Justin Whitehouse: ‘UAE Is Open for Business for Crypto Fintechs’

(Crypto News)-13/11/2024

The UAE’s recent decision to exempt cryptocurrencies and digital assets from VAT law marks a pivotal shift in the nation’s stance toward crypto. As a regional leader in financial innovation, the UAE has long been building a foundation to attract fintech and crypto firms, and these amendments only add to its appeal.

The regulatory clarity provided by the Federal Tax Authority (FTA) sets the stage for the UAE to emerge as a global crypto hub. Businesses are now assured of a supportive, predictable environment for their operations.

To unpack the real impact of these changes, we spoke with Justin Whitehouse, Managing Director and Head of Middle East Indirect Taxes at Alvarez and Marsal.

With insights into the challenges and opportunities posed by these amendments, he provides an in-depth view of what this new regulatory stance means for the future of crypto and fintech in the UAE.

Clarity and Certainty: A Path Way To Dominance for UAE Through VAT Law Exemption

For many in the crypto industry, tax treatment has been an unresolved question that complicates business decisions.

With the FTA’s amendments, the sector now has a much clearer regulatory path forward, a crucial step for any business wanting to operate with confidence.

Q: What are the key implications of the UAE VAT Law amendments for the crypto and fintech industry in the region?

A: “The primary outcome for the crypto industry is that certainty of treatment has been achieved. The FTA has exempted cryptocurrencies and assets from VAT retrospectively to the introduction of VAT in the UAE (2018). This had been a source of concern for operators, and this is now alleviated.”

This shift cannot be understated. The retroactive exemption provided by the FTA has addressed a significant regulatory concern, relieving crypto businesses of the ambiguity that once surrounded VAT obligations.

In a volatile market like crypto, this clarity around tax treatment may serve as an invaluable stabilizer, making the UAE an even more attractive base for crypto firms.

But while the VAT exemption eases some of the tax burdens on crypto operations, it also prompts the question: Will this drive the UAE to the forefront of global crypto regulation?

The UAE has taken a proactive approach to positioning itself as a financial and technological innovation leader, and this VAT exemption aligns perfectly with that vision.

The UAE’s reductions in barriers to crypto firms are not only attracting investment but also signaling its openness to new financial paradigms.

Q: How do these changes align with the UAE’s broader regulatory framework for digital assets?

A: “These changes are a strong signal that the UAE is open for business for crypto fintechs and is aligned with broader regulatory actions being taken in the country.”

The VAT exemption is more than just a tax change; it’s part of a broader, strategic move by the UAE to support and advance digital assets.

In recent years, the UAE has introduced regulatory measures that offer stability for businesses while promoting innovation, including the Dubai Virtual Asset Regulatory Authority (VARA) and Abu Dhabi Global Market (ADGM) frameworks.

Even recently, the Central Bank of the United Arab Emirates (CBUAE) granted initial approval to AED Stablecoin on October 14, making it the first regulated dirham-pegged stablecoin in the UAE.

This alignment suggests that the UAE is laying the groundwork for a flourishing ecosystem where fintech and crypto can evolve freely but responsibly.

Such an approach begs the question: With this progressive framework, is the UAE setting a new standard that other jurisdictions might follow?

Balancing Costs and Opportunities: How UAE’s VAT Law Approach Compares Globally

While the exemption provides regulatory certainty, it also means that businesses may need to account for increased costs, as VAT on certain expenditures cannot be reclaimed.

In practice, this increases the cost of doing business, albeit only marginally.

Q: What are the potential challenges and opportunities for businesses operating in the crypto and fintech sectors due to these amendments?

A: “The downside of exemption is that VAT on costs cannot be recovered. The UAE has a very low rate of VAT, but it does mean that the cost base for those businesses would be increased by 5% on relevant expenditure. Opportunity-wise, this gives crypto businesses operating in the UAE certainty of VAT treatment, which could make it more attractive to operate from. It also signals the government’s commitment to the industry.”

