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.
Key Points from VATP039 on Cryptocurrency Mining:

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
 
Mining crypto for a person’s own account
 
  • When a person mines cryptocurrency for their own account, they contribute their computational power to the network without targeting an identifiable recipient.
  • The miner is not guaranteed a reward simply for solving the cryptographic equation. They are only rewarded if they are the first to solve it, and the reward is not directly linked to any specific transaction or identifiable recipient.
  • The reward “earned” from cryptocurrency mining is not directly consideration for a taxable supply.  The reward is not paid by an identifiable person but rather allocated by the network, the mining activity is not considered a taxable supply.
 
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
 
  • When a person mines cryptocurrency on behalf of another person for a fee, this is considered to be provision of services.
  • There is an identifiable recipient of the service (the person who hires the miner), and the person performing the mining receives consideration (payment) from the customer for the service provided.
  • As the mining activity is conducted for another person and involves a service exchange, it is classified as a taxable supply of services under UAE VAT law.
  • The VAT treatment is determined based on the location of the supplier and recipient of services:
 
Location of supplier Location of recipient VAT Treatment
UAE UAE VAT 5%
UAE Outside UAE VAT 0% (subject to conditions)
Outside UAE UAE- Registered Reverse charge mechanism for the recipient
Outside UAE UAE- Unregistered business Supplier has to register for VAT and charge VAT 5%

 
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.