VAT on Gold and Diamonds Businesses in UAE

When a business supplies gold and diamonds to a person registered under VAT, who is purchasing the goods for resale, or to produce or manufacture gold and diamond based products, the supplier is not required to charge VAT on the supply. Instead, the recipient has to account for the VAT due on the supply and report this VAT due in their VAT return. The recipient can also recover VAT on the supply in the same VAT return, provided it meets the conditions for input tax recovery. You can learn more about the conditions for input tax recovery in our article 'Checklist for input tax recovery'.

For example: A One Gold and Diamonds LLC supplies gold for value of AED 10,000 to a registrant, Razzaq Jewellery, who is purchasing the gold for resale purpose.

Here, A One Gold and Diamonds is not required to charge VAT @ 5% on the supply. Instead, Razzaq Jewellery has to account for the VAT due, i.e. AED 500 and report the same in their VAT return. Razzaq Jewellery can also recover this VAT in the same VAT return. This means that in effect, Razzaq Jewellery does not have to incur any cash outflow on account of the purchase of gold.

New rule for VAT on gold and diamonds

Previously, when a business registered under VAT supplies gold and diamonds to another registrant, the supplier was liable to collect VAT on the supply from the recipient. The recipient was eligible to recover input tax on the supply only at the time of filing of VAT return. This led to cash flow issues for registered businesses purchasing gold and diamonds.

Which goods will be covered under this scheme?

The goods covered under this scheme are:

• Gold
• Diamonds
• Products where the principal component is gold or diamonds. For example: Jewellery

Hence, the change in VAT applicability on supply of gold and diamonds among registered businesses is certainly a relief to the sector. The earlier applicability of VAT on forward charge, wherein, VAT is collected by the supplier at the time of supply, led to cash blockage for businesses purchasing gold and diamonds. This has now been changed to reverse charge, wherein, the supplier will not collect VAT on the supply and the recipient can report the VAT due on the supply as well as recover input tax on the supply in the same VAT return. This ensures that in effect, there is no cash blockage on account of VAT for businesses purchasing gold and diamonds. In our next article, we will learn about the conditions to be satisfied to be eligible for this scheme and the exceptional scenarios where this scheme is not applicable.

Read more about UAE VAT

UAE VAT Return, VAT in UAE, How Does VAT System Works, Frequently Used Terms in VAT, VAT Exempt Supplies in UAE, VAT Return Form 201, Tax Audit under VAT in UAE, Supply under UAE VAT, Supply of Goods and Services in UAE VAT, Input Tax Recovery under VAT in UAE, VAT Return Filing in UAE, VAT Return Filing Period in UAE, Tax Agent under UAE VAT

Reverse Charge

Reverse Charge Supplies in VAT Form 201, VAT Reverse Charge Mechanism, Conditions for applying reverse charge VAT in Gold and Diamond Business

VAT Calculator

VAT Calculator, How to calculate VAT under Profit Margin Scheme

VAT on Supply

VAT on Supply of Charitable Buildings, VAT on supply of commercial property, VAT on supply of mixed use developments, VAT on supply of bare land