Author | TaxDAO
1 Introduction
The United Arab Emirates (UAE) is strategically located in the maritime crossroads of the Persian Gulf and Indian Ocean, making it of great strategic significance. On one hand, due to its high degree of market openness and low taxes, the market competition is fierce. On the other hand, the UAE adopts a federal system, composed of seven emirates (Abu Dhabi, Dubai, Fujairah, Ajman, Sharjah, Ras Al Khaimah, and Umm Al Quwain). Although there is a federal court system, Dubai and Ras Al Khaimah are not part of it, and each emirate has the power of independent taxation, resulting in an imperfect tax system. There are annual adjustments to specific tax rates, as well as tax policies for specific industries or regions. Therefore, in this unique context, it is necessary to conduct a corresponding analysis of the history, current situation, and development of the UAE’s cryptocurrency tax system, so that investors can have a deeper understanding of the UAE’s tax system and policies, better adapt to the UAE’s tax environment, optimize investment strategies, enhance investment returns, and reduce investment risks.
2 Introduction to the UAE’s General Tax System
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The UAE lacks a comprehensive federal tax system, and the tax system is determined by each emirate. Currently, the emirates with tax laws include Abu Dhabi, Dubai, and Sharjah, with an overall low tax rate. In 2017, the UAE Federal National Council (FNC) passed a revised draft of the Tax Procedures Act, which was officially promulgated by the UAE Parliament on August 1 of the same year. The Tax Procedures Act stipulates the rights and obligations of taxpayers, taxpayer registration procedures, definitions of tax offenses, as well as the procedures for assessment, collection, and management of public taxes. The act also specifies penalties and fines for late payment of taxes, as well as the costs of enforced collection. In October, the Federal Tax Authority of the UAE was established to manage and promote tax affairs, ensure the smooth operation of the UAE’s tax system, provide relevant tax services and guidance, and strengthen taxpayer compliance and tax awareness.
2.1 Major Direct Taxes in the UAE
Direct taxes, namely income taxes, are levied on various types of income of taxpayers. In terms of personal taxes, the UAE does not impose taxes on individuals’ income, nor does it levy net asset taxes, capital taxes, stamp duties, or capital gains taxes. Real estate transfers are subject to real estate taxes based on the sale price, with different tax rates in different jurisdictions. The UAE also does not have inheritance taxes, and in the absence of a will, inheritance is handled according to Islamic principles.
In terms of corporate taxes, the UAE announced that starting from June 1, 2023, it will impose a 9% federal corporate tax on companies with annual profits exceeding AED 375,000, in line with other member countries of the Gulf Cooperation Council. Companies with annual profits below AED 375,000 are exempt. Large multinational corporations with global total revenue exceeding EUR 750 million are subject to separate tax policies and a 15% tax rate, in accordance with specific provisions established by the OECD Base Erosion and Profit Shifting (BEPS) project and the Global Minimum Corporate Tax Rate agreement. Among the six member countries of the Gulf Cooperation Council, the UAE is the fifth country to impose corporate taxes, and its tax rate is the lowest among countries that impose corporate taxes. The federal corporate tax in the UAE will apply to all commercial activities in the emirates, except for natural resource extraction, which will continue to be taxed at the emirate level. Overseas investors who do not have business dealings in the UAE and meet all regulatory requirements are exempt from corporate taxes. Companies in free zones will continue to enjoy tax exemptions under certain conditions. Federal corporate tax does not apply to income derived from savings, real estate, investments, or other income obtained by individuals in a personal capacity that is not sourced from trade or business activities in the UAE. At the same time, qualified capital gains, dividends, and qualifying intra-group transactions and reorganizations are eligible for federal corporate tax exemptions.
2.2 Major Indirect Taxes in the UAE
The major indirect taxes in the UAE include customs duties, value-added tax (VAT), and excise tax. Customs duties are levied by the customs authorities at rates ranging from 0% to 100%, with a general rate of 5%. In recent years, the UAE has made frequent changes to its tax policies. On one hand, it has increased customs duties, including levying customs duties and excise tax on international shipments with a value exceeding AED 300 and on tobacco. On the other hand, the UAE Ministry of Foreign Affairs and International Cooperation (MoFAIC) announced the imposition of certification fees on international imported goods. Any international import invoice with a value exceeding AED 10,000 must be certified by MoFAIC, which will charge a fee of AED 150 for each import invoice with a value exceeding AED 10,000, as well as a fee of AED 2,000 for certifying commercial documents.
