Dubai Crypto Tax Guide 2024
Author: Stefano Passarello, CVO at Monx
Overview
- Dubai has no Capital Gain Tax and has a crypto-friendly regulation
- The Dubai government shows a significantly higher acceptance of cryptocurrency policies compared to Singapore, Europe, and the United States with relevant policies and a well-defined regulatory framework.
Due to friendly tax policies and clear regulation, Dubai has grown into a hotspot for cryptocurrency investors leading many crypto companies and crypto investors to move to Dubai in recent years. Moreover, the government actively facilitates the development of Web3 infrastructure and has implemented Visa policies aimed at attracting talented individuals.
Content
- What is a digital payment token in Dubai?
- What are the tax incentives provided by the government this year for Web3 Businesses and Individuals?
- What are the crypto tax rates in Dubai?
- How is crypto taxed in Dubai?
- When is the deadline for crypto taxes in Dubai?
- Should Web3 Businesses register for VARA License?
- How about withholding tax and stamp duty?
What is a digital payment token in Dubai?
A digital payment token is a type of cryptocurrency or virtual asset that is regulated under the country’s cryptocurrency and digital asset framework. It is defined as a virtual asset that is used as a medium of exchange and a store of value and it is typically secured using cryptography and operates on a distributed ledger technology (DLT) such as blockchain.
- Digital payment tokens are classified as a type of “Virtual Asset” under the UAE’s regulatory framework.
- The regulation of digital payment tokens falls under the purview of the UAE’s Virtual Asset Regulatory Authority (VARA).
- Digital payment tokens can be used for various purposes, including making payments, transferring funds, and storing value.
- They can be used for both retail and commercial transactions within the UAE and potentially for cross-border payments.
- Entities offering services related to digital payment tokens, such as exchanges or custodians, are required to obtain a license from VARA.
- These licensed entities must comply with various regulatory requirements, including know-your-customer (KYC) procedures, anti-money laundering (AML) measures, and consumer protection standards.
- The UAE does not currently have a personal income tax or capital gains tax on cryptocurrency transactions, including digital payment tokens.
Dubai’s Virtual Assets Regulatory Authority (VARA), has issued its Virtual Assets and Related Activities Regulations 2023. The Regulations set out a comprehensive Virtual Assets (VA) Framework built on principles of economic sustainability and cross-border financial security.
VARA aims to position Dubai as a regional and international hub for Virtual Assets and related services and to develop a digital economy in the city to boost its competitive edge locally and internationally.
In January 2022, the global cryptocurrency market was valued at around $800 billion, growing to $1.2 trillion by the end of Q1 2023. Considering the peak market cap of $2.9 trillion in 2021, the market is expected to continue to expand and develop, creating vast opportunities.
What are the tax incentives provided by the government this year for Web3 Businesses and Individuals?
Impact on Web3 Businesses
In 2023, the Dubai government has introduced several tax incentives to promote the growth of Web3 businesses and attract individual investors and entrepreneurs to the emirate. The main incentives are summarized in the below key points:
Corporate Tax Exemptions:
Web3 companies that set up operations in designated “Dubai Web3 Hubs” are eligible for a 0% corporate tax rate for the first 5 years of their existence. This applies to businesses focused on blockchain, cryptocurrencies, NFTs, metaverse, and other Web3 technologies.
Personal Income Tax Exemptions:
Individuals working for Web3 companies in Dubai are exempt from paying personal income tax. This helps attract top talent in the Web3 space to the emirate.
Capital Gains Tax Exemptions:
Profits and capital gains from investments in cryptocurrencies, NFTs, and other Web3 digital assets are exempt from capital gains tax in Dubai, which makes Dubai an attractive destination for Web3 investors and traders.
Free Zones and Regulatory Sandbox:
Dubai has established dedicated Web3 free zones, such as the Dubai Blockchain Free Zone, which offer 100% foreign ownership, no corporate tax, and streamlined regulatory frameworks.
The Dubai Financial Services Authority (DFSA) also operates a regulatory sandbox for Web3 startups to test their products and services in a controlled environment.
Financial Incentives:
The Dubai government provides financial grants and subsidies to support the establishment and growth of Web3 companies in the emirate; this includes funding for research and development, talent acquisition, and infrastructure development.
What are the crypto tax rates in Dubai?
Dubai’s 0% capital gains tax can help wealthy investors save significant portions of their profits. However, this tax rate applies to Dubai residents only. To be considered a tax resident, you are required to spend at least 183 days of the year in Dubai (either a continuous stay or multiple visits).
Moreover, the following requirements must be met:
- Permanent Abode: Maintain a permanent residence or living quarters in Dubai that is available for the individual’s use throughout the year. This could be an owned or rented property.
- Center of Vital Interests: Dubai must be the center of personal and economic interests. This can be demonstrated through factors such as employment, business activities, family ties, and social engagements in Dubai.
- Intention to Reside: Have the intention to reside in Dubai on a long-term or permanent basis, rather than just for a temporary or short-term stay.
Web3 Businesses
The Web3 landscape in Dubai is rapidly evolving. Some relevant factors to consider are:
Regulatory Landscape:
Dubai has been proactive in establishing a regulatory framework to support the development of Web3 and blockchain technologies.
The Dubai Financial Services Authority (DFSA) has introduced regulations for digital assets, including cryptocurrencies and security tokens. The Dubai government has also established the Dubai Blockchain Strategy to position the emirate as a global hub for blockchain innovation.
