On 14 July 2026, the UAE Federal Tax Authority issued Directive on Tax Transactions No. 3 of 2026 for Value Added Tax on the Method of Converting the Value of Digital Currencies into UAE Dirham. The Directive provides the first statutory methodology for determining the AED equivalent of digital currency consideration for VAT disclosure purposes, resolving a significant operational gap that has existed since the UAE’s VAT regime came into force in 2018.

To understand the significance of the Directive, it is necessary to first understand the VAT framework within which digital currencies currently sit in the UAE. In 2024, Cabinet Decision No. 100 of 2024 amended the VAT Executive Regulations to treat the transfer and conversion of virtual assets, including virtual currencies, as exempt financial services. This exemption was applied retroactively to 1 January 2018. Public Clarification VATP040, issued in March 2025, set out how the exemption operates in practice, while Public Clarification VATP039 confirmed that cryptocurrency mining falls outside its scope and is not a taxable supply.

The practical consequence of this framework is that while the supply of a digital currency is itself exempt from VAT, goods and services paid for using digital currency remain taxable. A business accepting Bitcoin or another digital currency as payment for a taxable supply of goods or services is still required to account for VAT on that supply, and must report the VAT-inclusive value of the consideration in AED in its tax return. Until the issuance of Directive No. 3 of 2026, no prescriptive method existed for making that conversion, leaving businesses to adopt their own approaches with the attendant risk of inconsistency and audit exposure.

The Directive applies to two categories of taxable person. The first is a taxable person making a supply of a digital currency, and the second, and more practically significant, category is a taxable person making a supply of goods or services for which the consideration is received in the form of a digital currency. In both cases, the taxable person is required to convert the value of the digital currency into AED for the purposes of disclosure in its VAT return, using the mechanism set out in the Directive.

The Directive prescribes a specific, multi-step methodology for the conversion.

The taxable person must first select three exchange platforms from the FTA’s approved list of centralised public digital currency exchange platforms. Critically, the same three platforms must be used consistently for all transactions carried out during the same calendar year. A taxable person may not switch platforms mid-year or apply different platforms to different transaction types. This consistency requirement is intended to prevent selective rate-picking and to ensure comparability across a taxable person’s VAT returns.

Once the three platforms are selected, the AED value of the digital currency is calculated by taking the numerical average of the exchange rates published by those three platforms at the date and time of the supply, or at the date and time the consideration is received, whichever is applicable. The use of a numerical average across three sources, rather than a single platform rate, reduces the risk that the reported value is distorted by anomalies or illiquidity on any one platform at a given moment.

The taxable person must retain records evidencing the exchange rates obtained from each of the three platforms for each transaction, alongside the other record-keeping obligations applicable to the supply.

Alongside the Directive, the FTA published an approved list of centralised public digital currency exchange platforms for these purposes. The list currently comprises five platforms: Binance FZE, Bybit Fintech FZE, Deribit FZE, Bitget, and Payward FZCO. All five are entities established or operating in the UAE, which is consistent with the FTA’s general approach of anchoring compliance obligations to locally regulated or registered counterparties where possible.

The FTA has confirmed it will publish a further public clarification setting out the procedures to be followed in cases where the exchange rate for a particular digital currency is not available on three platforms from the approved list. This is a practically important commitment given that the approved list currently contains only five platforms and the universe of tradeable digital currencies is considerably broader than those actively quoted across all five.

For businesses active in digital assets, the Directive brings a measure of certainty that has been absent since the introduction of VAT. The requirement to select three platforms from the approved list and apply them consistently through the calendar year introduces a degree of discipline into what has, in practice, been an inconsistent area of compliance. Businesses that have been using internal treasury rates, single-exchange rates, or informal conversion methods will need to update their processes to align with the prescribed methodology.

The annual consistency requirement also has a practical implication for businesses that begin to transact in a new digital currency mid-year: the platform selection must be made before the first transaction in that currency for the year, or at the point the first transaction occurs, and maintained for the remainder of that calendar year.

One area that the Directive does not yet address is the treatment of digital currencies for which an exchange rate is not consistently available across three of the five approved platforms. Businesses transacting in less liquid digital assets should monitor for the forthcoming public clarification before processing those transactions through their VAT returns.

A further consequence of the exempt treatment of digital currency transfers is that a business dealing in digital currencies may find itself making both exempt and taxable supplies, with a corresponding effect on its input tax recovery position. Input VAT directly attributable to the exempt activity is not recoverable. Common costs must be apportioned between the exempt and taxable elements of the business, and that apportionment could rely on the relative value of the taxable and exempt supplies made. The taxable person must therefore, in such cases, identify its exempt digital currency supplies and quantify them in AED for the purposes of that apportionment fraction. The Directive does provide a conversion mechanism that, on its face, applies to this category of supply.

As of date of publication, the FTA has not indicated that guidance on this specific link is forthcoming. However, in the meantime, applying the same three-platform average methodology, as set out in Clause 2 of the Directive, to the valuation of exempt supplies for apportionment purposes would be a defensible and internally consistent approach, though the Directive does not expressly extend to that purpose and the position should be documented as a considered one rather than an implied position.

Separately, businesses that treated crypto transactions as taxable between 2018 and 2020, or claimed input VAT on that basis, should note that the window to submit refund claims or voluntary disclosures in respect of those historic periods closes on 31 December 2026. The issuance of this Directive does not extend or reset that deadline.

Aurifer advises clients across the region on the VAT treatment of virtual asset transactions, including compliance with the new conversion methodology, historic reviews, and voluntary disclosures. For further information, please do not hesitate to reach out to us on info@aurifer.tax.