners’ Crypto Adoption Index 2024. This is due to the country’s low tax rates, strong government support, and highly digitalized and affluent populace.

With the promise of an instantaneous, safe, reliable, inventive, affordable, and effective payment experience that would revolutionize the digital economy, AE Coin obtained the Central Bank of the UAE’s (CBUAE) license to start in December 2024.

Mining for other people

On the other hand, Rajput stated that mining cryptocurrency for a fee on behalf of another individual is seen as a taxable supply. In this instance, a designated recipient pays the miner a certain amount.

When such services are rendered to a recipient who is based in the United Arab Emirates, they are usually billed at the standard VAT rate of 5%. However, these services may be zero-rated if they are rendered to a non-resident recipient, as long as they fulfill the requirements listed in Article 31 of the UAE VAT Executive Regulations. As long as they meet the standard input VAT recovery requirements, the miner would also be eligible to recover input VAT incurred during the computational labor in this scenario, including VAT on utilities, rentals, internet services, and more,” he continued.

FAQ

Is cryptocurrency mining for personal accounts subject to VAT in the UAE?

No, cryptocurrency mining for personal accounts in the UAE is not subject to VAT. The Federal Tax Authority (FTA) clarified that mining done for an individual’s personal use does not qualify as a taxable service.

Does mining cryptocurrency for someone else require VAT payment?

Yes, if cryptocurrency mining is done on behalf of another individual, it is considered a taxable service and is subject to a 5% VAT rate in the UAE. The VAT applies when computational power is provided for a fee.

Is there any VAT exemption for services rendered to non-resident recipients?

Yes, mining services rendered to non-resident recipients may be zero-rated, meaning they are not subject to VAT. However, certain conditions under Article 31 of the UAE VAT Executive Regulations must be met for this exemption to apply.

Are there any tax implications for personal cryptocurrency mining related to corporate income tax (CIT)?

While the VAT treatment for personal cryptocurrency mining is clear, it is still uncertain whether such activities would be considered a business subject to corporate income tax (CIT). More clarification is needed regarding whether it’s treated as personal investment income or a business activity.

Can cryptocurrency miners recover VAT on costs like utilities and internet services?

Yes, cryptocurrency miners who provide mining services on behalf of others may be eligible to recover input VAT incurred on expenses such as utilities, rentals, and internet services, as long as the necessary VAT recovery requirements are met.

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UAE clarifies VAT applicability on cryptocurrency mining.

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Mining for other people

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