Digital currency and VAT: New UAE rules for businesses to consider

In the commercial world, businesses might encounter customers or suppliers willing to pay in digital currency. While some view digital currency as a passing trend, it is crucial to recognize that it represents genuine money. Some nations have already adopted digital currencies as legal tender, including the UAE's Digital Dirham. The Federal Tax Authority has issued guidelines to ensure tax compliance when dealing with digital currency, establishing an approved accounting methodology for VAT purposes.

The value of digital currency must be portable, divisible, have a uniform value, be limited in supply, and be durable. Unlike fiat currencies, digital currencies face challenges regarding widespread acceptance and uniform value. To record and report digital currency transactions in the UAE, businesses must select three approved centralized public digital currency exchange platforms and maintain consistent use of these platforms throughout the calendar year.

The average rate for the relevant currency must be calculated from the date and time of the transaction, rather than using the day rate provided by the UAE Central Bank.

Each transaction must maintain proof for potential audit, as the exchange rate for digital currency can be highly volatile. As the regulatory landscape evolves, further clarification may emerge on how to handle digital currencies not listed on the approved exchanges or when a currency gets delisted from one exchange.