Understanding UAE’s Virtual Card Regulations

If you own a business in the UAE or plan to do so in the future, you’ve probably heard about virtual cards and how they’re becoming the future of managing business spending. Reduction in spending, better security, and smoother payments are some of the critical areas in which virtual cards are proving to be a boon for companies. 

However, knowing the rules surrounding virtual cards in the UAE is just as crucial as knowing their advantages. This understanding will help you to utilise them properly and keep your business in compliance. In this article, I’ll discuss the main points of the virtual card regulation in the UAE, what they signify for your business, and how they intertwine with the art of efficient expense management.

What Are Virtual Cards?

A virtual card is a payment card without a physical existence. It exists only as numbers and data you use online or with an app. Businesses use virtual cards to pay vendors, suppliers, or even their own employees and, in many cases, can determine spending limits, expiration dates, and where they can be used.

Regarding expense management, virtual cards are a way to manage exactly where your money goes. Since generating a virtual card for individual transactions or merchants is possible, you lower your risk of overspending.

Why Virtual Card Regulations Are Relevant to Your Business

The convenience factor is not the only reason for employing virtual cards. Virtual card regulation in the UAE is governed by the Central Bank of the UAE and other financial regulators. These guidelines are intended to:

• Safeguard businesses and consumers from fraud and financial crimes.
• Protect the integrity of the UAE’s financial system.

If your business distributes or receives virtual cards, knowing these rules will keep you out of harm’s way, keep you from getting fined, and keep you from danger whenever using virtual cards.

Key Regulatory Authorities Regulating Virtual Cards in the UAE

A number of authorities shape how virtual cards are used in the UAE:

• Central Bank of the UAE: The Central Bank is the main regulator of payment systems. It is responsible for financial institutions, payment service providers, and regulations that will support secure and reliable payment instruments, like virtual cards.
• Securities and Commodities Authority (SCA): Primarily centred on investments, the rules of the SCA can affect fintech and payment players providing virtual cards, particularly where the services in question have points of intersection with investments or trading.
• Ministry of Finance: VAT and tax compliance are administered by the Ministry. Virtual Card transactions are tax-incurring transactions, and compliance with the Guidelines issued by the Ministry is required.

License and Authorisation Needs

If your enterprise seeks to generate virtual cards or provide connected services in the UAE, you are required to have a relationship or agreement with a licensed financial institution or payment service provider.

If you work with a fintech or bank that underwrites virtual cards, check to make sure they have the proper licenses. This safeguards your business and guarantees that you’re dealing with honest and secure transactions.

Identity Verification & Customer Due Diligence

An important policy related to virtual cards is KYC (Know Your Customer) and AML (Anti Money Laundering). The provider needs to be able to confirm your business and authorised users when issuing or establishing virtual cards on your business account. This involves:

• Providing valid trade licenses.
• Verifying authorised signatories or users.
• Following Anti-Money Laundering (AML) and Counter-Terrorism Financing (CTF) protocols.

This is to avoid and curb the misuse of virtual cards. When setting up virtual cards for your business, you must provide accurate and current documentation.

Controls and Limits on Spending

Arrange transparency and manageability of virtual card spending with the UAE regulators. This is why virtual cards can come with controls to prevent their abuse or misuse. Your virtual card provider should have capabilities like:

• Barring transactions on a per-card basis.
• Setting spend categories or vendor limitations.
• Instantaneous access to transaction information as it occurs.
• Ability to instantly freeze or block a card.

These controls should enable your business to better control expenses, as well as fulfil regulatory requirements for secure payment practices.

VAT and Tax Compliance

Virtual card transactions are no different from other business payments for VAT and tax purposes in the UAE. This means:

• You need to maintain good books for virtual card payments.
• Keep receipts and invoices from expenses made using virtual card payments.
• Verify VAT figures on receipts are accurate and consistent with tax law in the UAE.
• Integrate virtual card expenses with your accounting system to match expenses to invoices for tax reporting.

Rules state that you must ensure that your account is transparent and traceable. Therefore, virtual card payments must be reflected in your revenue books, and there should not be any gaps.

Combine virtual cards with expense management software that automates receipt matching and VAT extraction, and you’ll save time and avoid potential mistakes.

