A new FTA Directive brings greater clarity to the VAT treatment of digital currency transactions

The UAE continues to move quickly toward a more digital and technology-enabled economy.

From digital banking and smart government services to virtual assets and alternative payment methods, businesses and consumers are increasingly comfortable with faster and more flexible ways to transact.

Digital currency is now part of that evolution.

However, while the method of payment may be modern, the VAT question remains practical:

When a business receives digital currency, what value should be reported in UAE dirhams?

The Federal Tax Authority has now provided a clear framework.

On 14 July 2026, the FTA issued Directive on Tax Transactions No. 3 of 2026, setting out the method businesses must use to convert digital currency values into AED for VAT reporting purposes.

Why Was the Directive Needed?

Digital currency values can change rapidly.

Rates may differ between exchanges and may move significantly within a short period of time. This creates uncertainty for businesses required to determine the correct AED value of a transaction for VAT purposes.

Questions may arise around:

• which exchange rate should be used;
• whether a daily closing rate is acceptable;
• whether the rate should be taken at the time of supply or payment; and
• what evidence should be retained to support the reported value.

The new Directive addresses these concerns by introducing a consistent calculation methodology.

The approach is straightforward:

Three approved exchanges. One average rate. One AED value for VAT reporting.

What Transactions Are Covered?

The Directive applies where a taxable person:

• supplies digital currency; or
• supplies goods or services and receives payment in digital currency.

In both cases, the value of the digital currency must be converted into UAE dirhams before the transaction is reported in the VAT return.

The Rule at a Glance

A business must select three approved digital currency exchanges, obtain the relevant rate from each platform and calculate the numerical average.

That average rate is then used to convert the digital currency amount into AED.

While the calculation itself is relatively simple, consistency, timing and supporting documentation are essential.

Step 1: Select Three Approved Exchanges

The business must select three exchanges from the list approved by the FTA.

Once selected, the same three exchanges must be used for all relevant digital currency transactions throughout the same calendar year.

This requirement prevents businesses from selecting different platforms on a transaction-by-transaction basis to obtain a more favorable conversion result.

The selection should therefore be formally documented and applied consistently.

Step 2: Use the Rate at the Relevant Date and Time

The exchange rate must be obtained from each of the three selected platforms at the relevant:

• date and time of supply; or
• date and time the digital currency payment is received,

depending on the nature and timing of the transaction.

The exact timing is important because digital currency values may fluctuate within minutes.

Businesses should therefore ensure that their invoicing, payment and accounting systems capture accurate transaction timestamps.

Step 3: Calculate the Average Rate

The three exchange rates must be added together and divided by three.

The resulting numerical average is then used to convert the digital currency amount into AED.

The calculation can be summarized as follows:

Three exchange rates → Average conversion rate → AED transaction value

The final AED amount is the value that should be recorded and reported for VAT purposes.

Which Exchanges Are Approved?

The list issued with the Directive includes:

• Binance FZE;
• Bybit Fintech FZE;
• Deribit FZE;
• Bitget; and
• Payward FZCO.

Businesses must select three exchanges from this approved list and use them consistently during the calendar year.

Documentation Is as Important as the Calculation

The Directive also requires businesses to retain evidence of the rates obtained from each of the three selected exchanges.

Businesses should not rely on unsupported manual entries, informal notes or estimates recorded after the transaction.

A complete transaction file should include:

• the type of digital currency;
• the amount supplied or received;
• the exact transaction date and time;
• the rate obtained from each selected exchange;
• the average-rate calculation;
• the final AED value;
• the related tax invoice; and
• evidence of the relevant wallet or blockchain transaction.

This information should be retained as part of the business’s VAT records.

A clear audit trail helps demonstrate how the reported AED value was calculated and supports the business’s position in the event of an FTA review or audit.

What Happens When Three Rates Are Not Available?

Certain digital currencies may not be available on at least three exchanges included in the approved list.

The FTA has indicated that a separate public clarification will be issued to explain the treatment of these cases.

Businesses accepting less widely traded digital currencies should monitor further FTA guidance and avoid applying unsupported conversion methods in the meantime.

Why This Development Matters

The Directive is more than a technical VAT update.

It reflects the UAE’s wider effort to support innovation while maintaining transparency, consistency and regulatory oversight.

Digital currency can provide businesses and customers with greater payment flexibility. However, its use also introduces practical accounting, tax and record-keeping considerations.

By establishing a recognised conversion methodology, the FTA has reduced uncertainty and provided businesses with a clearer compliance framework.

Innovation is easier to adopt when the regulatory treatment is understood.

What Should Businesses Do Now?

Businesses that currently accept, or are considering accepting, digital currency should review their internal processes.

They should:

• confirm whether the Directive applies to their transactions;
• select and document three approved exchanges;
• use the same exchanges throughout the calendar year;
• capture the correct date and time for each transaction;
• calculate and record the average exchange rate;
• retain evidence from all three platforms; and
• ensure that the resulting AED value is correctly reflected in the VAT return.

Accounting systems and internal procedures may also need to be updated to ensure that the required information is recorded consistently.

Final Takeaway

The UAE continues to develop a regulatory environment that supports modern and efficient ways of doing business.

Directive on Tax Transactions No. 3 of 2026 provides a practical framework for converting digital currency transactions into AED for VAT reporting.

The method of payment may be digital, but the VAT return must still be reported in dirhams.

For businesses, the message is clear: select the approved exchanges, apply the methodology consistently and maintain a complete supporting record.