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

Businesses in the UAE now face new rules regarding digital currency and Value Added Tax (VAT). Some customers may opt to pay with digital currency, while suppliers might also demand payment in this form. Despite its intangible nature, digital currency is not considered a mere fad - it's increasingly being recognized as a legitimate form of money.

The Federal Tax Authority (FTA) has issued a directive to convert the value of digital currencies into UAE dirhams, providing an approved accounting methodology for tax compliance. However, there seems to be confusion about whether accounting and VAT treatment can differ, which does not apply to corporate tax as it must comply with international financial reporting standards.

Understanding what constitutes money is crucial. It must be portable, divisible, have uniform value, be limited in supply, durable, and universally accepted. Digital currencies face challenges in these areas, particularly the lack of universal acceptance and the potential for volatility.

To report digital currency transactions, businesses must select three approved centralized public digital currency exchange platforms. An average rate for the relevant currency must be calculated from the date and time of the transaction, differing from the day rate used for traditional currency transactions. Proof of each transaction must be retained for review during audits. The FTA is still seeking clarification on the protocol for transactions involving digital currencies not listed on approved exchanges.