Some charges imposed on clients are likely to be cut soon as the UAE is waiving the value added tax (VAT) currently imposed on fund management services and certain virtual asset transactions.
This follows amendments to the UAE VAT Executive Regulation of the Federal Decree-Law No 8 of 2017 with Cabinet Decision No 100 of 2024, announced on the 2nd October 2024.
Following the amendment to Article 42(3), the 5% VAT on fund management services will be waived effective the 15th November 2024 – applicable irrespective of whether these are Shariah compliant or conventional.
Legal firm Baker McKenzie Tina Hsieh welcomed this change as “creating a more favorable UAE investment environment for international investors and providing UAE funds a competitive advantage when compared to other GCC-based funds”.
Noting the VAT waiver could result in reduction in fund management charges, Tina added: “Investors will enjoy an increased return on investments as funds can now allocate any VAT savings (as a result of the exemption) to additional investment opportunities in the region.”
Separately, consulting firm PricewaterhouseCoopers Middle East Indirect Tax Partner Marc Collenette noted it is unclear whether fund management services procured qualify for the VAT exemption, especially when these services are procured from outside the UAE.
“In particular, fund managers, funds and companies dealing with virtual assets should assess whether their services are within the scope of the VAT exemption and also analyze the impact of that on the input tax recovery.”
The implementation date also matters – especially in regard to virtual assets, with the latter VAT waiver backdated to the 1st January 2018.
The VAT waiver applies to the transferring ownership of virtual assets, including cryptocurrencies and the converting to or from virtual assets. As such, “voluntary disclosures may be required to correct historic returns”.
Marc further highlighted that UAE defines virtual assets as: “Digital representation of value that can be digitally traded or converted and can be used for investment purposes, and does not include digital representations of fiat currencies or financial securities.”
