OECD: Taxing Virtual Currencies

OECD: Taxing Virtual Currencies

On 12 October 2020, along with over 50 jurisdictions, the OECD published the "Taxing Virtual Currencies" analysis which examines the approaches and policy gaps across income, consumption and property taxes - including the tax implications of stable coins and "central bank digital currencies", as well the evolution of the consensus mechanisms and decentralised finance.

Virtual Assets in the UAE

1. On 9 March 2022, the Emirates of Dubai adopted its first set of laws to regulate digital assets. Under the new law, the UAE will create the Dubai Virtual Assets Regulatory Authority (VARA), which would be tasked with regulating these assets.
2. Currently, the UAE has no income tax. A tax resident of the UAE, whether actively trading or holding, pays no taxes on the capital gain. As such, virtual assets such as cryptocurrencies are not recognised as currency by the UAE Central bank, but rather as an investment asset.
3. On 31 January 2022, the UAE MoF announced that Corporate Income Tax will be introduced starting 1 June 2023. As such, it could be envisaged that business income generated by UAE businesses from crypto activities may become taxable.
4. From the income tax perspective, the UAE will likely treat virtual currencies as a form of intangible asset and income tax will likely be levied in the form of capital gains. From the VAT perspective, the trading and handling of virtual currencies, including the process of "mining", may all have VAT consequences. Further, the exchange of fiat currency for virtual currencies and vice versa, will be exempt from VAT. However, on the opposite side of the same transactions, the supply of taxable goods and services that is paid for with virtual currencies is considered subject to VAT.

Key takeaways

Most countries treat virtual currencies as property, and effectively tax them in the same way as other forms of intangible property. The key takeaways from this OECD analysis paper are:

• Income from "mining" or exchanges is largely taxed as capital gains, or as a form of capital or miscellaneous income.
• Most countries consider all forms of virtual currency exchanges to generate a taxable event.
• A minority of countries make a distinction between business activity and personal/occasional activity-business activity is taxed as income, and personal/occasional activity is taxed as capital gains.