Buying Real Estate Properties Through Cryptocurrencies and NFTs in the UAE: Considerations of VAT Under Cabinet Decision No. 100 of 2024
On 2nd of October 2024, the Federal Tax Authority (FTA) amended the UAE VAT Executive Regulations through Cabinet Decision No. 100 of 2024. A key change was the explicit inclusion of virtual assets within the VAT scope, which has significant implications for real estate transactions involving cryptocurrencies or NFTs.
Understanding Virtual Assets Under UAE VAT Law
Article 1 of The Executive Regulation of the Federal Decree-Law No. 8 of 2017 on Value Added Tax has defined virtual assets as: “A digital representation of value that is digitally tradable or convertible and can be used for investment purposes. This does not include digital representations of fiat currencies or financial securities.”
The broad definition encompasses cryptocurrencies, non-fungible tokens (NFTs), utility tokens, governance tokens.
Key VAT provisions include:
• Article 42(2)(j–l): Activities such as the transfer, conversion, and management of virtual assets are treated as financial services.
• Article 42(3): Transfers and conversions of virtual assets are exempt from VAT.
VAT Treatment of Real Estate in the UAE
To understand the impact of these changes, it is helpful to review existing VAT rules for real estate.
1. Residential property: The first supply within three years of completion is zero-rated, while subsequent supplies are exempt.
2. Commercial property: Subject to 5% VAT.
3. Bare land: Exempt.
4. Developed land or mixed-use property: Subject to 5% VAT.
These fundamentals remain unchanged, but how do they apply when crypto or NFTs are involved?
Real Estate Transactions Using Crypto and NFTs: Practical Scenarios
1. Purchasing property with cryptocurrency:
a) The cryptocurrency payment is considered as a VAT-exempt transaction of a virtual good, while the transaction of property is still governed by regular real estate principles of VAT based upon the nature of property.
The VAT liability therefore will be based on classification of property, not payment mode.
2. Tokenized real estate via NFTs:
a) If NFT as a digital certificate of ownership, transfer of NFT can be exempted under VAT.
b) If NFT transfers implicit rights in property, then it is governed by value-added tax rules of real estate.
c) If NFTs are divided into portions and represent shares in real estate, then such transaction might be treated as property or financial instrument by the regulator.
3. Brokerage and platform services:
a) Transaction fees paid by platforms that facilitate cryptocurrency real estate transactions are levied at 5%.
b) NFT custodial, management, and token brokerage services are also taxable at 5% unless exempted in explicit terms.
Important Considerations for Investors and Businesses
1. Invoicing and currency: The VAT invoices must be prepared in AED, even when payment is made in cryptocurrency. The proper exchange rates must be reflected at the time of supply.
2. Input VAT recovery: Input VAT recovery may be limited in exempt virtual asset transactions.
3. NFT classification: There is currently no clarity regarding whether NFTs are virtual assets or property rights representations. Incorrect classification might attract penalties or loss of exemptions.
4. Valuation challenges Given the high price volatility of cryptocurrencies, establishing a fair market value in AED is difficult and requires documented evidence for the FTA.
Conclusion
The UAE’s recognition of virtual assets within VAT law marks a significant development, yet the core VAT framework for real estate remains unchanged. While payments made in cryptocurrency may fall outside VAT, the sale of property continues to follow standard VAT rules. NFTs could be exempt when classified as virtual assets, but if they represent property ownership rights, they may be taxed differently. Service providers and platforms are still required to apply 5% VAT on their fees. With tokenized real estate and crypto-based property transactions becoming more prevalent, businesses and investors must carefully align their structures, contracts, and invoicing with VAT obligations. Professional tax and legal guidance remain crucial to ensure compliance and minimize risks.
Copyright: Dr. Mohammed Hassan Al Raeesi Advocates & Legal Consultants retains all intellectual property rights to this content. No third party may use, copy, or modify any part of it without prior permission and without proper attribution to our firm.
Disclaimer: This is a conceptual framework intended for thought leadership and does not constitute legal or financial advice. For professional evaluation of your company’s financial and ESG governance policies, please contact our firm.
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