VAT Tax News - Public Clarification (VATP039) – Cryptocurrency Mining
VAT Tax News - Public Clarification (VATP039) – Cryptocurrency Mining
The UAE Federal Tax Authority (FTA) issued public clarification (VATP039) to provide guidance on the VAT treatment of cryptocurrency mining. This clarification aims to outline the VAT implications for businesses and individuals involved in mining cryptocurrency.
The process of cryptocurrency mining is briefly explained in the clarification as below:
- Cryptocurrency mining is the process where specialized computers, also known as mining rigs, validate blockchain transactions for a specific cryptocurrency.
- Miners contribute computational power to the network in exchange for a reward.
- The reward for successful mining is typically in the form of cryptocurrency and is allocated based on the miner’s proportional share of computational power contributed to the network.
- A person can mine cryptocurrency either for personal use or may contract with another party to mine on their behalf.
The VAT treatment for Cryptocurrency mining varies if the mining is undertaken by a person on his own account and for another person. The below table summarizes the VAT treatment in the public clarification:
Particulars | VAT treatment | Input VAT recovery eligibility |
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Mining crypto for a person’s own account |
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Since the mining activity is not considered as taxable supplies, the Input VAT incurred solely for such supplies will not be eligible for recovery. | |||||||||||||||
Cryptocurrency mining on behalf of another person |
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Input VAT is eligible for recovery to the extent the input tax is incurred for the purpose of making taxable supplies (VAT 5% and VAT 0%) and subject to normal input VAT recovery rules. |
BDO Insights
As cryptocurrency transactions continue to grow globally and, in the UAE, the FTA has recently updated the VAT Executive Regulations to determine taxability of virtual assets transactions. Further to this, the FTA by way of this public clarification has articulated the distinction in taxability based on whether the activity of mining cryptocurrencies is carried out for own account or others, for a fee.
A key insight is that non-resident miners working for the benefit of unregistered individuals or businesses are obligated to register for VAT and discharge applicable VAT liability. Whether this extends to other non-resident service providers catering to unregistered miners acting on their own account or otherwise, remains untested and should be assessed on case-to-case basis.
If you have any questions related to tax treatment, please reach out to our tax experts.