(MENAFN- Khaleej Times)
Cryptocurrency mining for residents' personal accounts will not come under the UAE's value-added tax (VAT), the federal Tax Authority (FTA) said on Tuesday.
However, mining cryptocurrency on behalf of another person, i.e. supplying computational power, is a taxable supply of services and is subject to five per cent VAT, the authority said in a clarification in its latest public document, VATP039.
Nirav Rajput, partner at Aurifer, said that unlike many established tax jurisdictions where VAT rules regarding virtual assets can be unclear, the FTA has provided clarification to reinforce the UAE's position as a preferred choice for miners.
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“Mining cryptocurrencies on a personal account is not subject to the UAE's VAT law. This is because the computational work performed by an individual's network cannot be linked to a fixed reward (i.e., cryptocurrency) or a specific recipient,” he said.
Nirav Rajput
Although the VAT treatment for individual miners is now clarified, he said there remains uncertainty regarding whether cryptocurrency mining done by individuals on their personal accounts qualifies as a business activity subject to corporate income tax (CIT) or if it is simply personal investment income, which falls outside the definition of a business activity.
With the rising popularity of cryptocurrencies in the UAE, the question of the tax treatment of cryptocurrency mining has become increasingly relevant for residents.
According to the Henley and Partners' Crypto Adoption Index 2024, the UAE stands out as a leading jurisdiction for crypto investors, ranking third in adoption with a substantial portion of the population owning cryptocurrencies, supported by strong government backing, low-tax jurisdiction and a highly digitalised and wealthy population.
In December 2024, AE Coin secured the Central Bank of the UAE's (CBUAE) licence to launch, promising an instant, secure, stable, innovative, low-cost, and efficient payment experience that will reshape the future of the digital economy.
Mining for others
In contrast, Rajput said, if a person mines cryptocurrencies on behalf of another person for a fee, this activity is considered a taxable supply. In this case, the miner receives a fixed compensation from an identified recipient.
“Typically, such services would be charged at the standard VAT rate of five per cent when provided to a recipient based in the UAE. However, if these services are supplied to a non-resident recipient, they can be zero-rated, provided they meet the conditions outlined in Article 31 of the UAE VAT Executive Regulations. In this scenario, the miner would also be able to recover input VAT incurred while performing the computational work, such as VAT on utilities, rental, internet services, and more, as long as they meet the normal input VAT recovery conditions,” he added.
From a Corporate Income Tax perspective, he said fees earned from cryptocurrency mining on behalf of another person are taxable.
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