UAE FTA Issues Two New VAT Directives on Digital Currency Transactions and Life Insurance Services
The UAE Federal Tax Authority (FTA) has issued two new VAT directives introducing additional guidance on the VAT treatment of digital currency transactions and life insurance-related services.
The directives aim to provide greater certainty for taxpayers by clarifying the methodology for reporting transactions involving digital currencies and the VAT treatment of fees and charges associated with life insurance and life reinsurance contracts.
Businesses operating in these sectors should review the new requirements and assess whether any updates to their accounting and VAT reporting procedures are required.
1. VAT Reporting of Digital Currency Transactions
The FTA has introduced a standardized method for converting the value of digital currencies into UAE Dirhams (AED) for VAT reporting purposes.
The Directive applies to VAT-registered businesses that:
- supply digital currencies; or
- receive consideration for goods or services in the form of digital currencies.
Standardized Conversion Method
For VAT purposes, businesses must:
- Select three FTA-approved centralized digital currency exchange platforms.
- Use the same three platforms consistently throughout the calendar year.
- Determine the exchange rate at the relevant date and time of the supply (or receipt of consideration, where applicable).
- Calculate the arithmetic average of the three exchange rates.
- Use the resulting average rate to convert the digital currency value into AED for VAT reporting.
Record-Keeping Requirements
Businesses must retain sufficient documentation supporting:
- the exchange rates obtained from each selected platform;
- the calculation of the average exchange rate; and
- the AED conversion used in the VAT return.
The FTA has also published the initial list of approved exchange platforms, which currently includes Binance FZE, Bybit Fintech FZE, Deribit FZE, Bitget, and Payward FZCO.
2. VAT Treatment of Life Insurance Fees and Charges
The second Directive provides clarification on when fees and charges connected with life insurance and life reinsurance contracts form part of the VAT-exempt supply.
The guidance confirms that certain fees charged in connection with a life insurance or life reinsurance contract will also benefit from the VAT exemption where specific conditions are satisfied.
When Are Fees VAT Exempt?
Fees and charges will generally form part of the VAT-exempt insurance supply where they:
- are necessary for providing or transferring the life insurance or life reinsurance contract;
- are directly connected with the insurance contract;
- are included within the insurance premium; and
- do not attract a separate charge.
Examples may include certain administration, management, operational, and execution services that are integral to the insurance contract.
When Will VAT Apply?
Where a service is independent of the life insurance contract or is separately charged, it will generally constitute a separate taxable supply for VAT purposes.
The FTA also confirms that determining whether a service forms part of the exempt insurance supply requires consideration of the specific facts and circumstances of each arrangement, including the relationship between the service and the underlying insurance contract, the necessity of the service, and how the consideration is charged.
Key Takeaways for Businesses
These new directives provide additional clarity in two evolving areas of UAE VAT compliance.
Businesses should consider:
- reviewing VAT procedures for transactions involving digital currencies;
- updating accounting systems to apply the prescribed currency conversion methodology;
- maintaining appropriate supporting documentation for digital currency transactions;
- reviewing life insurance products and related service fees to determine whether they qualify for VAT exemption; and
- assessing existing invoicing and pricing structures to ensure compliance with the FTA’s guidance.
XB4 Insight
The latest directives demonstrate the FTA’s continued focus on providing practical guidance as the UAE tax framework evolves. While the digital currency Directive establishes a consistent valuation methodology for VAT reporting, the life insurance Directive offers important clarification on the scope of the VAT exemption applicable to insurance-related services.
Businesses operating in financial services, insurance, digital assets, and technology sectors should proactively assess the impact of these developments on their VAT compliance processes.
At XB4, we assist businesses with interpreting new tax legislation, assessing the impact on their operations, updating VAT policies and procedures, reviewing contractual arrangements, and supporting compliance with UAE tax requirements. Our tax specialists are available to help businesses evaluate these new directives and implement any necessary changes to their VAT reporting processes.
