The UAE is set to implement significant updates to its Value Added Tax (VAT) system, impacting multiple sectors, including investment fund management and virtual assets. These changes, which take effect on November 15, 2024, have been outlined by the Federal Tax Authority (FTA).
Following the introduction of Cabinet Decision No. 100 of 2024, the UAE aims to simplify its VAT regulations, attract more investment, and align with international financial practices. The new exemptions are expected to bolster the nation’s reputation as a global financial hub by benefiting businesses that deal with virtual assets and investment funds.
According to PwC’s latest note, “Additional services are exempt from VAT: The management of investment funds [and] transferring ownership of virtual assets, including cryptocurrencies.” This exemption also applies to the conversion of virtual assets, retroactively effective from January 1, 2018.
A notable change in these amendments is the exemption of VAT on services provided by fund managers to licensed funds. This covers services like managing the fund’s operations, overseeing investments, and improving the fund’s performance. PwC advised fund managers to assess whether their services meet the requirements for this VAT exemption and how it impacts their VAT recovery position.
In the growing cryptocurrency space, transfers and conversions of digital currencies will now also be VAT-exempt. Businesses in this sector are encouraged to examine how these exemptions will affect their retrospective VAT positions. PwC highlighted that some businesses might need to file voluntary disclosures to correct previous VAT filings.
Focus on Business Friendliness
Younis Haji Al Khoori, Undersecretary of the Ministry of Finance, emphasized the goal of the amendments: “These changes aim to provide clarity, reduce complexities, and enhance the overall business experience. By simplifying procedures, we ultimately improve the quality of life for all stakeholders.”
Additional updates in the VAT system include revised export rules, clearer definitions related to the supply of goods and services, and exemptions for charitable and government organizations on certain in-kind donations, valued up to Dhs 5 million.
While the investment and crypto sectors stand to benefit the most, PwC urged businesses across industries to carefully review the VAT changes to understand their impact.
These reforms reflect the UAE’s strategic efforts to balance revenue generation while creating a more attractive landscape for investments.
