In the space of three weeks this July, the Federal Tax Authority issued five Directives on Tax Transactions – Nos. 1 to 5 of 2026 – that change how UAE businesses value, classify and report a range of everyday transactions. None alters the 5% rate or the return form itself, but each narrows the space for interpretation on questions finance teams have long settled by judgement: how to price a free supply, how to convert a crypto receipt into dirhams, whether a fee is exempt. These are not proposals under consultation. They are in force now, and they apply to the VAT return your business is preparing for its current period.
Crypto receipts now follow a fixed formula
Directive No. 3 of 2026 ends the discretion businesses previously exercised when converting digital-currency values into dirhams for VAT purposes. Any taxable person that supplies digital currency, or accepts it as consideration, must now select three platforms from the FTA’s approved list of centralised public exchanges – Binance FZE, Bybit Fintech FZE, Deribit FZE, Bitget and Payward FZCO – and apply the numerical average of the rates those three quote at the date and time of supply or receipt. The chosen three must be used consistently for the whole calendar year; a business cannot switch to a more favourable combination mid-year, and it must document its selection before the first transaction the policy covers, retaining timestamped records of each conversion. The Directive settles valuation only – it does not decide whether a crypto transaction is taxable – and the FTA has said it will issue further guidance for currencies its list does not yet cover. For the UAE’s fast-growing virtual-asset sector, and any firm that has begun accepting crypto, this turns judgement into a documented, auditable process that must be in place now, not reconstructed at year-end.
Deemed supplies are valued from the top down
Directive No. 5 of 2026 answers a question that has troubled every business that gives a service away or puts one to private use after recovering the input VAT on its costs: what value does the deemed supply carry? Article 37 of the VAT Law sets the value at the total cost incurred to make the supply, but building that figure upward from scattered overheads has always been arbitrary. The Directive reverses the exercise. Step one takes the open market value of the service – or of a comparable service where none exists – say AED 1,000,000. Step two strips out profit by dividing that value by one plus the business’s net profit margin from the prior year’s financial statements, or the sector average where its own is unavailable; at a 15% margin, AED 1,000,000 becomes roughly AED 869,565. Step three removes the proportion of prior-year costs that never bore input tax, leaving only the input-taxed cost base on which VAT is due. The method is mechanical and defensible, but it depends on financial data prepared in advance, and it applies only where a deemed supply genuinely arises – so the Article 12 exclusions and the gift and sample thresholds remain the first test.
Three quieter changes with real reach
The remaining Directives are narrower but consequential. Directive No. 1 confirms that court-appointed expert services are taxable supplies even when the fee is paid by a government entity; experts and the firms that employ them must register for VAT once the mandatory threshold of AED 375,000 in taxable supplies is crossed, and charge accordingly. Directive No. 2 addresses companies leaving a VAT group: the departing member, not the group, must account for post-exit adjustments on transactions the group had already declared – a trap for any business restructuring its registrations. Directive No. 4 confirms that life insurance and reinsurance fees are exempt only where they are rendered directly in connection with, and form an integral part of, the policy; fees outside that boundary are taxable at 5%.
The cost of the wrong number
These Directives matter because the VAT return is unforgiving of valuation errors. A return filed late attracts an administrative penalty of AED 1,000 for a first offence and AED 2,000 for a repeat within twenty-four months, even where no tax is due; an incorrect return carries a further AED 500. Where an error understates tax by more than AED 10,000, a voluntary disclosure must be filed within twenty business days of discovery, and under Cabinet Decision No. 129 of 2025 – in force since 14 April 2026 – a disclosure made before an audit notice attracts 1% of the tax difference per month, rising to a fixed 15% plus 1% per month once an audit has been notified, with unpaid tax accruing at 14% per annum. Returns and payment both fall due within twenty-eight days of the end of each tax period; for businesses filing quarterly, the return for the period ending 30 September 2026 is due on 28 October. The Directives, however, govern the transactions being recorded today – not merely the return that will report them.
Speak to us before your next return
We are already applying these Directives for clients: documenting digital-currency conversion policies, building deemed-supply valuations that will withstand an FTA review, and reassessing exempt-versus-taxable positions on insurance fees and group restructurings. If your business transacts in digital assets, makes supplies without consideration, is entering or leaving a VAT group, or is simply unsure whether July’s Directives change your next return, contact Altus Citadel Services FZCO. The rules changed this month; the returns that must reflect them are only weeks away.
Contact us at: www.altuscitadelservices.com | +971 50 961 6354 or +971 50 161 9605 or info@altuscitadelservices.com
