Conditions for applying reverse charge VAT in Gold and Diamond Business

What are the conditions for applying the reverse charge scheme?

The conditions to be satisfied for applying the reverse charge scheme on supply of gold and diamonds are:

• The recipient should be registered under VAT on the date of supply. The supplier has to verify the same using the TRN verification tool given by FTA. To learn more about how to verify the TRN of the recipient, you can refer our article 'How to check TRN validity in UAE'
• The recipient purchases the goods for the purpose of resale or to produce or manufacture them into another product, where the principal component is gold or diamonds
• The recipient accounts for VAT on the goods supplied

Note that the recipient should declare the above details in writing to the supplier. The template for the declaration form is available in the FTA site. In this link, under VAT, you can download the form 'Declaration by registered recipient of gold and diamonds'.

Which are the cases in which Reverse Charge scheme is not applicable?

The scheme for reverse charge on supply of gold and diamonds will not apply in the following cases:

a. Subject to VAT @ 0% on forward charge

In case of the following supplies of gold and diamonds, VAT @ 0% will be applicable, which has to be reported by the supplier in the VAT return:

• Export of gold, diamonds and products where the principal component is gold or diamonds
• Supply of investment precious metals

b. Subject to VAT @ 5% on forward charge

In case of the following supplies of gold and diamonds, VAT @ 5% will be applicable, which has to be collected and reported by the supplier in the VAT return:

• Where the recipient is not registered under VAT on the date of supply. This means that supply of gold and diamonds to consumers or unregistered businesses will still continue to be levied VAT @ 5%. The supplier has to collect VAT on supplies to consumers and report the same in the VAT return.
• Where the recipient’s purpose of purchasing the goods is not to resell, produce or manufacture gold, diamonds or products where the principal component is gold or diamonds
• Where the supply is of a product where gold and diamonds are not the principal component

Hence, while the scheme of reverse charge on supplies of gold and diamonds is available to all registered businesses, the above mentioned conditions need to be satisfied to be eligible for this scheme. Also, this scheme is not applicable in certain specific scenarios, wherein, VAT @ 0% or 5% will be applicable on forward charge. Businesses dealing in gold and diamonds need to ensure to note these exceptional scenarios.