UAE Clarifies VAT Rules on Crypto Mining

Will VAT Apply to Cryptocurrency Mining? FTA Clarifies

With the growing popularity of cryptocurrencies in the United Arab Emirates (UAE), the taxation rules for mining have become a critical issue. The UAE's Federal Tax Authority (FTA) has recently clarified that crypto mining conducted by residents for personal accounts does not fall under the country's Value Added Tax (VAT) scope.

What does this mean for individual miners?

According to the FTA's stance, personal mining where an individual performs computational operations through their own network does not qualify as a taxable service. This is because activities of this nature do not provide a specific reward, and the computational work is not performed for any specific person or organization.

This provides a clear answer for residents mining for personal accounts, although there remains uncertainty about whether personal account mining qualifies as a business activity under corporate income tax (CIT) or is simply personal investment income, which does not fall under the definition of business activity.

Business-oriented mining: A taxable activity

If a person provides mining services for others – such as offering computing power in exchange for payment – it is considered a taxable service, subject to 5% VAT under UAE regulations.

These services are taxed under the following conditions:

- a. For domestic clients: Such activities are subject to the standard 5% VAT rate.

- b. For foreign clients: If mining services are provided to non-resident clients, VAT can be 0% if conditions in Article 31 of the UAE VAT Executive Regulations are met.

It is important to note that costs incurred during mining services – such as utilities, internet, rent, and other expenses – can have their VAT reclaimed, provided the normal conditions for input VAT reclamation are met.

UAE's position in the cryptocurrency world

The UAE remains one of the most attractive regions for cryptocurrency investors. According to the Henley and Partners Crypto Adoption Index 2024, it ranks third in cryptocurrency adoption, bolstered by strong governmental support, low tax rates, and incentives for digital advancement.

This positive environment is further solidified by the license acquired by AE Coin in December 2024, issued by the Central Bank of the UAE (CBUAE). The new digital currency aims to deliver a fast, secure, stable, and innovative payment experience, inaugurating a new era in the digital economy.

Taxation and mining activities

In terms of corporate income tax (CIT), fees received for services performed for others by miners are taxable. However, personal account mining is exempt as it is not considered a business activity under current interpretations.

UAE regulations on cryptocurrencies

The FTA’s clear regulations not only ensure transparency for residents but also reinforce the UAE's status as a global hub for cryptocurrency mining and investment activities. This regulation offers an attractive environment for both individuals and businesses seeking to operate in the cryptocurrency arena.

This approach reflects the region's innovation strategy, which can further enhance the role of cryptocurrencies in the UAE economy in the long run.