While answering questions about various VAT related issues, FTA on Wednesday said that the recently introduced VAT reverse charge mechanism on precious items such as gold and diamond is only applicable to commercial transactions/trading of these items between registered dealers.
VAT on Gold and Diamonds in UAE
Supplies by a registered VAT dealer to another registered dealer
As per the VAT rule, registered dealers trading in gold and diamonds and/or products made of these metals shall not charge VAT on supplies made to other registered merchants, as long as the recipient intends to use the inputs for manufacturing of gold/diamond products or to resell further. The tax in such cases will be paid by the registered recipient on the reverse charge basis.
The suppliers will not have to account for VAT on such supplies while filing their VAT returns. The recipient will pay the tax directly to the government and will also be eligible to recover the VAT on such supplies on the VAT return, given that the supply is eligible for input tax recovery.
As mentioned above, the reverse charge mechanism is applicable only on supplies that meet the following conditions:
- The recipient must be registered under VAT in UAE
- The supply must involve gold, diamond or products made of these metals
- The recipient must intend to use the goods for reselling, or producing/manufacturing of jewellery and other products from these items.
- The recipient must provide all this in writing
- The supplier must obtain this written declaration from the recipient before making the supply
- The supplier, on its own end, must confirm that the recipient is, in fact, registered for the VAT at the date of supply.
Supplies by a registered dealer to an unregistered person
A registered dealer of gold or diamond or products made of these metals can claim a recovery of the VAT paid on inputs while filing their VAT return.
A registered dealer shall charge 5% VAT on the supply of gold/diamond/jewellery to an unregistered person or consumer and forward the tax to the government. That means the end consumer is liable to pay the VAT on gold or diamond jewellery.
The above rules apply to gold, diamond and any product where gold or diamond or both have been used as the principal component.
The reverse charge mechanism does not apply to the supply of goods that are under the zero-rate category of the VAT. This includes supplies of precious metals for investment purpose and exports of gold, diamonds and jewellery made of these metals.