Data Privacy and Security

Handling virtual card data involves sensitive information. Businesses and service providers are bound by the UAE’s data protection legislation to keep this data confidential. Here are some Key points you should expect from your virtual card provider:

• Safe and secure, encryption of payment card data and transactions.
• Adherence to the UAE’s data protection and cybersecurity standards.
• Guard against unauthorised access or a data breach.

On your end, your internal mechanisms should restrict access to the information of the virtual card and the transaction details to authorised personnel only.

Duties of Reporting and Record-Keeping

For auditing and compliance purposes, businesses must keep complete, notarised records of all virtual card transactions. This includes:

• Transaction dates, amounts, and merchant details.
• Copies of receipts or invoices.
• Approval and authorisation workflows.
• Records of refunds or disputes.

Well-kept records minimise the chance of something going wrong during an audit or regulatory review. For compliance, if that data is centralised through your virtual card system, it’s that much easier and faster to be compliant.

Integration of Virtual Cards in Cross-Border Transactions

If your business uses virtual cards for payments outside the UAE, you must consider more regulatory issues. You must:

• Adhere to the Central Bank’s foreign exchange and overseas transaction regulations.
• Know how cross-border Virtual Card payments impact your VAT reporting.
• Make sure your virtual card provider offers secure international transactions to the standards required in the UAE.

Knowing these rules will help you avoid surprises in international payments and stay out of trouble with your business.

Limitations and Prohibited Uses

UAE regulations prohibit the use of virtual cards for activities linked to money laundering, terrorism financing, or illegal transactions. Your virtual card provider should have systems in place to monitor transactions for suspicious activity and report these to authorities when required.

As a business, you must also ensure virtual cards are not used for:

• Personal expenses outside business purposes.
  
• Unapproved vendors or suppliers.
• Transactions that violate UAE laws or ethical standards.

Clear internal policies and the proper controls reduce the risk of compliance breaches.

How Virtual Card Regulations Impact Your Spend Management

Knowledge of the regulatory ecosystem allows you to maximise the coverage of virtual cards for your business. Here are a few of the ways these rules apply to controlling business spending:

• Enhanced Control Over Expenses: Regulations requiring spending limits, vendor restrictions, and approval flows align with your need to keep budgets under control. Virtual cards provide a practical way to implement these controls in real time.
• Better Transparency and Visibility: Since you must keep detailed transaction records and receipts, virtual cards paired with expense management platforms let you track expenses from purchase to reconciliation. This visibility helps reduce errors and fraud risks.
• Streamlined Accounting and VAT Compliance: Regulations emphasise accurate record-keeping for tax purposes. Virtual card systems that integrate with accounting software can automate coding, VAT calculations, and reporting, reducing manual workload.
• Security and Fraud Prevention: Regulatory demands for data security and real-time card controls protect your business against fraud and unauthorised spending. You get peace of mind knowing that suspicious activity can be quickly flagged or cards blocked.

How to be Compliant with Virtual Cards in the UAE

Now that you know how regulations apply, here are some tips for keeping your virtual card use compliant:

• Choose Licensed Providers: Always use virtual card services from providers licensed and regulated by the UAE authorities. This ensures they follow the necessary rules and security standards.
• Keep Documentation Updated: Maintain accurate business licenses and user identification documents as part of your due diligence.
• Set Clear Spending Policies: Define who can use virtual cards, spending limits, and approved vendors. Ensure all employees understand these rules.
• Use Automated Expense Tools: Adopt expense management software that integrates virtual card transactions, automates receipt matching, and tracks approvals to support compliance.
• Regularly Review Transactions: Monitor virtual card usage to spot unusual activity or errors. Regular reviews help you catch issues early.
• Train Your Team: Educate employees about regulatory requirements and your company’s virtual card policies.

Conclusion

Virtual cards provide an adaptable and secure method of managing business spending. However, using them without an understanding of virtual card regulation in the UAE can expose your business to risks. Staying informed about regulatory authorities, licensing requirements, KYC protocols, spending limits, tax obligations, and data security ensures that your company can confidently integrate virtual cards into its financial ecosystem.

By adhering to the UAE’s legal framework, you’ll unlock the full potential of virtual cards while remaining compliant in today’s complex regulatory environment.