This VAT exemption may, therefore, present a double-edged sword. While businesses gain clarity, they also face a slightly higher cost structure.

However, the UAE’s VAT rate is relatively low, so this increase is unlikely to significantly deter companies.

Instead, the predictability offered by this change may outweigh the additional costs, attracting companies seeking a stable regulatory environment.

On the flip side, the lack of clear guidelines for complex crypto operations, such as mining, signals that there is still work to be done to fully accommodate the industry’s unique tax needs.

Globally, many countries have grappled with how to tax crypto assets, with few taking the kind of clear, supportive stance seen in the UAE.

This retroactive exemption places the UAE ahead of its peers in creating a tax-friendly environment for digital assets. But it seems there is more;

Q: How do these changes compare to the regulatory approaches adopted by other jurisdictions in the Middle East and globally?

A: “The changes are striking in the sense that very few countries have changed their underlying tax law, especially retrospectively. The UAE is one of the first countries in the world and region specifically to cater to the industry.”

This move distinguishes the UAE in the Middle East and highlights it as a pioneering force globally.

While other countries may follow suit, the UAE’s head start may allow it to shape best practices for VAT treatment of digital assets.

This progressive approach could serve as a model for other nations, potentially influencing broader regional and global policy.

Long-Term Implications: A Pathway to Industry Growth

The VAT exemption has the potential to accelerate growth in the UAE’s fintech and crypto sectors, with far-reaching implications for both direct and ancillary industries.

Q: What are the potential long-term implications of these amendments for the growth and development of the crypto and fintech industries in the UAE?

A: “It is hoped that this will foster the growth of the industry in the UAE and, as a result, the related ecosystem of suppliers and related businesses. It could make the UAE more of a powerhouse in this field.”

Because of the regulatory certainty provided in the UAE, many businesses could be eager to establish themselves in a tax-friendly and innovation-oriented environment.

It is clear that as more companies are drawn to the UAE, a robust crypto ecosystem of suppliers, service providers, and ancillary businesses could develop, solidifying the UAE as a regional, if not global, powerhouse in the fintech and crypto space.

Despite the clarity offered by the amendments, certain complexities remain, particularly for businesses with cross-border operations.

Ensuring compliance will require careful examination of the VAT liabilities within the UAE and other jurisdictions.

Q: Are there any specific areas where businesses operating in the crypto and fintech sectors should seek professional advice to ensure compliance with the new VAT regulations?

A: “The law is relatively brief, and it is clear that cryptocurrencies are covered as well as crypto assets. However, there will remain grey areas, for example, where the underlying asset can also be exchanged for value in the real world (e.g., a physical good). Businesses should carefully consider whether that asset being transferred would itself create a VAT liability. Also, just because crypto is exempted in the UAE doesn’t mean it is in other countries, so businesses that trade cross-border would be best advised to take further advice in case they have liabilities in those jurisdictions.”

In other words, while the UAE’s VAT law provides clarity, cross-border transactions and asset exchanges may still pose tax challenges.

Companies should consult tax professionals to avoid potential liabilities and ensure full compliance with local and international regulations.

For crypto businesses, where transactions and assets can span multiple jurisdictions, such guidance is beneficial and essential.

About Justin Whitehouse

Justin Whitehouse is a Managing Director at Alvarez & Marsal Tax LLC in Dubai, where he leads the Middle East Indirect Tax practice. With over 30 years of experience, he specializes in navigating the complexities of indirect tax regulations, focusing on expanding global service offerings and forming strategic alliances.

Notably, he has contributed to drafting indirect tax laws in several GCC countries ahead of the VAT implementation. He has advised clients across various sectors, including real estate, tourism, consumer products, and private equity.

Before joining A&M, Whitehouse spent five years at EY leading their London region VAT practice and 15 years at Deloitte in various leadership roles. He is a Chartered Tax Advisor from the Chartered Institute of Taxation.