The United Arab Emirates, long celebrated for its tax-friendly environment, introduced a landmark shift for businesses in 2023: the country’s first federal corporate tax regime. This move has significant implications for businesses operating in the digital asset sector, ranging from crypto exchanges and institutional traders to NFT studios and blockchain startups.
Let’s break down the taxes and accounting for crypto under the UAE’s new corporate tax regime:
The Corporate Tax Regime: What Crypto Businesses Need to Know
From June 2023, profits made by businesses, whether in dirhams, dollars, or digital currencies, are now subject to corporate tax.
Any profits made up to AED 375,000 have a 0% tax rate, while profits above that threshold are taxed at 9%. For large multinational groups, a 15% minimum tax rate will take effect starting in 2025 under global tax alignment rules.
Any business whose operations involve the buying and selling of cryptocurrencies, facilitating DeFi, operating mining facilities, or managing NFT marketplaces must now account for profits and losses from these activities in the same manner as from any other business activity.
These profits, once realized, become a central part of annual tax calculations and must be reported transparently.
Classifying Crypto Activities as Business Income
There is a prominent distinction between incidental activity and systematic, organized business operations in the eyes of the UAE tax authorities.
Once a company demonstrates business-like behavior, such as holding a business license, transacting regularly in crypto, or providing digital asset services on a commercial scale, its digital asset gains and revenues are treated as business income and are entirely subject to corporate tax rules.
Every trade, every mining payout, every customer fee, and even each token sale must be faithfully recorded, valued, and reported. This ensures robust tax compliance and forms the backbone of transparent, auditable accounting practices.
VAT Implications for Crypto Businesses
Even though corporate tax rules have changed, VAT rules for digital assets remain specific. Simply transferring or converting crypto is usually VAT-exempt, as long as there’s no payment for the transfer itself.
Custody and management services for virtual assets are also VAT-exempt, provided they are not conducted in exchange for explicit remuneration such as fees, commissions, or rebates.
However, if a business provides mining as a service, consulting, or operates a crypto platform and charges UAE clients, these activities are subject to the standard 5% VAT.
For cross-border services, selling to clients outside the UAE may be taxed at 0% if it meets the country’s specific rules and depending on the service and customer type. Businesses should follow the Federal Tax Authority’s latest updates closely.
Accounting for Digital Assets
Companies in the UAE must adhere to international accounting guidelines, especially IFRS, for clear direction on crypto asset classification. Generally, cryptocurrencies held by businesses (unless for sale as part of trading/inventory operations) are treated as intangible assets under IAS 38. On the balance sheet, this means initial recognition at cost and, for most, annual impairment testing rather than amortization.
Exchanges or brokerages that regularly trade digital assets and use the inventory model must value them at fair market price minus selling costs. This approach ensures that business assets reflect actual conditions and values, improving transparency for stakeholders and regulators alike.
Special Treatment for Stablecoins and NFTs
Among digital assets, stablecoin tokens that are pegged to fiat currencies face extra scrutiny. Businesses handling the newly launched AED-backed stablecoins must comply with Central Bank regulations on licensing and capital reserves. Misclassifying these assets can lead to compliance issues and expose organizations to regulatory penalties.
NFTs, on the other hand, are generally treated as intangible assets for accounting purposes. However, their sale can trigger corporate tax and, depending on the transaction’s specifics, may also attract VAT. From issuance to secondary sales, businesses must diligently track and report NFT-related revenue.
Documentation and Reporting
Given the complexity of blockchain transactions and crypto’s price volatility, businesses must maintain proper record-keeping and reporting frameworks. This includes:
- Blockchain confirmations for every transaction
- Reliable fair value assessments
- Impairment reviews in line with current IFRS rules
- Clear VAT documentation for all service revenue
- Detailed records for tax threshold tracking and exemption monitoring
For financial reporting, company policies regarding asset classification, fair value sources, and impairment treatment must be transparently disclosed. Regulators expect to see complete narrative disclosures, particularly regarding the management and monitoring of volatile assets.
Regulatory Compliance
Crypto businesses must closely monitor which regulatory authority governs their activities. The UAE’s regulatory environment is multi-layered: the SCA oversees mainland operations, Dubai’s VARA regulates Free Zones (except DIFC), while the DFSA and FSRA govern DIFC and Abu Dhabi Global Market, respectively. Each comes with its own licensing, anti-money laundering, and capital adequacy rules, requiring careful attention when expanding or operating across borders.
Conclusion
The new era of UAE corporate tax creates both challenges and opportunities for crypto businesses. Structures that once required little oversight now demand thorough analysis, transparent reporting, and rigorous compliance. With the right approach, combining best-in-class accounting, up-to-date regulatory knowledge, and smart use of technology, businesses can transform these requirements into a source of competitive advantage as the UAE positions itself as a global leader in digital asset innovation.
Want to get your crypto business in compliance and stay ahead in the UAE market? Let KoinX Books help you turn accounting requirements into a streamlined, stress-free process.
