The definition of virtual assets is notably broad, encompassing “a digital representation of value that can be digitally traded or converted and used for investment purposes.” However, this definition explicitly excludes digital representations of fiat currencies or financial securities.
One of the most significant aspects of this decision is that the exemptions will apply retroactively from January 1, 2018. This retroactive effect requires businesses dealing in cryptocurrencies to reassess their VAT filings since that date.
Companies may find it necessary to file voluntary disclosures to correct previous tax returns, potentially affecting their overall tax liabilities.
A Booming Crypto Economy
The UAE is now recognized as the third-largest crypto economy in the Middle East and North Africa (MENA) region. Decentralized finance (DeFi) services in the UAE have increased by 74% from the previous year, rising from $2.3 billion to $3.4 billion, according to the Chainalysis report. Notably, decentralized exchanges (DEXs) saw an even more impressive growth of 87%, escalating from approximately $6 billion to $11.3 billion.
Implications for the United States
As the United States prepares for Presidential elections, questions arise about possible tax reforms. Some crypto advocates hope that a new administration will recognize the advantages of reducing taxes on cryptocurrency operations.
Such changes could encourage innovation and attract investments, strengthening the U.S. position in the global crypto market. Currently, the U.S. employs a complex system of cryptocurrency taxation, often leading to confusion among investors and companies.