Taxation of cryptocurrencies in the United Arab Emirates.

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Taxation of cryptocurrencies in the UAE is extremely favorable. Therefore, many major exchanges have already opened branches in Dubai or even relocated their headquarters there. Despite the buzz among potential investors, there is still room in the market to occupy a place and generate good profits from crypto.

Taxation of cryptocurrency transactions in the UAE

Cryptocurrency is considered a digital asset and property in the UAE, and for VAT purposes, it is classified as a commodity. The cryptocurrency market is regulated by the SCA, as well as by local acts and authorized bodies in individual emirates and free economic zones. For instance, companies investing in cryptocurrencies may obtain permits for commercial activities from the Dubai Airport Free Zone (DAFZA), which collaborates with the SCA.

Taxation regime in the UAE is established by the Federal Tax Authority (FAT). There are no unified taxation rules in the UAE, so tax rates may vary across different emirates and free zones. The VARA serves as the special regulatory body for the cryptocurrency market, responsible for setting business conduct rules related to crypto and providing clarification on taxation matters. VARA coordinates with the SCA, the Central Bank of the UAE, and regulators of free zones.

Value Added Tax (VAT)

The standard rate is 5%, but not all categories of goods are subject to VAT. Cryptocurrencies are not included in the list of exemptions, and there are no specific regulations governing their taxation. The principle of calculating the ratio between crypto and fiat is not regulated by current legislation.

A company is required to pay VAT if the taxable base amounts to 375,000 AED or more annually. It is possible to voluntarily register for VAT if the business income exceeds 187,500 AED per year. VAT attributed to company expenses can be reclaimed. An additional condition is that the business must operate within the UAE territory.

Income Tax

There is no federal income tax for individuals in the UAE, making the jurisdiction highly attractive for crypto businesses.

Corporate Tax

There is currently no corporate income tax. Only branches of foreign credit-financial institutions, insurance companies, and entities engaged in oil and gas extraction and processing are required to regularly submit reports and make payments to the budget on a progressive scale. Businesses in free zones are exempt from tax for 5-50 years (duration determined by Free Zone rules).

New rules will come into effect in the UAE from the beginning of the financial year 2023. Corporate tax will be introduced, but not for all entities. The tax rate will depend on profit: 9% if the profit exceeds 375,000 AED per year. If the profit does not exceed 375,000 AED or the company operates in a free zone and does not conduct business within the country, the tax rate will be zero.

Capital Gains Tax

For companies not subject to corporate or other types of taxes, there is no capital gains tax. This also applies to legal entities earning profits from cryptocurrency.

Currency Control

Currency operations in dollars are regulated by correspondent banks of the US Federal Reserve System, acting as the central bank of the USA, and operations in euros are regulated by European banks under the supervision of the European Central Bank. In the UAE, there is no currency control for transactions in AED. At the legislative level, free movement of capital is established, and there are no restrictions on amounts.

Agreements on Double Taxation Avoidance

Foreigners earning income in the UAE do not pay income tax, but it may be levied in their country of citizenship. To avoid this, one must become a tax resident of the UAE. The United Arab Emirates has signed agreements on avoidance of double taxation with Russia and many other countries.

Tax residency in the UAE is beneficial not only for businesses but also for employed individuals. However, this status is not automatically granted after several months of residency, as in many other countries. An individual must apply for a special certificate. Requirements for qualifying for tax residency include:

  • For individuals - holding a residency visa, having a confirmed place of residence in the UAE (a long-term lease agreement or property ownership certificate), and residing in the UAE for at least 6 months.
  • For entities - existing for at least one year (at the time of application), and providing financial reports.

Other Cryptocurrency Benefits of Living in Dubai

One of the main advantages of Dubai is its tax system, which essentially lacks taxes, including those on cryptocurrency transactions. There is no income tax, the VAT rate is low, and there is no currency control. The UAE has many Free Zones whose internal regulations are highly favorable to companies dealing with virtual currencies. Other cryptocurrency benefits of living in Dubai include:

  • Legalization of cryptocurrency - individuals can freely buy and sell bitcoins, exchange crypto for fiat.
  • Full ownership of a company - there is no longer a requirement to involve a UAE citizen as a partner owning half of the business.
  • Simple registration procedure - a company can be opened in Dubai or Abu Dhabi within 3-4 weeks, or even faster by purchasing an existing business.
  • Stability of the banking system - the open financial policy contributes to rapid growth and economic stability in the UAE.

Understanding the legal aspects of conducting cryptocurrency-related businesses (cybersecurity, promoting crypto products, managing investment flows for funding crypto projects) can help occupy a promising niche in the Dubai market. The Level Consulting experts assist in registering various types of businesses in the UAE, obtaining licenses, and provide consultations on conducting activities within the legal framework. Contact The Level Consulting - we will answer all your questions.

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