Banking & Finance UAE VAT exemptions to boost funds, crypto and FDI By Neil Halligan October 9, 2024, 4:20 PM Abu Dhabi Global Market Investors at a cryptocurrency event in Abu Dhabi. New VAT exemptions by the UAE should boost small and medium funds and cut the cost of investing Changes should cut cost of investing Boost to small and medium funds Crypto changes backdated to 2018 New exemptions by the UAE on value added tax for investment funds and digital or crypto-related services will strengthen the Gulf state’s position as a financial hub and help attract more foreign business, experts have said. The Federal Tax Authority’s amendments announced this week exempt the management of investment funds from 5 percent VAT from November 15. All transfers of ownership of virtual assets, including cryptocurrencies and conversion of virtual assets are also exempt from VAT, which has been backdated to when the tax was first introduced on January 1, 2018. “Both industries are priority areas for the UAE in terms of attracting foreign businesses and investment and the UAE is demonstrating its commitment to them by giving them welcome tax reliefs,” said Justin Whitehouse, managing director and head of Middle East indirect taxes at Alvarez and Marsal. Arushi Goel, policy lead for the Middle East and Africa at Chainalysis, said the changes help provide clarity for businesses. “By aligning certain virtual assets transactions with traditional financial services, the UAE is helping companies navigate the market with confidence and drive growth,” Goel said. The 2024 Global Financial Centres Index has ranked Dubai and Abu Dhabi 16th and 35th respectively in the world, ahead of a lot of other global hubs, and number one and two in the Middle East and Africa regions, ahead of Tel Aviv and Casablanca. Dubai’s crypto regulator defends ‘robust’ approval process Bahraini bank launches Gulf’s first bitcoin investment fund Turkey U-turns on taxing crypto and stock market earnings Christiane El Habre, regional managing director, Middle East at financial services company Apex, said the amendments would help “attract quite a lot of foreign investments into the country and the funds domiciled here”. “In particular, the changes in the value added tax treatment of funds and investment management activity, as well as the removal of VAT on crypto activity promises to substantially boost the presence of medium and small funds in the UAE, whose economics will substantially improve by the removal of this tax.” Whitehouse said the changes will “enhance the UAE’s attractiveness to financial services and crypto businesses” and should directly benefit investors by reducing the cost of investment. “If we look into how the fund management exemption is drafted in the new regulations, the UAE is trying to attract foreign investment, essentially by only granting the exemption in instances where the investment fund is established and regulated by a competent authority in the UAE,” Whitehouse said. Strengthened position This incentivises fund managers to consider setting up their investment vehicle in the UAE, as opposed to more traditional investment locations such as the Cayman Islands or the British Virgin Islands, he added. “These new rules for VAT, in addition to the already favourable regime for investment funds from a UAE Corporate Tax perspective, will in our view only strengthen the Emirates’ position as a global leader in this space,” said Whitehouse. There are further amendments announced that “solidify the UAE as a mature tax jurisdiction”, Whitehouse said. Allowing VAT recovery on family insurance costs and extending the tax on property transfers is not limited to sale and tenancy contracts, but also includes any forms of disposal causing the transfer of ownership from one person to another.