UAE has introduced a new VAT rule for gold and diamond traders under the reverse charge mechanism, shifting VAT calculation and declaration responsibilities from suppliers to buyers.
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Outlined in Cabinet Decision No. (127) of 2024, the rule covers precious metals like gold, silver, and platinum, gemstones such as diamonds and rubies, and jewelry where precious components dominate.
This update simplifies compliance, supports business growth, and aligns with global best practices, reinforcing the UAE’s position as a leading hub for precious metals and gemstones trade.
What is the Reverse Charge Mechanism?
The reverse charge mechanism is a VAT process where the responsibility for calculating and paying VAT is shifted from the supplier to the buyer. Instead of the supplier charging VAT on the invoice and remitting it to the government, the buyer calculates the VAT due on their purchase and declares it in their VAT return.
This mechanism applies to certain goods, including precious metals and gemstones, as per the new UAE VAT rule. It simplifies compliance for suppliers and ensures that VAT is paid directly by the end user.
Simplifies Processes for Suppliers: Sellers are no longer required to charge and collect VAT, reducing their administrative workload.
Improves Cash Flow for Buyers: Buyers don’t pay VAT upfront but declare it in their VAT return, easing financial strain.
Encourages Compliance: Streamlined processes promote adherence to tax regulations, particularly in high-value sectors like jewelry and precious metals.
This mechanism, now expanded in the UAE, is a key step in supporting the trading sector while ensuring compliance with global best practices.
Gold and Diamond VAT in UAE for Traders and Customers (Updated 2025)
The UAE has updated its VAT regulations for gold, diamonds, and precious metals in 2025, introducing a reverse charge mechanism for registered traders while maintaining the 5% VAT for individual customers. Here’s a comprehensive guide with real-world examples for better understanding.
1. VAT Regulations Overview
2. Reverse Charge Mechanism: Impact on Traders
The reverse charge mechanism shifts VAT obligations from the supplier to the buyer, streamlining compliance for traders.
Seller’s Role: The supplier does not charge VAT on the invoice.
Buyer’s Role: The buyer calculates and declares VAT in their VAT return.
Applicable Transactions:
Between VAT-registered businesses.
For goods where the value of precious metals or stones exceeds other components in jewelry.
1.Example 1:
A VAT-registered jeweler purchases 10 kg of gold from a registered gold supplier for AED 2 million.
Under the reverse charge mechanism, the supplier does not charge VAT.
The buyer (jeweler) calculates AED 100,000 (5% VAT) and declares it in their VAT return.
2.Example 2:
A diamond retailer buys uncut diamonds worth AED 500,000 from a registered trader.
No VAT is charged by the supplier. The retailer calculates AED 25,000 (5% VAT) and declares it in their return.
3. Impact on Customers
For individual (non-registered) customers, VAT is charged at the standard 5% rate, included in the price at the point of sale.
VAT on Purchases: Customers pay 5% VAT on gold, diamonds, and jewelry purchases.
Tax Transparency: Invoices must clearly display the VAT amount.
1.Example 1:
A customer buys a gold necklace worth AED 10,000.
The final price includes AED 500 as VAT (5%).
2.Example 2:
A customer purchases a diamond ring for AED 50,000.
The VAT charged is AED 2,500, bringing the total price to AED 52,500.
4. Practical Scenarios
Transaction: A jewelry manufacturer buys platinum worth AED 1 million from a VAT-registered metal supplier.
VAT Treatment: The supplier issues an invoice without VAT, and the manufacturer calculates AED 50,000 (5%) to report in their VAT return.
Transaction: A non-registered customer purchases a ruby necklace worth AED 15,000.
VAT Treatment: The retailer includes AED 750 (5%) VAT in the total price, displayed on the invoice.
Compliance Checklist for Traders
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Benefits of the New VAT Rules
For Suppliers: Suppliers are no longer required to collect, calculate, and remit VAT, significantly reducing their administrative burden.
