The Federal Tax Authority (FTA) of the United Arab Emirates (UAE) has provided a clear explanation regarding the application of VAT (Value Added Tax) for individuals engaged in cryptocurrency mining activities. According to the clarification, individuals who are mining cryptocurrencies for personal use will not be subjected to VAT; however, those who offer mining services to others will be required to pay VAT at a rate of 5%.
Cryptocurrency mining is defined by the Federal Tax Authority as the process where specialized computers, known as mining rigs, validate blockchain transactions for a specific cryptocurrency in exchange for a reward based on computational power contribution.
For personal crypto mining, input tax on expenses such as hardware purchases, real estate rental, and utility bills is non-recoverable as these costs are not directly related to taxable supplies. On the other hand, registered miners providing services to third parties may recover input tax incurred for taxable activities with proper documentation such as tax invoices.
It is important to note that personal cryptocurrency mining is exempt from VAT as it is not considered a taxable supply. The FTA stated that mining cryptocurrency for personal use falls outside the scope of VAT, while mining on behalf of others for a fee is considered a taxable supply of services.
In terms of crypto transactions, the FTA has exempted virtual assets and investment fund management from VAT. The amendments to the Executive Regulation of Federal Decree-Law No. 8 2017 on value-added tax aim to provide clarity and align with changes in tax legislation. The management of investment funds, transfer and ownership of virtual assets, including cryptocurrencies, and the conversion of virtual assets are exempt from value-added taxation.
Overall, it is essential for businesses and individuals engaged in cryptocurrency mining activities in the UAE to adhere to the VAT regulations set forth by the Federal Tax Authority to ensure compliance and avoid any potential penalties.