The Federal Tax Authority (FTA) has recently issued VAT public clarification VATP039- Crypto currency mining. The key areas covered in the said public clarification are: What is meant by Mining of crypto currency? What is the implication under UAE VAT on Mining crypto for a person’s own account? What is the implication under UAE VAT on Mining crypto on behalf of another person? What is the Implication under UAE VAT on Mining services received from Non-Resident person? Recovery of Input VAT on expenses incurred for For ease of reference, we have summarized below the key areas: A.    What is meant by Mining of crypto currency? Mining of crypto currency is the process where specialized computers, also known as mining rigs, validate block chain transactions for a specific crypto currency, for which a reward, generally in the form of proportional share of crypto currency paid out by the network, may be received for the contribution of computational power. B.    What is the implication under UAE VAT on Mining crypto for a person’s own account? A person mining crypto currency for his own account is not considered to be making a taxable supply and the reward received is not considered as consideration, and would fall outside the scope of UAE VAT due to the following: The reward for solving the cryptographic equation does not solely depend on the person solving the equation but also being the first to solve, accordingly there is no close nexus between the mining activity conducted and the reward received; Since the person undertaking the mining activities for his own account, contributes his computational powers to the network, there is no identifiable recipient. C.    What is the implication under UAE VAT on Mining crypto on behalf of another person? A person mining crypto currency on behalf of another person (hereinafter referred to as ‘customer’) for a fee is considered to be making a taxable supply of services due to the following: The person performing the mining on another person’s behalf receives a consideration from his customer; There is an identifiable recipient (i.e. the customer) of the mining Such mining services shall be taxable at the following rates: 5%, if the service is supplied by a taxable person to a customer in the UAE; 0%, if supply is made to a non-resident and all the requirements for zero-rating under Article 31 of Executive Regulations to UAE VAT Law are satisfied. D.    What is the Implications under UAE VAT on Mining services received from Non-Resident person? Where a UAE Resident Business receives mining services from a Non-Resident Person, such supply would be subject to VAT in the following manner: If the recipient of crypto mining services is registered for VAT in the UAE, such recipient is required to pay VAT on Reverse Charge Mechanism; If the recipient of crypto mining services is not registered for VAT in the UAE, the Non- Resident person must register for UAE VAT and charge VAT on such services. E.    Recovery of Input VAT on expenses incurred for mining: Mining on own account: Input VAT on personal mining expenses cannot be recovered as such expenses are not incurred for the purpose of making taxable supply. Mining on behalf of another person: Input VAT on expenses incurred for the purpose of making taxable supply of mining services may be eligible to be recovered, provided the supporting documents are retained. Examples of such expenses are- Purchase of hardware; Rental of commercial real estate space; Utility expenses and maintenance services; PKF Comments: With the rapidly growing and everchanging world of blockchain technology and crypto currency, FTA has provided a clarity on the treatment under UAE VAT for personal mining and mining on behalf of other person and recoverability of Input VAT on expenses incurred thereon. Mining on Own account: Falls outside the scope of UAE VAT and is not considered a taxable Mining on behalf of another person: Mining on behalf of another person for a fee e. supplying computational power, is a taxable supply. If provided to a non-resident, it may qualify for zero- rating provided all the conditions for zero rating as per UAR VAT law are satisfied. Mining Services received from Non Resident: If the recipient is a UAE business and is registered for UAE VAT, such recipient is required to pay VAT on Reverse Charge Mechanism. Otherwise, the Non Resident person shall register for UAE VAT and charge VAT thereon. Input VAT Recovery: Input VAT on expenses incurred during personal mining is not Input VAT on expenses incurred for mining services provided to others can be recovered, provided it has direct nexus with taxable supplies and proper documentation is maintained. How can PKF help? Businesses in the UAE must imbibe the new VAT regulations and establish for themselves a tailor- made VAT-oriented business PKF UAE brings world-class capabilities and high-quality service to clients helping them to align their working model to government reporting and compliance requirements. Our role as tax advisers include: Analyzing the impact of VAT on your business – A complete analysis of the VAT effect on your business helps us provide tailor-made solutions for the financial, operational, and legal aspects of your business. Advising on managing the VAT transaction process – Our expert advice will help your business manage VAT transactions effectively without any room for errors. Invoicing under VAT – We help you to create and manage invoices in accordance with the VAT Advising on VAT related compliances as required by UAE VAT Law – Assistance in compiling of information regarding VAT Assistance in preparing and filing VAT Assistance in communication with the Federal Tax Authority (FTA) for tax related queries and processes (such as refund application, voluntary disclosures) and during tax audits conducted by the FTA. Any other VAT related queries and With more than four decades of experience, PKF UAE ensures full guidance on how businesses can duly comply with While the ultimate responsibility and accountability to comply with the law are with the business, PKF UAE can advise at every stage of your business operations. PKF UAE works with an agenda that not only helps your business meet the required VAT standards but also provides inclusive solutions to run the business effectively. VATP039 – VAT Public Clarification On Crypto Currency Mining Stany Pereira Shailesh Kumar Mradul Gupta Managing Partner Associate Partner –Tax Services Associate Director – Tax Services [email protected] [email protected] [email protected] Megha Lohia Chitransh Kanungo Soumya Tiwari Assistant Manager – Tax Services Assistant Manager – Tax Services Senior – Tax Services [email protected] [email protected] [email protected]   Disclaimer: This document has been prepared as a general guide. It is not substitute for professional advice. Neither PKF UAE nor its partners or employees accept any responsibility for loss or damage incurred as a result of acting or refraining from acting upon anything contained in or omitted from this document. 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