How is VAT charged on the Cryptocurrency Mining Services?

The UAE has been known for adapting the innovative technologies in advance of any other countries around the globe. In order to maintain the position and to enhance the technological infrastructure of the land, the UAE has also adopted the cryptocurrency trading mechanism, and hence it has established a legal authority to supervise the operations and trading of the cryptocurrency.

The UAE’s acceptance of cryptocurrency has led to a massive popularity of cryptocurrencies in the land, and there has been a recent surge in the use, trade, and mining of the cryptocurrencies. Along with that, there have been certain queries regarding the implementation of the VAT over the cryptocurrency mining process. In this blog, we have explained and simplified the VAT treatment on the mining of cryptocurrency using the proof of work method.

What is Meant By The Mining of Cryptocurrency?

In short, the cryptocurrency mining process can be referred to as the process of validating the cryptocurrency’s blockchain transaction using certain powerful computer systems, which are known as the mining rigs, which have the capabilities to perform the mining process. The person who does this might receive compensation or a reward if he is successful in validating such cryptocurrencies. He can either mine the currency for himself or on behalf of any other person. The person, in order to be successful, must solve the complex cryptographic equations; hence, as a reward in return, he might receive a share in such cryptocurrency, which is not received directly, but it might be allocated from the network.

You may also read: All about e-Invoicing in UAE

VAT on Cryptocurrency Mining For Own Account

The VAT rate of 5% is applicable to the person who makes the taxable supplies of goods or services. If there is any person who might engage in cryptocurrency mining activities for his own account and benefit and aims to contribute to his computational power to the network and no one else. He will be entitled to the reward only if he is the first person to solve the equation and validate the blockchain; hence, there is no guarantee of receipt of any reward in the mining procedure; in fact, there is no identifiable recipient of the stated reward in the mining procedure.

Under the VAT, the person who is considered to conduct the procedure for his own account is not considered to make any of the taxable supplies of goods or services; on the other hand, the reward will also not be considered as any consideration.

VAT on Cryptocurrency Mining on Behalf of Another Person

If there is any person who conducts the cryptocurrency mining procedures on behalf of any other person in return for any fee or consideration, then the supply of services will be considered as taxable supplies under the purview of the VAT. Such supplies will be charged VAT at the standard rate. On the other hand, if such supplies are made to any non-resident along with complying with all the requisites for zero-rated, then the supply will be designated as zero-rated.

How is VAT Charged On The Receipt of Mining Services?

If there is any business entity in the UAE that received the mining services from any non-resident person, then such supplies are charged with VAT. Along with that, if such services are received by any entity registered in the UAE under the VAT, then the services received must be accounted for as per the reverse charge mechanism.

If there is any recipient of the mining services who is not a taxable person under the VAT being resident in the UAE, it will result in the supplier of the service getting registered under the VAT for charging VAT on the supply of services.

The entities can also file for returns subject to certain compliance with the conditions as per the VAT regulation.

You can also read: Why Cryptocurrency Bookkeeping Essential?

How can CDA Provide its Assistance?

The entities engaged in receiving and providing the mining services are expected to be aware of the VAT regulations and their implications. Businesses focused on core activities might not have sufficient knowledge of the VAT regulations, returns filing, etc. In such circumstances, our experts can assist you in staying compliant with the regulations and filing the returns on time. Our team of professional tax experts will serve you with the best and most personalized tax services, enabling you to acquire the best opportunities.

Contact us for expert crypto accounting services in Dubai to ensure accurate financial reporting and compliance with cryptocurrency tax regulations.

Mitesh Maithia

Tax Manager

Mitesh is a Tax Professional with expertise in direct, indirect, and international taxation, including transfer pricing, since 2018. Passionate about making complex tax matters simple, he shares insights to help businesses stay compliant and forward-looking.