For Buyers: Buyers now handle VAT declaration, making the process straightforward for both parties.
Buyers avoid paying VAT upfront during transactions.
The VAT amount is declared in their VAT return, allowing businesses to retain liquidity for operational needs.
Aligning with international best practices enhances the UAE's reputation as a premier hub for gold, diamonds, and precious metals trading.
These streamlined VAT rules make UAE businesses more attractive to global partners.
Clear VAT rules minimize calculation errors and compliance issues.
Accurate reporting builds trust between businesses and the government, fostering a more robust trading environment.
These benefits not only simplify taxation processes but also strengthen the UAE’s position as a global leader in the precious metals and gemstones sector.
Gold VAT UAE: Understanding VAT for Gold in the UAE
The updated regulations for Gold VAT UAE have streamlined the process for traders and buyers alike, making compliance simpler and more transparent. For those wondering how much VAT on gold in Dubai, the standard VAT rate remains 5%. However, under the new reverse charge mechanism, registered dealers in the UAE are not required to collect VAT at the point of sale; instead, buyers are responsible for declaring and paying VAT. To understand how to calculate VAT on gold in UAE, buyers simply need to apply 5% to the transaction value of the gold purchase and report this amount in their VAT return. This updated approach ensures that VAT for gold in UAE aligns with international standards, supporting the precious metals sector's growth and global competitiveness.
Scope of the New VAT Rule
Under Cabinet Decision No. (127) of 2024, the scope of VAT regulations for gold, diamonds, and other precious items has been expanded to ensure comprehensive coverage. This update aims to simplify processes for traders while fostering transparency in the industry.
The new rule includes the following metals:
Gold
Silver
Palladium
Platinum
These metals are covered whether traded as raw materials or components in finished goods.
The updated scope also extends to:
Natural and Manufactured Diamonds
Pearls
Rubies
Sapphires
Emeralds
This ensures clarity in taxation for both raw and processed forms of these stones.
Jewelry that incorporates precious metals and stones is included under the new rule, provided:
The value of the precious components (metals or stones) exceeds the value of other elements (e.g., non-precious metals, settings, or designs).
This criterion ensures that the regulation applies specifically to high-value items in the trading sector.
Key Benefits of Expanded Scope
Increased Coverage: Includes a broader range of items for better industry compliance.
Clarity for Businesses: Defines which items qualify under the new rule, reducing confusion.
Global Alignment: Reflects international standards, promoting the UAE's competitiveness.
Impact on the Precious Metals and Stones Sector
The updated VAT rules have brought transformative changes to the precious metals and stones sector in the UAE. Here’s a breakdown of the key impacts:
1. Increased Competitiveness in the Global Market
UAE businesses now operate with simplified VAT processes, reducing administrative hurdles.
The enhanced cash flow for buyers makes trading in the UAE more attractive to global partners.
The reduced financial burden and operational efficiency enable UAE traders to compete effectively with international counterparts.
2. Alignment with International Best Practices
The VAT rules reflect global taxation standards, fostering credibility and trust among international investors and traders.
By adopting the reverse charge mechanism, the UAE ensures its trading processes align with those of leading economies, boosting confidence in its regulatory framework.
3. Strengthening the UAE’s Position as a Hub for Precious Metals and Gemstones Trading
With clearer and more business-friendly VAT regulations, the UAE cements its reputation as a premier destination for gold, diamonds, and jewelry trade.
The updates attract international businesses to establish operations in the UAE, further solidifying its status as a global trading hub.
Compliance Requirements for Registered Dealers
A registered dealer in the UAE must:
Be registered for VAT with the Federal Tax Authority (FTA).
Engage in the trading of precious metals (gold, silver, palladium, platinum), precious stones (diamonds, rubies, sapphires, emeralds, pearls), or jewelry where the value of precious components exceeds other materials.
