The implementation of Value Added Tax (VAT) in the United Arab Emirates has brought notable changes for various industries, especially in the Gold sector. It has a significant contribution to the economy of the country. However, it has gone through major challenges due to the requirement for paying VAT on Gold in UAE, posing considerable obstacles for businesses dealing in this metal.
Through this article, we will try to understand the VAT implications on gold transactions in the UAE along with updates on new VAT regulations and compliance procedures.
Value-Added Tax (VAT) in the UAE
The UAE introduced the VAT system in 2018 at a standard rate of 5% in order to expand the income sources beyond oil and contribute to a sustainable economy. Although VAT is applied across various sectors, specific regulations are customized for certain industries, including precious metals like gold and diamonds. Businesses dealing in gold and diamonds are required to navigate unique rules that can significantly impact their financial and operational strategies.
VAT on Gold in UAE
Article (3) of the Federal Decree Law on VAT and Article (36) of the Executive Regulation on VAT states that 0% VAT would be applied to the supply or import of investment-grade precious metals. This means VAT on gold would be zero-rated. Similarly, no import and export duty shall be imposed on raw gold materials, like gold bars and TT bars. However, a 5% import tax shall be applied to gold jewelry imported for sale in the UAE.
Businesses supplying gold and diamonds to a VAT-registered entity for resale or for the production of gold and diamond-based products cannot levy VAT on the supply. Instead, the recipient claims and reclaims the applicable VAT in the VAT return if they satisfy the conditions for input tax recovery.
Thus, the application of VAT on Gold in UAE is important for diversifying the income of the country beyond oil, thereby encouraging a more sustainable economy.
Regulations concerning VAT on Gold in UAE
In the year 2024, the UAE made significant changes to VAT regulations concerning gold. These were:-
- VAT exemptions: Only gold jewelry of 99% purity or higher that meets specific conditions are exempt from VAT in the UAE. However, this exemption is limited to businesses registered in the UAE with the intention to strengthen the UAE’s capability in the global gold market, thus highlighting the importance of operating within the regulatory frameworks of the government.
- Documentation requirements: To qualify for VAT exemptions, businesses are required to maintain systematic records, including invoices and certificates of legitimacy.
The Cabinet Decision No. 25 of 2018 amended the VAT laws for commercial dealers in gold and diamond jewelry, introducing a reverse charge mechanism for the supply of gold, diamonds, and their jewelry.
VAT Reverse Charge Mechanism on Supply of Gold in the UAE
Article 1 of Cabinet Decision No. 25 of 2018 defines that a registered supplier of gold cannot charge VAT on the supply if the following conditions are met:
- The recipient is VAT-registered.
- The recipient provides a written declaration to the supplier confirming that,
- a) The received gold will be used for resale or to manufacture other gold items.
- b) The recipient is registered for VAT on the date of supply.
- c) The recipient will calculate the tax on the value of the goods they receive.
If the following conditions are met dutifully, the recipient will be responsible for all tax obligations related to the supply and can apply the reverse charge. Nevertheless, the new VAT Public Clarification (VATP029), issued in June 2022, defines that the special reverse charge mechanism applies only to goods, not related services. For instance, if both gold items and related services are supplied, it needs to be determined whether it is a single combined supply of gold or multiple supplies of goods and services.
VAT on Single Composite Supplies of Gold
When a single price is charged for a gold item, which includes the making charge, it would be treated as a single composite supply. The conditions for the same are as follows:-
- The supply of the gold item and the making service cannot be separated.
- If both the elements, the gold item and the making service, are provided by the same supplier.
If the above requirements are satisfied, the entire supply can qualify for reverse charge treatment. In addition, both the supplier and recipient are required to keep proper records including a valid tax invoice mentioning one total price for the gold item and that the reverse charge mechanism is applied.
VAT on Multiple Supplies of Gold Items
If the gold items and the making service are charged separately, they would be treated as multiple supplies. In this case, the supplier is required to deal with each part separately and apply the correct tax rules individually.
For multiple supplies, only the VAT charged on the gold items can qualify for the reverse charge mechanism, provided all requirements of Cabinet Decision No. 25 are fulfilled.
Furthermore, if the making service is treated as a separate supply, the supplier must ensure to issue valid tax invoices for the same including the date of issue and the date of supply. If the recipient is a VAT-registered entity, they can reclaim the input tax as per the standard recovery rules.
Impact of Gold VAT UAE on traders and tourists
The imposition of VAT on Gold in UAE has significantly affected gold traders and tourists in the country. How? Let’s find out –
Impact on gold traders
When a gold bullion with 99% purity is sold by a UAE-registered gold trader to another UAE-registered business, the transaction shall be VAT-exempted. However, the recipient of the gold is required to meet all documentation requirements. This allows them to apply VAT through a reverse charge mechanism, ensuring no cash outflow at the point of sale.
Impact on tourists
Tourists who make a purchase of gold and related products in the UAE would have to pay a 5% VAT, one of the lowest rates worldwide.
VAT refund for Tourists
Buying gold from the UAE gives tourists the right to claim a refund of VAT paid on the gold. In simple words, they are eligible to receive 5% VAT paid on the purchase of gold or gold jewelry. However, to claim the refund, they need to fulfill certain conditions, such as –
- Purchase gold from a registered retailer who is a part of the VAT refund scheme in the UAE.
- Provide valid receipts and travel documents while claiming a refund.
- Appeal for a refund at designated points in airports or other exit points.
This refund system facilitates additional savings for tourists, thereby strengthening the attraction of Dubai, UAE as a destination for gold shopping.
Here’s how Shuraa Tax can help
Shuraa Tax Consultants and Accountants are committed to delivering tailored services to the specific needs of clients. They have a team of tax professionals who possess a wealth of expertise and knowledge that ensures seamless navigation of the UAE’s VAT landscape and a hassle-free experience in addressing VAT requirements.
For comprehensive assistance and reliable information on Gold VAT UAE, visitwww.shuraatax.com or reach out to their experts at [email protected] for personalized consultation and guidance. Connect with Shuraa Tax today and schedule a consultation.