In 2017, the UAE, along with other Gulf Cooperation Council (GCC) member states, unanimously approved the introduction of VAT, referring to the VAT framework agreement previously introduced by the GCC. A VAT rate of 5% is imposed on the sale of goods or provision of services within member countries. The principle of mandatory and voluntary application is adopted. On one hand, only companies whose annual import and export value exceeds AED 375,000 are required to pay the excess VAT amount. On the other hand, UAE domestic companies with an annual turnover exceeding AED 187,500 can voluntarily apply to pay the excess tax. Specific educational services, healthcare services, or services exporting products outside the Gulf Cooperation Council can enjoy a zero tax rate. Land purchases, residential real estate, and local passenger transportation are exempt from VAT, and there are also free zones in the UAE where VAT is not levied.
The excise tax mainly targets tobacco, electronic cigarettes and their liquids, and energy drinks, with a tax rate of 100%. Carbonated and sweetened beverages are subject to a 50% excise tax.
3 UAE Cryptocurrency Tax Analysis
3.1 Definition of Cryptocurrency in the UAE
Due to the national structure of the UAE, each emirate has different attitudes towards cryptocurrencies, and their respective legislations may also vary. Abu Dhabi and Dubai play a leading role in regulating the cryptocurrency industry and have defined cryptocurrencies in their own ways.
The Abu Dhabi Global Market provides clear guidance on the classification and treatment of cryptocurrencies, distinguishing between “virtual assets” such as Ethereum and Bitcoin, “digital securities,” and other tokens that provide different types of utility. The Dubai Virtual Assets Regulatory Authority has chosen a broader classification, defining cryptocurrencies as “any digital representation of value that can be digitally traded or transferred for payment or investment purposes.” Virtual tokens are defined as “digital representations that can be traded or transferred digitally through a virtual asset platform.”
3.2 Regulatory Policies for the Cryptocurrency Industry in the United Arab Emirates (UAE)
In 2022, a report from Forex Suggest revealed that the UAE ranked third in terms of the number of blockchain startups, with an average of 1.2 blockchain startups per 100,000 people. Additionally, the UAE ranked fourth globally in terms of interest in cryptocurrencies, with 3,342 cryptocurrency searches per 100,000 people. With a high concentration of related companies and a strong interest in cryptocurrencies, the UAE has been recognized as one of the most suitable countries for adopting cryptocurrencies, ranking fourth globally.
As a significant participant in the global cryptocurrency market, the UAE currently has a tax-free policy on cryptocurrency assets. However, this does not imply that the UAE authorities have a laissez-faire attitude towards holding cryptocurrency assets. The UAE actively adjusts its regulatory policies in response to the rapid development of the market, aiming to regulate cryptocurrency activities and promote the healthy development of the industry. In 2020, the Securities and Commodities Authority of the UAE issued the “Crypto Assets Activities Regulation” (also known as the “Crypto Asset Regulation”), with the aim of regulating the sale, issuance, listing, and trading of cryptocurrency assets, as well as related financial activities within the UAE.
In 2022, Dubai took the lead in issuing laws regarding the regulation of virtual assets and established a new regulatory institution called the Virtual Asset Regulatory Authority (VARA). VARA’s regulatory scope includes all of Dubai, including cryptocurrency exchanges, cryptocurrency venture capital funds, NFT platforms, and other virtual asset service providers (including special development zones and free zones, but excluding the Dubai International Financial Center). Its main responsibilities include monitoring the trading activities of virtual asset services, preventing price manipulation, and ensuring the protection of personal data. VARA aims to create an advanced legal framework to protect investors, design internationally recognized standards for the governance of the virtual asset industry, promote responsible business growth under prudent regulation, and provide comprehensive virtual asset services through cooperation with the UAE Central Bank and the Securities and Commodities Authority. Its goal is to become a global leader, a reliable institutional promoter, and an innovation enabler in the global virtual asset market.
In August 2022, Abu Dhabi established the Blockchain and Virtual Assets Committee with the aim of introducing a regulatory framework to establish a secure, sound, and transparent ecosystem for virtual assets. The committee seeks to enhance Abu Dhabi’s competitiveness in the blockchain and virtual asset fields, coordinate with entities operating in the industry, liaise with regulatory authorities, encourage industry participants to comply with global standards and regulatory requirements, and promote information exchange and practical cooperation. In September, the Abu Dhabi Global Market’s Financial Services Regulatory Authority, the financial regulatory authority for the Abu Dhabi Global Market, issued the “Principles Guiding the Regulation of Virtual Assets.” These guidelines outline six core regulatory principles, including a robust and transparent risk governance framework, high standards of authorization, measures to prevent money laundering and other financial crimes, international cooperation, commitment to enforcing regulatory violations, and risk-sensitive supervision. The authority has also signed numerous bilateral and multilateral memoranda of understanding to support information exchange between regulatory institutions and enhance the effectiveness of international cooperation.