Adoption and Innovation:
Dubai has attracted a growing number of Web3 and blockchain startups, attracted by the favorable regulatory environment and government support. Major corporations and government entities in Dubai have been exploring and implementing Web3 applications, such as in areas like digital identity, supply chain management, and real estate. The Dubai World Trade Centre (DWTC) has been established as a hub for Web3 and crypto-related events and conferences.
Talent and Education:
Dubai is actively investing in developing Web3 and blockchain-related talent, with universities and institutions offering relevant educational programs and courses. The Dubai Future Academy and other initiatives are providing training and upskilling opportunities in Web3 technologies.
Infrastructure and Ecosystem:
Dubai has been building the necessary infrastructure to support Web3 development, including robust internet connectivity, data centers, and cloud computing services. The emirate is also home to various Web3-focused accelerators, incubators, and venture capital funds that are supporting the growth of the local ecosystem.
Adoption by Government and Public Sector:
The Dubai government has been at the forefront of Web3 adoption, with various government entities exploring the use of blockchain and other Web3 technologies in their operations. Dubai has also been promoting the use of Web3 in areas like smart city development, e-government services, and the Dubai Metaverse Strategy.
How is crypto taxed in Dubai?
Cryptocurrency taxation in Dubai is governed by the tax laws and regulations of the United Arab Emirates (UAE), of which Dubai is a part. Some relevant factors about how crypto is taxed in Dubai are listed below:
- No Personal Income Tax: The UAE, including Dubai, does not currently impose a personal income tax. This means that individuals are not required to pay tax on their personal income, including any gains from cryptocurrency investments.
- Corporate Tax: The UAE introduced a federal corporate tax, which came into effect in June 2023. This corporate tax applies to both businesses and companies operating in the UAE, including those dealing with cryptocurrencies. The corporate tax rate is set at 9% for taxable income exceeding AED 375,000 (approximately USD 102,000).
- Value-Added Tax (VAT): The UAE has implemented a 5% value-added tax (VAT) on the supply of goods and services, including those related to cryptocurrencies, thus businesses engaged in cryptocurrency-related activities, such as exchanges, trading, or providing crypto-related services, may be subject to the 5% VAT.
- Capital Gains Tax: The UAE does not currently have a capital gains tax. This means that any gains from the sale or exchange of cryptocurrencies are not subject to taxation.
- Free Zones: Dubai has established various free zones, such as the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM), which have their own set of tax regulations. Businesses operating within these free zones may have different tax treatment, including potential exemptions or special arrangements for cryptocurrency-related activities.
When is the deadline for crypto tax in Dubai?
There is no specific deadline for crypto tax filing in Dubai, as the emirate does not currently have any personal income tax or capital gains tax on cryptocurrency transactions. However, there are a few important deadlines to be aware of:
- Corporate Tax: the UAE has introduced a federal corporate tax that has come into effect in June 2023. Businesses, including those dealing with cryptocurrencies, will be required to file their corporate tax returns and make the necessary tax payments by the deadlines set by the UAE’s Federal Tax Authority (FTA). The specific deadlines for corporate tax filings and payments will depend on the financial year-end of the company and the FTA’s guidelines.
- Value-Added Tax (VAT): Businesses engaged in cryptocurrency-related activities, such as exchanges or crypto-asset services, may be required to register for and file VAT returns in the UAE, whose filing deadlines are typically on a quarterly basis, with payments due within 28 days after the end of each quarter.
- Free Zone Regulations: Businesses operating in Dubai’s free zones, such as the DIFC or ADGM, may have different tax filing deadlines and requirements that should be reviewed and complied with.
Should Web3 Businesses register for VARA License?
Any company or individual offering virtual asset-related products or services in or from Dubai is required to obtain a VARA license. Obtaining a VARA license is a crucial step for Web3 companies that want to legally operate and offer their services in the Dubai market. The VARA licensing process involves a thorough application review and approval by the regulatory authority.This licensing requirement applies to a wide range of Web3 businesses, such as cryptocurrency exchanges, custodians, NFT marketplaces and DeFi protocols. The VARA license has specific compliance and operational requirements that Web3 businesses need to meet, including capital requirements, security standards, and consumer protection measures.
How about withholding tax and stamp duty?
Dubai and the wider United Arab Emirates do not currently impose any withholding tax on payments made to non-resident individuals or companies. This means that Web3 businesses operating in Dubai are not required to withhold any taxes on payments or transactions made to international partners, service providers, or customers.
As per the stamp duty, Dubai imposes stamp duty on certain legal and commercial documents, such as contracts, agreements, and property transactions. Its rate is typically between 0.05% to 0.375% of the contract value, depending on the type of document. For Web3 businesses, the main stamp duty consideration would be around any contracts or agreements they enter into, either with local partners or international entities and Web3 companies should ensure that any relevant contracts or agreements are properly stamped to comply with the local regulations and avoid potential penalties.
Lastly, it’s worth noting that the UAE, including Dubai, is continuously updating its tax and regulatory framework to keep pace with the evolving digital economy, including the Web3 space. Web3 businesses are advised to work closely with local tax and legal experts to stay informed of the latest developments and ensure full compliance.
Sources:
https://freemanlaw.com/cryptocurrency/united-arab-emirates
The tax treatment of crypto assets in Dubai continues to evolve as the market matures, reach out to Monx at [email protected] to find out more!
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Check out the full Global Crypto Tax Report 2024