In January 2025, the Federal Tax Authority (FTA) of the United Arab Emirates issued a public clarification paper regarding VAT on cryptocurrency mining.
Value Added Tax (VAT) is an indirect tax introduced in the UAE in 2018. Generally, the supply of goods or services by a taxable person in the UAE is subject to VAT at the rate of 5% unless a zero rate or a VAT exemption applies.
How does VAT apply to cryptocurrency mining in the UAE?
The UAE Tax Authority’s position
The VAT Public Clarification issued by the FTA takes the following approach:
- Cryptocurrency mining by a legal or natural person for his own account is not a taxable supply and falls outside the scope of VAT.
- Mining cryptocurrency on behalf of another person is considered a taxable supply of services.
- Input VAT on expenses incurred by a person mining for his own account is not recoverable since the person does not incur these expenses to make a taxable supply.
- Input VAT on expenses incurred by a VAT-taxable person (having a VAT TRN) mining on behalf of another person may be recovered to the extent that the expenses are incurred to make a taxable supply.
Mining cryptocurrencies for one’s own account
Where a person undertakes mining for himself, there is no close nexus between such activity and the rewards received in terms of VAT logic.
The clarification notes that, in this case, a person contributes his computational power to the network but not to any identifiable recipient. A miner’s reward is not guaranteed and depends not only on solving a cryptographic equation but also on being the first to solve it.
Therefore, a person mining cryptocurrency for his own account is not making a VAT-taxable supply, and the reward received is not considered a “consideration” as defined in the VAT Decree-Law.
VAT on the supply of mining services
If cryptocurrency mining is carried out on behalf of another identifiable person who pays the miner for his services, then there is a taxable supply of services.
If a taxable person in the UAE supplies mining services to another person, the tax rate will depend on where the customer (the service recipient) is located:
Service recipient | VAT rate |
---|---|
UAE resident |
Standard 5% rate. |
UAE non-resident |
0% rate, subject to the conditions for applying the zero rate on the export of services (Article 31 of Cabinet Decision No. 52 of 2017). |
Use of mining services
If a business entity in the UAE receives mining services from a non-resident person, such a supply is subject to VAT.
Where such a recipient is registered for VAT in the UAE, he must account for the tax using the reverse charge mechanism.
In cases where the recipient, being a UAE-resident business, is not a taxable person, the non-resident supplier must register for VAT in the UAE and charge VAT on the services he provides.
Recovery of input VAT
The costs incurred by a cryptocurrency miner (e.g., for purchasing hardware, renting premises or maintenance services) may include VAT charged by suppliers of goods or services.
A VAT-registered person who provides mining services to another person may be eligible to recover the input VAT paid on the expenses incurred for making taxable supplies.
On the contrary, a person who mines cryptocurrency for himself does not incur expenses for providing VAT-taxable services. Accordingly, such a person will not be able to recover input VAT.
Summary
Concerning cryptocurrency mining, the tax authority follows the general approach to the supply of services used in the UAE VAT legislation.
The taxation will depend on whether a person mines cryptocurrency for himself or another person for a fee. In the first case, mining is outside the scope of VAT. If mining is a paid service provided to another person, it is subject to VAT and gives the right to a recovery.
It should also be noted that, according to changes to VAT rules issued in 2024, the sale or conversion of virtual assets, including cryptocurrencies, is exempt from VAT.
The tax regulations for mining and crypto businesses are continually evolving. If you choose to register a company in the UAE in the cryptocurrency sector, it is essential to understand the potential tax implications. Doing this will help you take advantage of local tax benefits and minimize risks.
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