Introduction
The UAE implemented new VAT regulations under Cabinet Decision No. 127/2024 concerning the implementation of the reverse charge mechanism on precious metals and gemstones among VAT-registered businesses in the state. This new VAT regulation explains how VAT applies to gold, silver, diamonds, and other precious metals and gemstones in the UAE.
The Cabinet decision No. 127/2024 established a new Reverse Charge Mechanism (RCM), which changes who is responsible for paying VAT in these transactions. The previous cabinet decision no. 25/2018 was abrogated by this new cabinet decision, which previously governed VAT on gold and diamonds.
Article 1 of this new Cabinet decision defines the terms goods, precious metals, and gemstones.
Goods: Goods such as jewellery or items where the value of precious metals or gemstones is higher than other components.
Precious Metals: Gold, silver, palladium, and platinum.
Gemstones: Diamonds, pearls, rubies, sapphires, emeralds, both natural and synthetic.
In accordance with Article 2, if a registered company purchases these goods to resell or use in manufacturing, the supplier does not impose VAT. Instead, the buyer calculates VAT and reports to the VAT authority. This supports suppliers since they are not required to collect and pay VAT to the government. It may also benefit buyers because they don’t have to pay VAT upfront and can claim it directly on their tax return.
In order to qualify for the RCM system, the buyer may have to provide a written confirmation to the supplier before the sale, stating that they are registered for VAT and that the goods will be used for resale or manufacturing. The supplier has the responsibility to keep this confirmation and check the buyer’s VAT registration before making the sale. If the buyer does not provide this confirmation or the relevant documents, then RCM shall not apply.
Further, Article 3 states that the minister of finance may issue any additional decisions needed to apply this law. However, this new regulation does not apply if the goods are subject to 0% VAT under Article 45 of the UAE VAT Law (Federal Decree-Law No. 8 of 2017).
Conclusion
The new regulation transfers VAT responsibilities from suppliers to buyers in the jewelry and precious metals trade and also improves liquidity for companies, reduces paperwork, and improves paying taxes.
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