VAT Public Clarification on Crypto Currency Mining
On Jan 14th of 2025, Federal Tax Authority (FTA) have issued VAT public clarification (VATP039) on VAT implication on Crypto Currency Mining. As we all witnessing rise of popularity of crypto currency, FTA have given the clarification on the VAT treatment on Crypto currency mining.
Crypto mining is the process by which individuals or businesses use specialized equipment, known as mining rigs, to validate blockchain transactions and earn cryptocurrency rewards. The tax treatment of these activities in the UAE depends on whether the mining is done for personal use or as a service provided to others. Here’s an overview of how VAT applies to crypto mining in the UAE:
Mining for a person’s own account: When a person mines cryptocurrency for their own account, person is not guaranteed a reward if he successfully solves the cryptographic equation, as the reward does not solely depend on the person solving the equation, but also on being the first to solve it. As there is no direct exchange of goods or services, the activity is not considered a taxable supply under VAT. Consequently, any rewards received from mining activities are not subject to VAT.
Mining Services: If a person is mining cryptocurrency on behalf of another individual or business for a fee, this constitutes a taxable supply of services. The person performing the mining activity receives a consideration from the recipient, making it subject to VAT.
In most cases, this service will be taxed at the standard VAT rate, It could be zero-rated if the service is provided to a non-resident and the necessary conditions are met under UAE VAT law.
Mining Services Received: If a UAE business receives mining services from a non-resident person, RCM VAT will apply, if the UAE business registered for VAT and receive mining services from a Non resident person. if the customer is a UAE resident business and not VAT-registered, the non-resident supplier must register for VAT in the UAE and charge VAT on the services.
Input Tax Recovery: Individuals or businesses involved in crypto mining may incur VAT on their expenses, such as purchases of mining hardware, rent for commercial space, utilities, and maintenance services. If mining is done for personal use, the incurred VAT on these costs cannot be recovered since the activity is not a taxable supply. However, if mining is conducted as a service for others, the VAT on expenses can be recovered, provided the person is VAT-registered and retains proper documentation such as tax invoices.