ALL YOU NEED TO KNOW ON VAT RULES FOR GOLD & DIAMOND BUSINESSES IN DUBAI & THE UAE

This Article was updated June 8th, 2023

This article has been researched and written by Scott Cairns and the team at Creation Business Consultants and has not used AI in generating this article.

Gold has always been a highly traded commodity in the UAE. As of June 2, 2023, the price of gold has experienced a change of 1.8%. During 2022, gold remained at the top of imports with total imports of gold rising to estimated USD $28.5 billion, surpassing even crude oil. Diamond imports amounted to nearly USD $11.8 billion. Gold exports from the UAE reached around USD $16.2 billion, and diamond exports stood at approximately USD $10.7 billion. With such high volumes of trade in the gold and diamond market, traders must be aware of the VAT impact on trading in gold, diamond, and gold and diamond jewellery.

This article will cover the VAT impact on: 

• Gold bars and investment-grade precious metals.
• Gold, diamond and gold and diamond jewellery.

TRADING IN GOLD BARS AND INVESTMENT GRADE PRECIOUS METALS 

As per Article (3) Federal Decree Law (VAT) and Article (36) Executive Regulation (VAT) – the supply or import of investment-grade precious metals are zero-rated, meaning it will have zero rate of tax or VAT.

DEFINITION OF INVESTMENT GRADE PRECIOUS METALS

The phrase “investment precious metals” means gold, silver and platinum that meet the following standards:

• The metal is of a purity of 99 percent or more.
• The metal is in a form tradeable in global bullion markets.

Source: Article (36) Executive Regulation (VAT).

TRADING IN GOLD, DIAMOND AND GOLD AND DIAMOND JEWELLERY 

As per Article (3) Federal Decree Law (VAT) and Article (36) Executive Regulation (VAT) – the VAT rate applicable for final consumers of gold, diamond and gold and diamond jewellery is the standard rate of VAT which stands at 5%. However, for commercial dealers in gold and diamond jewellery, as per Cabinet Decision no. 25 of 2018, VAT law was amended to apply a reverse charge mechanism on the supply of gold, diamond and gold and diamond jewellery.

WHAT IS MEANT BY THE REVERSE CHARGE MECHANISM FOR COMMERCIAL GOLD AND DIAMOND TRADERS? 

As per Article 2 of Cabinet Decision no. 25 of 2018, the responsibility of charging and collecting VAT has been moved from the supplier of gold and diamond jewellery to the purchaser, provided the purchaser is registered for VAT and files a declaration in writing stating that:

1. The purchase or acquisition of goods is for the purpose of resale or for such goods will be used in the manufacture of other goods.
2. The purchaser is registered with VAT department on the date of supply by the supplier of goods.
3. The purchaser is responsible for calculating the tax on the value of goods supplied to them.

RESPONSIBILITIES OF THE SUPPLIER OF GOODS TO APPLY REVERSE CHARGE MECHANISM 

The supplier of goods is responsible to verify the registration of the purchaser. A supplier must comply with: 

• Obtaining a written declaration from the purchaser or recipient.
• Verifying the registration of the purchaser in accordance with rules set by the Federal Tax Authority.

EXCEPTIONS TO THE PROVISION OF CABINET DECISION NO.25 OF 2018 

This decision does not apply in the following cases: 

• The supplier of goods is aware on the date of supply that the recipient or purchaser of goods is not registered for VAT.
• The supply of goods is taxed at zero rate. Therefore, for investment grade precious metals, and export of gold and diamond jewellery where the principal component is gold or diamond, reverse charge mechanism will not apply.

CONSEQUENCES OF FAILURE TO COMPLY WITH REGULATIONS 

In the case where the supplier had any reason to believe or was aware on the date of supply, that the purchaser is not registered for VAT, both the supplier and purchaser will be jointly and severally liable for any tax that is due to be paid and the associated penalties in respect of such supply.

Goods in this case mean gold, diamonds, and any products where the principal component is of gold or diamonds.

CONCLUSION

This decision provides a great relief on the cash flow of gold and diamond traders who are dealing in high value goods, who are exporting and who may be having longer payment terms with their customers.

It will further allow investors in gold and diamond trading to continue their business with ease, thereby stabilising this market.

Should you wish to know more on Creation Business Consultants VAT services in Dubai, Abu Dhabi and the UAE or require a free no commitment consultation contact [email protected] or call +971 4 878 6240.

Scott Cairns,
Managing Director