Cabinet Decision on VAT rules between Gold and Diamonds between Registrants in the State
Cabinet Decision No. (25) of 2018 on the Mechanism of Applying Value Added Tax on Gold and Diamonds between Registrants in the State
The United Arab Emirates (UAE) Federal Tax Authority (FTA) has published recently approved Cabinet Decisions on the Value Added Tax (VAT) treatment of gold and diamonds.
This Decision specifically relates to VAT treatment of the supply between VAT registered businesses of gold, diamonds, and any products where the main component is of gold or diamonds, where the buyer of the supply intends to use the products for resale or to produce new gold or diamond products. The decision will be effective as of June 1st, 2018.
According to the Decision, when a supplier makes a supply of such gold and diamond products to a VAT registered business which is authorized to resell those products or use them to produce new gold or diamond products, the supplier will not calculate tax on this supply and instead the recipient will be responsible for calculating the tax on the supply and all applicable tax obligations.
A written declaration from the recipient will be required in order for the supplier to apply this VAT treatment.
This Decision only effectively applies to wholesale supplies of gold and diamond products. Sales of jewellery to the final consumer remain subject to VAT at 5%, and sales of investment metals remain subject to the zero rate as mentioned in the Executive Regulations. This new approach is designed to provide relief to the cashflow burden of VAT on the wholesale gold and diamond market within the UAE.
Businesses operating in this sector should start taking action to request the required declarations from their customers, as well as re-configuring their ERP systems, to enable them to apply the new VAT accounting approach from 1 June onwards