Accounting of Digital Assets in the UAE: A Practical Perspective

Three years ago, Antwort Law opened a representative office in Dubai. During this time, a lot has changed in the Emirates: a corporate tax was introduced, a separate authority for the regulation of virtual assets (VARA) was created, and the region itself finally secured its status as one of the world's key financial centers.

We observed these changes from the inside and took part in them - we helped clients restructure their accounting processes so that they meet the new requirements of supervisory authorities and international standards.

Today, the issue of how to correctly reflect transactions with cryptocurrency and tokens in accounting statements is especially acute. For many companies, it is a real test to account for cryptocurrencies and tokens in accounting and tax accounting so that your balance sheet meets the requirements of the FTA, free zones and IFRS (International Financial Reporting Standards), and the audit does not turn into a stress test.

Why is this important in the UAE

The Emirates were among the first in the world to establish a regulatory framework for digital assets:

• Dubai Law No. 4 of 22 introduced the concept of virtual assets and rules for their providers;
• The Tax Authority (FTA) explicitly stated that cryptocurrency exchange and transfer transactions are exempt from VAT in the absence of a commission;
• All companies, including those working with crypto assets, are required to prepare reports in accordance with IFRS.

And while in other jurisdictions, accounting for cryptocurrencies is still in a gray area, in the UAE everything is much more formalized. An error in classification can cost not just additional charges, but the status of a tax resident or even a license in a free zone. The correct accounting policy is not just an accounting document, it is the basis of your protection before the FTA, auditors and even banks that check the compliance of transactions with AML requirements.

1. Classification of digital assets

IFRS does not recognize cryptocurrency as cash or financial instruments. There are only two options:

• Investment asset - accounted for as an intangible asset (IAS 38);
• Inventory - if the company actively trades cryptocurrency as a commodity (IAS 2).

In the practice of Antwort Law, hybrid models are often encountered: for example, when a company lists part of its assets as investments for long-term storage, and part as inventory for operating activities.

2. Evaluation and revaluation

For intangible assets, the principle of initial cost with an impairment test applies, but in the UAE, companies are increasingly switching to the revaluation model: if there is an active market (and for Bitcoin and ETH there certainly is), the asset can be revalued at fair value.

For trading companies, the IAS 2 rule applies: such assets are reflected according to the principle of "the lower of two values" - cost or possible selling price. This allows you to take into account market fluctuations and at the same time remain within the framework of international standards.

Income, expenses and liabilities

Sale of crypto assets always generates a financial result, but there is a nuance: if digital currencies are used to pay for services or goods, the company must record a liability at the fair value of the token on the date of the transaction. In practice, this is often forgotten, and as a result, the reporting is distorted.

Typical risks and errors

• Asset classification: tokens cannot be shown as money or fixed assets - this directly contradicts IFRS.
• VAT: although most cryptocurrency transactions are exempt from VAT, mining and a number of smart contracts are still subject to taxation.
• Lack of accounting policies: if a company does not have a formalized document, banks and auditors consider such transactions as an increased risk. The consequences can be serious - blocking of the account.
• Impairment test: regulators and auditors expect that companies regularly review the fair value of long-term assets.

How to minimize problems

To avoid mistakes and simplify reporting, a company should establish a clear procedure for accounting for cryptocurrency transactions in advance.

1) First of all, you need to clearly understand what exactly digital assets are held for: are we talking about long-term investments, active trading, or settlements within the framework of core activities. The choice of accounting approach depends on the answer to this question.

2) The next step is to prepare an accounting policy, where it is necessary to separate situations falling under IAS 2 and those related to IAS 38. It is also worth fixing the selected valuation method there: will the company focus only on the initial cost or use the revaluation model. Do not forget about impairment tests - the accounting policy should clearly describe the procedure for their implementation. This will allow the company to record a decrease in the value of assets in a timely manner and avoid claims from auditors.

3) The rules for reflecting transactions when cryptocurrency is used to pay for goods or services deserve special attention. Without such clarifications, accounting will quickly turn into a chaotic set of transactions.

4) It is also necessary to provide sections related to VAT and corporate tax in the accounting policy, since the tax requirements of the UAE tax service are quite specific.

5) And the final step is to check the entire accounting system against the FTA rules and the standards of the selected free zone. This is the only way to be sure that the document really protects the company and does not create new risks.

In practice, each of these tasks requires a deep understanding of IFRS, local tax legislation and the requirements of regulators such as VARA and FTA. An error in one point can cost the company not only fines, but also problems with the audit or banks.

At Antwort Law, we do not just prepare accounting policies - we build a protection system for businesses:

• analyze the business model and all crypto transactions;
• develop a document for a specific free zone and industry;
• take into account the requirements of VARA, FTA and IFRS;
• support audits and tax audits;
• consult on opening bank accounts for cryptocurrency structures.

Over three years in Dubai, we have helped dozens of companies – from technology startups to international holdings – to set up cryptocurrency accounting so that there would be no questions from auditors or regulators. If you want to avoid risks and save time on analyzing complex standards, contact Antwort Law. We take on all the work so that you can focus on business development.

Lidia Ivanova

International lawyer
Antwort Law