UAE VAT and Digital Currency: FTA Directive No. 3 of 2026 Explained
With the increased use of digital currencies and cryptocurrency in the UAE, it creates new practical questions for businesses about whether to accept or supply digital currencies as part of their commercial activities.
The major question is how the business can determine the value of UAE Dirham with digital currency transactions for VAT reporting purposes?
The Federal Tax Authority (FTA) has now provided a specific mechanism through 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 was issued on 14th July 2026 and mentions a prescribed method for converting digital currency values into UAE Dirham while reporting transactions in VAT returns.
This article explains the key requirements of the Directive and what businesses dealing with digital currencies should consider for UAE VAT compliance.
What Is FTA Directive No. 3 of 2026?
FTA Directive No. 3 of 2026 prescribes the method a Taxable Person should use to convert the value of a digital currency into UAE Dirham for VAT reporting.
The Directive covers the following situations:
- Taxable Person makes a supply of digital currency or
- Taxable Person supplies goods or services and receives consideration in the form of digital currency.
In the above circumstances, the value of digital currency must be converted into UAE Dirham for VAT disclosure purposes.
The Directive gives a specific exchange-rate methodology rather than allowing businesses to use an arbitrary exchange rate.
When Does a Business Need to Convert Digital Currency Into UAE Dirham?
This will be applicable when a Taxable Person:
1. Makes supply of digital currency
Where the transaction itself is the supply of digital currency, the value need to be converted into UAE Dirham in VAT return.
2. Receives digital currency as consideration
A business may also sell goods or services where the customer makes payment in digital currency.
For example, a UAE business may provide consultancy services in return for a consideration of 1.5 units of a particular digital currency.
For reporting under VAT, the business should determine the UAE Dirham value using the methodology prescribed by FTA.
How to Convert Digital Currency Into UAE Dirham Under the New FTA Method?
FTA Directive No. 3 of 2026 establishes a three-step process.
Step 1: Select Three Approved Exchange Platforms
The Taxable Person must select three exchange platforms from the list of centralised public digital currency exchange platforms published by FTA.
The business must then use the same three platforms for all the transactions during the same calendar year.
This is an important compliance requirement.
Businesses should not change the exchanges selected from transaction to transaction simply because the other platform provides a more favourable exchange rate.
Step 2: Calculate the Numerical Average
Once three platforms have been selected, the business must obtain applicable exchange rates for the relevant digital currency.
The exchange rate used should be the rate prevailing at:
- The date and time of the supply, or
- The date and time of the receipt of consideration,
as applicable.
The business then calculates the numerical average of exchange rates obtained from the three selected platforms.
Simple Example
Suppose a business has selected three approved platforms.
The exchange rates for a particular digital currency at the relevant time are as follows:
- Platform X: AED 50000
- Platform Y: AED 50002
- Platform Z: AED 49998
The numerical average will be:
(50000+50002+49998) ÷3 = AED 50000
The business would use the resulting average exchange rate to determine the value of the digital currency transaction in UAE Dirham.
Step 3: Convert the Digital Currency Value
After calculating the numerical average, the Taxable Person must convert the digital currency value into UAE Dirham using that average exchange rate.
UAE Dirham value arrived is then used for reporting under VAT
The methodology creates a consistent and documented method for determining the value of digital currency transactions.
Which Exchange Platforms Are Currently Listed by the FTA?
The Directive provides a list of Centralised Public Digital Currency Exchange Platforms in the UAE.
The list includes the following exchange platforms :
- Binance FZE
- Bybit Fintech FZE
- Deribit FZE
- Bitget
- Payward FZCO
While choosing exchange platforms, businesses should use FTA's approved list applicable to the relevant period and should not just go with an exchange because it is commonly used in the market.
The FTA has mentioned that it will publish the approved list for the Directive.
Why Must Businesses Use Three Platforms?
It helps businesses to create a more consistent valuation methodology.
There will be variation in digital currency exchanges at any given moment.
Using a numerical average of three approved exchanges can help businesses to establish a more accurate value rather than relying on the price given by a single exchange.
Can a Business Change Its Three Selected Platforms?
As per the decision, if the taxable Person selects three platforms once, it must use the same three exchange platforms for all transactions during the same calendar year.
Therefore, businesses should be careful while selecting the platforms and establish an internal process to ensure that the same three platforms are being used throughout the calendar year.
What If the Digital Currency Is Not Available on Three Approved Platforms?
The Directive clarifies that FTA will publish a public clarification describing the procedures to be followed by the businesses where the exchange rate for a particular digital currency is not available on the three platforms from published list of FTA.
Therefore, businesses should not use their own alternative valuation methodology without considering FTA's applicable clarification.
Record-Keeping Requirements for Digital Currency Transactions
Businesses should maintain records proving the exchange rates obtained from each of the three selected exchange platforms.
A business should therefore maintain the records showing:
- The digital currency involved in transactions
- Digital currency quantity
- Transaction date
- Transaction time
- Relevant exchange rate from Platform 1
- Relevant exchange rate from Platform 2
- Relevant exchange rate from Platform 3
- Calculation of numerical average
- UAE Dirham conversion rate
- Related tax invoice or accounting records
- Reporting under VAT return
Why Is Time Important for Digital Currency VAT?
