In brief
The UAE Ministry of Finance has issued Cabinet Decision No. 127 of 2024 (referred to as 'the decision') expanding the application of the reverse charge mechanism to include precious metals and stones traded between taxable persons in the UAE. The provisions of this decision will come into effect on 25th February 2025.
In detail
Cabinet Decision No. 127 of 2024 was published on 27th December 2024 in the Official Gazette Issue No. 790 and will take effect on 25th February 2025. This new decision repeals the previous Decision No. 25 of 2018 on the application of VAT on gold and diamonds among VAT registered dealers.
The decision introduces significant changes to the VAT treatment of precious metals and stones, extending the reverse charge mechanism to cover a broader range of transactions between VAT-registered businesses in the UAE.
Objective: This amendment aims to streamline VAT processes, enhance the competitiveness of the UAE's precious metals and stones market, and align with international best practices.
Expanded scope: The reverse charge mechanism now encompasses transactions involving gold, silver, palladium, platinum, natural and synthetic diamonds, pearls, rubies, sapphires, and emeralds. This includes jewelry made from these materials, provided the value of the precious components exceeds that of other materials used.
Mechanism: VAT-registered suppliers are not required to charge and collect VAT on supplies of these goods to VAT-registered customers. Instead, the VAT-registered customers must calculate and declare the VAT on their purchases in their VAT returns.
Compliance: VAT-registered businesses dealing in the specified precious metals and stones should familiarize themselves with the new reverse charge mechanism and adjust their accounting practices accordingly.
Documentation: Proper documentation is essential to ensure compliance, including maintaining records of transactions and VAT calculations as per the new decision.
Cabinet Decision No. 127 of 2024 represents a significant update to the VAT treatment of precious metals and stones in the UAE, aligning with international best practices and supporting the growth of the industry.
The primary differences between the repealed Cabinet Decision No. 25 of 2018 and the newly introduced Cabinet Decision No. 127 of 2024 are outlined below:
| Topic | Cabinet Decision No. 25 of 2018 | Cabinet Decision No. 127 of 2024 |
| Scope of the reverse charge mechanism | The reverse charge mechanism is applicable to gold, diamonds and any products of which the principal component is of gold or diamonds. | The reverse charge mechanism now encompasses transactions involving:
|
| Written declarations | The recipient submits a single written declaration stating the use and resale of the goods. | The recipient is required to submit two written declarations:
|
| Supplier's responsibility | The supplier bears joint responsibility with the recipient if they know or should have known that the recipient is not registered. | The supplier is not required to bear joint responsibility but is responsible for keeping the declarations and verifying the recipient's registration. |
| Application in case of non-compliance | The supplier and recipient bear joint responsibility if the supplier knows that the recipient is not registered. | If the recipient does not submit the declarations, the mechanism does not apply, and the supplier is responsible for the tax. |
| Details of exceptions | The application is excluded if the supplier knows that the recipient is not registered or did not verify their registration. | Focuses only on declarations as a basic condition for applying the mechanism, without mentioning the supplier's responsibility for verification. |
The takeaways
Taxable persons whose business involves supply of gold, diamonds and other precious metals and stones should review their current VAT treatment adopted to the making charges, assess whether the current treatment is in line with new Cabinet Decision, and take action to comply with the new requirements within the effective date of 25th February 2025.
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New Cabinet Decision on implementing VAT through the Reverse Charge Mechanism for precious metals and stones in the UAE
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