The United Arab Emirates (“UAE”) has joined in global efforts to improve transparency and compliance in the crypto sector by signing the Multilateral Competent Authority Agreement (MCAA) under the Crypto-Asset Reporting Framework (CARF). The framework is expected to be rolled out in UAE in 2027, with the first automatic exchanges of information with other tax authorities such as HMRC taking place in 2028.
What Is CARF?
Developed by the Organisation for Economic Co-operation and Development (OECD), CARF establishes a mechanism for the automatic exchange of tax-related information on crypto-asset activities between participating jurisdictions. It mirrors existing frameworks but is tailored specifically for digital assets, with the aim of preventing crypto being used to hide taxable income, or undermine steps taken towards global tax transparency.
Under CARF, those involved in facilitating transactions, exchanges, or the holding of digital assets on behalf of clients will be required to report certain customer transaction data to tax authorities. This will enable governments to track crypto activity and enforce tax compliance more effectively. For more information on CARF, see here.
Implications for those investing in crypto in the UAE and crypto firms
The CARF agreement does not introduce new taxes on crypto in the UAE. However, it does mean that:
- Foreign investors living in the UAE but tax-resident elsewhere may have their crypto activity reported to their home tax authorities. For example, if you are tax resident in the UK but invest in crypto activity in the UAE – HMRC may be notified of your activity. The same will apply in the other signatory countries. So far almost 70 countries have signed or expressed an intention to sign up to the framework.
- UAE-based platforms will face an increased administrative burden as they will need to implement stricter KYC and AML procedures and to comply with reporting obligations.
- Privacy-focused investors may face reduced anonymity and increased compliance costs.
Conclusion
It is important for crypto investors to obtain specialist advice and ensure that they are tax compliant in both the country they reside in, and any other country in which they have crypto investments or may otherwise be liable for tax. Information exchanges that indicate non-compliance with tax obligations can give rise to investigations concerning previous tax years, so consideration should be given to whether a voluntary report should be made to tax authorities regarding any unpaid tax to minimise penalties that may be payable to HMRC.
Should you wish to discuss, please contact Waqar Shah or Krishna Mahajan.
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