The price of digital currency can vary within a short span of time.
The Directive therefore refers to the exchange rate prevailing at the date and time of supply or receipt of consideration, where applicable.
Businesses should ensure that their accounting systems capture variation in exchange prices accurately.
What Does This Mean for VAT Invoices?
Businesses dealing with digital currency should ensure that their invoicing and accounting systems can properly record:
- Amount of transaction
- Digital currency received
- Transaction date and time
- Equivalent value of UAE dirham
- VAT amount where applicable
- Exchange-rate calculation in support of UAE Dirham value.
Businesses cannot rely only on the digital currency amount while completing the VAT reports.
A documented UAE Dirham conversion is required for the relevant VAT reporting.
Impact on Businesses Accepting Cryptocurrency
The Directive is more relevant to businesses that accept digital currencies as a payment method.
Examples may include:
- Technology companies
- Web design businesses
- Digital service providers
- Cryptocurrency businesses
- Blockchain companies
- Online business platforms
- Consultants accepting digital currency
- Businesses providing goods or services to crypto customers
Those into these businesses should review whether their current accounting systems can support the new valuation methodology or not.
Common Mistakes Businesses Should Avoid
1. Using only one exchange
The Directive specifically requires use of three selected exchange platforms from FTA's published list.
2. Changing exchanges between transactions
The three platforms once selected should be used during the relevant calendar year.
3. Using an arbitrary exchange rate
Businesses should follow FTA's prescribed method of numerical average
4. Ignoring the transaction time
The relevant exchange rate must be linked with the date and time of supply or receipt of consideration as applicable.
5. Failing to retain exchange-rate evidence
Businesses should maintain the records supporting the rates obtained from each of the three platforms.
6. Relying only on accounting software
Businesses should verify that their accounting systems are actually applying FTA methodology correctly rather than assuming the software is automatically compliant.
What Should Businesses Do Now?
Businesses engaged in digital currency transactions should consider the following steps.
Review your digital currency transactions
Identify all transactions where digital currency is supplied or received as consideration.
Select the appropriate exchange platforms
Review FTA's approved list and use the selected three platforms for the calendar year.
Update accounting systems
Ensure that the accounting systems can capture the relevant exchange rate, transaction date and time, and the UAE Dirham equivalent.
Build a calculation trail
Maintain evidence of the selected three exchange rates and calculation of the numerical average.
Review VAT invoices
Ensure that the VAT documentation and accounting records correctly reflect relevant UAE Dirham value.
Train finance teams
Proper training should be given to staff handling digital currency transactions on the prescribed conversion methodology.
Monitor FTA guidance
The FTA has informed that it will publish further clarification for situations where the exchange rate is not available on three approved platforms.
How Flying Colour Tax Consultant Can Help
Digital currency transactions require careful coordination between VAT, accounting, invoicing and technology systems.
At Flying Colour Tax Consultant, we assist businesses with
- Advisory on UAE VAT for digital currency transactions
- VAT treatment for cryptocurrency
- Review of transactions involving digital assets
- Preparation of VAT return
- VAT compliance reviews
- Valuation and documentation of digital currency
- Review the process of accounting and invoicing
- Support on FTA audit and clarification
If you are a business accepting or supplying digital currency, we can help you to review your existing VAT processes and align your documentation and reporting requirements with applicable FTA updates.
Frequently Asked Questions
1. What is FTA Directive No. 3 of 2026?
FTA Directive No. 3 of 2026 provides the method for converting the value of digital currencies into UAE Dirham for businesses involved in supplying digital currency or receives digital currency in return for consideration, while reporting under VAT.
2. How does the FTA require digital currency to be converted into UAE Dirham?
The business must select three exchange platforms from the published list of FTA, then calculate the numerical average of applicable exchange rates from those platforms and use that average to convert digital currency value into UAE Dirham.
3. Can a business use different cryptocurrency exchanges for each transaction?
As per the Directive, the Taxable Person must use the same selected three exchange platforms for all transactions during the relevant calendar year.
4. What records must be maintained for digital currency VAT calculations?
The Taxable Person must maintain records proving the exchange rates got from each of the three selected exchange platforms, along with other records required in relation to relevant supply.
5. What happens if a digital currency is not listed on three approved exchange platforms?
The Directive states that FTA will publish a public clarification explaining the procedure to follow where the exchange rate for a digital currency is not available on three platforms from FTA's approved list. Businesses should monitor further guidance by FTA before going for an alternative methodology. (FF*)
To learn more about UAE VAT on Digital Currency | FTA Directive No. 3, book a free consultation with one of the Flyingcolour team advisors.
Disclaimer: The information provided in this blog is based on our understanding of current tax laws and regulations. It is intended for general informational purposes only and does not constitute professional tax advice, consultation, or representation. The author and publisher are not responsible for any errors or omissions, or for any actions taken based on the information contained in this blog.