The Dubai Virtual Assets Regulatory Authority (VARA) passed the “2023 Virtual Assets and Related Activities Regulations” on February 7, 2023. The regulations prohibit any activities involving virtual assets without authorization from VARA. They require virtual currency service providers who meet licensing requirements to comply with mandatory rulebooks related to company, compliance and risk management, technology and information, and market behavior. The regulations also establish rulebooks applicable to activities such as consulting, brokerage, custody, trading, lending, payment and remittance, as well as management and investment, in order to address risks associated with virtual asset activities.
With the continuous regularization, specification, and institutionalization of regulations on cryptographic assets, the promulgation of corresponding regulations has set the direction and scope for the development of cryptographic assets in the United Arab Emirates (UAE). The regulations standardize the market environment, boost corporate confidence, and attract business clustering. This series of policies is beneficial for enterprises to further carry out their business activities under legal and compliant conditions.
3.3 Development Status and Trends of the UAE Cryptographic Asset Industry
With the continuous improvement of technology, the issuance of policies, and the standardization of regulation, financial institutions and enterprises in the UAE actively adopt blockchain technology and cryptographic assets. Abu Dhabi Investment Authority, Dubai National Bank, and Dubai Financial Market have initiated their own blockchain projects to improve efficiency and reduce costs. For example, Dubai National Bank has achieved fast cross-border payments through blockchain technology, greatly enhancing the transaction efficiency of the financial system. Abu Dhabi Commercial Bank has established its own digital asset trading platform using blockchain technology to facilitate the trading of cryptographic assets by users. The UAE government plans to move all real estate-related businesses of government departments to the blockchain in the next few years to improve transaction transparency and reduce fraud risks. Abu Dhabi has planned to build a “blockchain tourism zone” where tourists can use cryptographic assets to pay for tickets and other tourism services, enhancing the tourism experience. In addition to policy support, the UAE’s diverse population composition also provides a wide range of application space for blockchain technology, including providing remittance services for people working in Dubai.
Considering the UAE’s tax policies and their development evolution, this article believes that the tax on cryptographic assets in the UAE will remain at a relatively low level in the future. Benefiting from high-quality financial infrastructure and a relatively relaxed regulatory environment, the UAE has also attracted a large number of cryptographic asset companies to gather and form economies of scale. As one of the world’s largest cryptographic asset trading platforms, Binance established its global headquarters in Abu Dhabi in 2019, providing more convenient cryptographic asset trading services for investors in the Middle East. In addition, the UAE government actively collaborates with other countries to promote the application of blockchain technology and cryptographic assets in international trade and supply chain management. For example, the UAE and Singapore have collaborated on the “TradeTrust” project, which digitizes and automates global trade documents through blockchain technology, improving trade efficiency.
According to Basil Al Askari, Co-founder and CEO of MidChains, a digital asset exchange based in Abu Dhabi, “Abu Dhabi has always been an institution-focused market, while Dubai is more of a consumer-focused market.” St-Jean claims that cryptocurrencies in Abu Dhabi will experience “explosive growth” in the next five years. Dubai has also attracted many institutions, with Wazirx, one of India’s largest exchanges, relocating its headquarters to Dubai. Dubai has also launched the “Dubai Metaverse Strategy” with the aim of becoming one of the top 10 metaverse economies in the world. The Dubai Virtual Asset Regulatory Authority has issued or extended virtual asset licenses to key crypto platforms such as Crypto.com, Huobi, and OKX, actively promoting the development of crypto assets at the policy level. Abu Dhabi and Dubai compete with each other while also working together, providing investors with a variety of choices.
Overall, with the continuous expansion of the scope of crypto assets, improved trading efficiency, and enhanced user experience, the UAE is increasingly at the forefront of global crypto asset applications due to its superior geographical conditions, low tax costs, stable geopolitical environment, and advanced infrastructure, offering promising investment prospects. At the same time, the diversity of investment policies and environments within the UAE provides investors with a variety of options, achieving a balance between flexibility and principles. However, investors also need to constantly monitor the latest policies and regulations, adjust investment strategies, ensure compliance, and reduce investment risks.
References: [1] UAE Parliament. (2017). Tax Procedures Administrative Regulation [2] UAE Parliament. (2022). Federal Decree No. 47 of 2022 [3] UAE Parliament. (2017). Federal Decree No. 8 of 2017 [4] Securities and Commodities Authority of the UAE. (2020). Regulation of Cryptocurrency Activities [5] Dubai Emirate. (2022). Law No. 4 of 2022 on Virtual Asset Regulation [6] Dubai Emirate Virtual Asset Regulatory Authority. (2023). Regulation of Virtual Assets and Related Activities [7] Abu Dhabi Global Market Financial Services Regulatory Authority. (2023). Principles Guideline for Virtual Assets Regulation Method
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