Under the reverse charge mechanism, buyers must:
Review the Invoice: Ensure that the supplier has not charged VAT and that both parties’ TRNs (Tax Registration Numbers) are listed.
Calculate the VAT: Determine 5% of the transaction value (e.g., AED 1,000,000 transaction = AED 50,000 VAT).
Declare VAT: Report the calculated VAT in the relevant section of the VAT return.
File the VAT Return: Submit the VAT return within the FTA's stipulated deadlines.
Legal Compliance: Non-compliance can result in penalties, including fines and suspension of trading licenses.
Accurate Reporting: Ensures the business remains in good standing with the FTA.
Reputation Maintenance: Adherence demonstrates professionalism and builds trust with trading partners.
Insights from the Ministry of Finance
The Ministry of Finance (MoF) highlighted its dedication to strengthening the UAE’s precious metals and gemstones trading industry by:
Simplifying VAT processes through the reverse charge mechanism.
Reducing administrative burdens for suppliers, allowing them to focus on business growth.
The new rule fosters a streamlined regulatory framework that supports operational efficiency.
It encourages local and international businesses to invest in the UAE’s robust trading sector.
The VAT updates align with international standards, enhancing the UAE’s reputation as a leading global trading hub.
The government continues to adopt policies that reflect evolving global market needs, ensuring sustainable growth for the sector.
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Challenges and Opportunities
The updated VAT rules for gold, diamonds, and precious metals bring both challenges and opportunities for businesses operating in the UAE. Here’s a detailed analysis:
Challenges
1.Transition Period Adjustments:
Businesses need to adapt their invoicing and accounting systems to comply with the reverse charge mechanism.
Additional training for finance teams may be required to handle VAT calculations and reporting accurately.
2.Compliance Risks:
Misunderstanding the rules could lead to errors in VAT reporting, resulting in penalties or fines.
Non-compliance with the new regulations could affect the business’s reputation and operations.
3.Increased Initial Effort:
Registered dealers must ensure all transactions, especially with new suppliers or buyers, meet the updated criteria.
Businesses may face temporary delays in operations during the adjustment phase.
Opportunities
1.Operational Efficiency:
The simplified VAT process reduces administrative burdens on suppliers, allowing them to focus on core business activities.
Buyers benefit from better cash flow management as VAT payments are deferred until they file their returns.
2.Growth Potential:
The UAE’s updated VAT rules make the market more attractive to global investors and trading partners.
Businesses gain a competitive edge through reduced operational complexity and alignment with global best practices.
3.Enhanced Market Credibility:
Transparent and clear VAT compliance builds trust with international stakeholders, boosting trade opportunities.
The UAE’s reputation as a trading hub for precious metals and gemstones is strengthened, attracting more players to the market.
FAQs about the New VAT Rules
1. Is there VAT on gold in the UAE?
Yes, VAT is applicable to gold in the UAE at a standard rate of 5%. For VAT-registered businesses, the reverse charge mechanism applies, meaning the buyer, not the seller, is responsible for declaring and paying VAT on eligible transactions. For non-registered buyers, VAT is charged directly by the supplier and included in the purchase price.
2. Can I claim VAT back on gold?
VAT-registered businesses can claim back VAT paid on gold purchases if:
The gold is used for taxable business activities (e.g., resale or manufacturing).
The VAT is properly documented in the invoices. Non-registered individuals cannot claim VAT refunds, as VAT recovery is limited to businesses involved in taxable activities.
3. Is VAT charged on gold?
Yes, VAT is charged on gold transactions at 5%. However:
For VAT-registered businesses trading in gold, the reverse charge mechanism applies, and VAT is declared by the buyer.
For non-registered individuals, VAT is charged by the supplier and reflected in the final price.
4. Is there VAT on metals?
Yes, VAT applies to precious metals such as:
Gold, silver, platinum, and palladium. The reverse charge mechanism applies to transactions between VAT-registered dealers. Non-precious metals (e.g., copper, aluminum) may also be subject to VAT if used in taxable activities, but these are typically outside the reverse charge scope.
