VAT on Gold and Diamonds in the UAE

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VAT on Gold and Diamonds in the UAE: Dubai, in the United Arab Emirates, is often known as the “Golden City.” Annually, sellers and merchants in Dubai buy and sell over 75 billion dollars worth of gold.

Dubai is recognized for selling some of the world’s cheapest and purest gold, making it one of the world’s most popular precious metals. Gold is regarded as a bringer of good luck and wealth in many civilizations.

It’s vital to remember that gold is a widely traded commodity, and the gold rate in the UAE is established on an international scale.

VAT on Gold and diamonds in the UAE

Gold and its goods are taxed heavily across the world, however, in the UAE, gold and its products are taxed extremely lightly, making Dubai a true gold lover’s heaven.

Previously, Dubai and the UAE sold gold tax-free based on the current gold rate in the UAE, which was a major factor in the establishment of gold souks and stores in and around Dubai.

However, beginning January 2018, the UAE has imposed a value-added tax or VAT.

In Dubai, the VAT rate on gold and gold goods is 5%, the lowest in the world. Furthermore, there is no import charge on gold raw materials such as gold bars and TT bars, making it very easy for dealers to bring gold tax-free from all around the UAE.

Tourists purchasing gold in Dubai may claim up to 85% of the total VAT returned by using the tax refund tourist scheme at locations such as Dubai International Airport.

The fundamental motivation for imposing low tax rates on gold and gold-related items in Dubai is to guarantee that the total gold trade is not harmed by the government’s new taxation plan.

The Federal Tax Authority (FTA) highlighted that the recent Cabinet decision on the gold and diamond industry’s VAT reverse charge system will only apply to business transactions between authorized dealers.

According to the reverse charge mechanism, when supplying gold, diamonds, or products with the principal component of gold or diamonds to another tax registered merchant, the latter is not required to charge VAT if the latter intends to resell the products or use them to manufacture gold, diamonds, or products with the principal component of gold or diamonds. Such supplies must be reported to the IRS by the registered receiver.

VAT Treatment on gold and diamonds

When a VAT-registered receiver buys gold or diamonds to resell, create, or manufacture gold and diamond-based items, the provider is not obligated to account for VAT or disclose it on its VAT return.

Instead, the VAT-registered receiver must account for the tax and report the output tax owing on the supply on its VAT return.

Subject to its regular input tax recovery position, the recipient will be allowed to claim VAT on the supply on the same VAT return.

As a consequence, fully taxable firms that buy gold and diamonds for resale, production, or manufacturing won’t have to pay the VAT payable on the transaction.

The mechanism is applied to the following goods

Only the following items will be covered by the scheme:

Gold
Diamonds
Products containing gold or diamonds as the primary component, such as jewelry

The mechanism will not be applied to the following goods

The process will not apply to commodities that have a zero rate of duty, such as:

exports of gold, diamonds, and items containing gold or diamonds as the primary component
precious metals investment supply

Criteria to apply the Mechanism

The following requirements must be satisfied in order to apply the mechanism to the supply of gold or diamonds:

At the time of supply, the items’ receiver must be VAT registered in the UAE.
The receiver must be acquiring gold or diamonds, or items that contain gold or diamonds as a major component.
The products must be purchased with the intention of reselling, producing, or manufacturing them into another product containing gold or diamonds as the primary component.
The items must be purchased with the intention of reselling, producing, or manufacturing them into another product using gold or diamonds as the main component.
The recipient business must have confirmed in writing that it is VAT registered at the time of delivery, that the products are being obtained for resale, production, or manufacturing, and that it will account for the VAT owed on the supply.

Areas where the Gold and Diamonds are subject to VAT in the UAE

In any of the following instances, gold, diamonds, and gold and diamond goods will be subject to a 5% tax:

Where the beneficiary of such goods is not registered for VAT at the date of supply.
When the recipient’s intent in purchasing such commodities is not to resell, develop, or manufacture goods, gems, or products with gold or diamonds as the primary component.
Where there is a supply of a product that does not contain gold or diamonds as a major component

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