United Arab Emirates: VAT exemption introduced for virtual asset transactions
The United Arab Emirates has amended its Executive Regulations on VAT to introduce exemptions for certain transactions involving virtual assets. Alongside these changes, the Federal Tax Authority released VAT Public Clarification VATP040, outlining how virtual assets are treated for VAT purposes.
Key changes and definitions
Under the revised Executive Regulations, virtual assets are described as digitally represented units of value that can be exchanged or converted electronically and serve investment purposes. This excludes representations of fiat currencies or financial securities.
Two categories of virtual asset transactions are VAT exempt, effective retrospectively from January 1, 2018:
- The change in ownership or conversion of virtual assets.
- The keeping, managing, and enabling control of virtual assets, provided no explicit fee, discount, commission, or rebate is charged.
These updates provide a clearer framework for taxpayers in determining VAT obligations related to virtual assets.
Practical considerations and ongoing challenges
- Retrospective exemption: Businesses must assess the implications of the retrospective exemption on past transactions, especially in relation to input tax recovery.
- Stablecoins: There is uncertainty regarding whether stablecoins fall under the VAT exemption. While stablecoins are cryptocurrencies, they are typically pegged to fiat currencies or other assets, which are excluded from the definition of virtual assets. As a result, VAT treatment may vary depending on the nature of the stablecoin.
- Nonfungible tokens (NFTs): NFTs contain metadata and a unique identifier but may not clearly qualify as virtual assets under the current legal definition. Regulatory bodies such as the Dubai International Financial Center and the UAE Central Bank exclude NFTs from their crypto definitions, leaving their VAT treatment ambiguous.
- Zero-rated supplies: When services involving virtual assets are provided to recipients outside the UAE, the VAT zero rate can apply—provided the supplier can prove the recipient is based abroad. This verification may be difficult due to the anonymity of virtual asset transactions.
- Valuation complexities: Establishing the taxable value when payment is made with virtual assets, especially those not widely traded, poses a challenge. Fluctuations in cryptocurrency prices and lack of an official exchange rate add further complexity.
- Barter transactions: If a business receives virtual assets in exchange for goods or services, it may constitute a barter transaction. This can lead to unintended VAT-exempt supplies, complicating input tax recovery and reporting.
- Input tax recovery limitations: Input VAT linked to exempt virtual asset transactions cannot be reclaimed. If the default recovery method does not reflect actual use, businesses may need to apply an adjusted or special method with tax authority approval.
These changes underline the need for businesses to carefully assess the VAT implications of their virtual asset transactions and consider potential impacts on input VAT recovery and reporting.
Source: gov.ae
VAT/GST rates 2024 in Asia
| Country | Standard VAT/GST Rate | Reduced Rates |
| Armenia | The standard VAT rate is 20%. | |
| Azerbaijan | The standard VAT rate is 18%. | |
| Bahrain | From January 1, 2022, the standard VAT rate is 10%. | |
| Bangladesh | The standard VAT rate is 15%. | 10%, 7.5%, 5%, 2,4%, 2% |
| Brunei | There is no VAT in Brunei. | |
| China | The standard VAT rate is 13%, 9%, 6% | Reduced rates of 5%, 2%, 3%, 1.5% and 0.5%. |
| UAE | VAT is charged at 5% in the United Arab Emirates (UAE) | |
| Georgia | The standard VAT rate is 18% | |
| Hong Kong | There is no VAT or sales tax in Hong Kong. | |
| India | The primary rates of Indian GST are 0.25%, 1.5%, 3%, 5%, 12%, 18% and 28% | |
| Indonesia | The standard VAT rate is 11% | |
| Iraq | There is no VAT in Iraq. (The standard sales tax ranges from 10% to 300% on alcohol & tobacco) | |
| Israel | The standard VAT rate is 17% | |
| Japan | The standard (Consumption Tax) rate is 10% | 8% |
| Kazakhstan | The standard rate of VAT is 12% | |
| South Korea | The standard VAT rate is 10% | |
| Kuwait | There is no VAT in Kuwait | |
| Laos | The standard VAT rate is 10% | |
| Lebanon | The standard VAT rate is 11% | |
| Malaysia | On September 1, 2018, the Government of Malaysia replaced the Goods and Services Tax (GST) with a 10% Sales Tax (The standard rate of service tax is 8%) | 5% (Sales Tax), 6% |
| Oman | the standard VAT rate in Oman is 5% | |
| Pakistan | Pakistan does not have VAT. The standard sales tax rate is 18% | Pakistan has a large number of reduced sales tax rates, including 1%, 2%, 5%, 10% and 12% (among others). |
| Philippines | The standard VAT rate is 12% | |
| Qatar | There is no VAT in Qatar | |
| Russia | The standard VAT rate is 20% | 10% |
| Saudi Arabia | VAT is charged at 15% | |
| Singapore | The standard Goods and Services Tax (GST) rate is 9% | |
| Sri Lanka | The standard VAT rate is 18% | |
| Taiwan | The standard VAT rate is 5% | |
| Tajikistan | The standard VAT rate is 14% | 10%, 7%, 5% |
| Thailand | The standard VAT rate is 7% (Reduced from the standard 10% until 30 September 2024) | |
| Turkey | The standard VAT rate is 20% | 10%, 1% |
| Uzbekistan | The standard VAT rate is 12% | |
| Vietnam | The standard VAT rate is 8% | Reduced VAT rate is 5% |