5. What goods are exempt from VAT?
The following goods and services are exempt from VAT in the UAE:
Residential properties: Supplies of residential properties (not including commercial real estate) under specific conditions.
Certain financial services: Interest-based transactions, life insurance, and other exempt financial services.
Local passenger transport: Taxis, buses, and metro services within the UAE.
Bare land: Sales or leases of undeveloped land.
Some goods may also qualify for VAT zero-rating, such as exports and certain medical equipment.
6. Can I claim VAT on old invoices in the UAE?
Yes, VAT-registered businesses can claim VAT on old invoices if:
The invoices were issued within the last six months of the business's VAT registration.
The goods or services purchased are directly related to taxable business activities.
The invoices meet the Federal Tax Authority’s (FTA) requirements, including clear VAT breakdowns and valid supplier TRNs.
7. Who are exempted from VAT in the UAE?
Entities and individuals that may qualify for VAT exemptions include:
Charity organizations: Engaged in non-commercial, qualifying activities.
Diplomatic missions: Subject to conditions set by the UAE government.
Government entities: For specific activities as per Cabinet Decisions.
Certain small businesses, if their revenue does not meet the mandatory VAT registration threshold of AED 375,000 annually.
8. Which VAT can you claim back?
VAT-registered businesses can claim back VAT on:
Purchases for resale: Raw materials or goods intended for taxable supplies.
Operational expenses: Office equipment, utilities, and services directly linked to business operations.
Capital assets: Machinery or equipment used for production. VAT cannot be claimed on personal expenses, entertainment costs, or goods/services used for exempt activities.
9. What invoices are exempt from VAT?
Invoices related to VAT-exempt goods or services do not include VAT charges. Examples include:
Rent for residential properties.
Local passenger transport (e.g., taxis, buses, and metro tickets).
Certain financial services like interest on loans or life insurance.
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10. What is the reverse charge mechanism?
The reverse charge mechanism shifts VAT responsibilities from suppliers to buyers. Under this system:
The supplier does not charge VAT on the invoice.
The buyer calculates the VAT amount and reports it in their VAT return. This simplifies compliance for suppliers and ensures that VAT is accounted for correctly by the buyer.
11. Which businesses are affected by the new VAT rule?
The new VAT rule applies to:
VAT-registered businesses trading in precious metals (gold, silver, platinum, palladium).
Businesses dealing in precious stones, such as diamonds, rubies, emeralds, and pearls.
Jewelry retailers and manufacturers where the value of precious components exceeds other materials in the final product.
12. What items are included in the scope of the Cabinet Decision?
The scope of the Cabinet Decision No. (127) of 2024 includes:
Precious metals: Gold, silver, platinum, and palladium.
Precious stones: Natural and manufactured diamonds, pearls, rubies, sapphires, emeralds.
Jewelry: Items where the value of precious metals or stones exceeds other materials.
13. How can buyers declare VAT under the reverse charge mechanism?
Buyers declare VAT under the reverse charge mechanism by following these steps:
Check the Invoice: Ensure that the supplier has not charged VAT and that their TRN is included.
Calculate VAT: Determine 5% of the transaction value. For example, if the value is AED 1,000,000, VAT = AED 50,000.
Record in the VAT Return: Report the VAT in the Input VAT and Output VAT sections of the return.
Submit the VAT Return: File the VAT return by the due date to avoid penalties.
14. What are the penalties for non-compliance?
Non-compliance with VAT regulations can result in significant penalties, including:
Late filing: AED 1,000 for the first offense, increasing to AED 2,000 for subsequent offenses within 24 months.
Inaccurate declarations: Penalties range from 5% to 50% of the undeclared VAT amount, depending on the severity of the error.
Failure to comply: Persistent violations may lead to suspension of trading licenses or additional fines.
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