UAE Tax Authority to Impose VAT on Crypto Mining Services.

The UAE Federal Tax Authority (FTA) has clarified its stance on Value Added Tax (VAT) for crypto mining activities. According to the new guidelines, individuals mining cryptocurrency for personal use will be exempt from VAT. However, those providing crypto mining services to third parties will be subject to a 5% VAT, aligning with the UAE’s standard VAT rate.

This distinction between personal and commercial mining reflects the FTA’s intent to regulate the growing crypto sector while ensuring tax compliance. Crypto mining services, where individuals mine on behalf of others for a fee, are considered taxable supplies. These providers must account for VAT on the income generated from such services.

The ruling underscores the UAE’s commitment to creating a clear and transparent regulatory environment for cryptocurrency-related businesses, ensuring that commercial activities within the industry are taxed appropriately while preserving incentives for personal crypto miners.

Input Tax is Non-Recoverable for Individual Crypto Miners

The FTA’s clarification includes details on the recovery of input tax for both personal and third-party crypto mining services. For individuals mining crypto for personal use, input tax on expenses such as hardware, rental properties, or utility bills cannot be recovered, as these costs are not tied to taxable supplies.

However, for those providing crypto mining services to third parties, registered miners may recover input tax, provided the tax is incurred for taxable activities. Proper documentation, such as tax invoices, is required to claim this recovery.

Personal Crypto Mining Exempt from VAT

The new regulations specify that crypto mining services performed for personal use are exempt from VAT. Mining cryptocurrency for one’s own account is not considered a taxable supply, meaning it falls outside the scope of VAT.

As per the FTA’s statement:
“Cryptocurrency mining by a person for his own account is not a taxable supply and falls outside the scope of VAT. However, when a person mines cryptocurrency on behalf of another for a fee—essentially offering crypto mining services—this is considered a taxable supply of services.”

When individuals provide crypto mining services to others for a fee, this activity is deemed a taxable supply of services. The mining process involves validating blockchain transactions, which becomes a service that is subject to VAT. The miner is compensated for their computational power, which constitutes the taxable supply of services.

There is an exception, however, where crypto mining services provided to non-residents may qualify for zero-rated VAT, provided the conditions set by the FTA are met under Article 31 of Cabinet Decision No. 52 of 2017. If a UAE business receives crypto mining services from a non-resident, the provision of these services will be subject to VAT. The rules regarding crypto mining services in this context ensure that the UAE maintains tax compliance with international standards.

Crypto Transactions Not Subject to VAT

In an important update, the FTA also clarified that transactions involving virtual assets—including cryptocurrencies—are not subject to VAT. As part of the amended regulations, the UAE confirmed that the transfer, ownership, and conversion of virtual assets are exempt from VAT, providing more clarity for the growing crypto sector.

The updated regulations, effective from 1 January 2018, exempt the management of investment funds, the transfer of virtual assets, and related services from VAT, reinforcing the UAE’s position as a crypto-friendly jurisdiction.

Conclusion: Impact on Crypto Mining Services in the UAE

The new guidelines by the UAE FTA will have a significant impact on crypto mining services within the region. While individual miners remain exempt from VAT, businesses providing crypto mining services for others will now need to comply with VAT regulations. The shift towards clarifying these rules further strengthens the UAE’s commitment to becoming a global hub for blockchain, crypto mining, and related services while maintaining clarity and tax compliance. Stay updated with the latest developments in the cryptocurrency industry through The BIT Gazette, offering comprehensive insights into current events shaping the sector.