The implementation of VAT in the UAE has brought about significant changes for various businesses, impacting the gold and diamonds sector, a crucial component of the national economy. This sector, in particular, experienced adverse effects as businesses dealing with gold and diamonds were required to pay VAT at the time of purchase, with the ability to recover it only upon filing returns.
This practice led to severe cash flow and liquidity challenges for these businesses. This article covers VAT on diamond and gold with a brief illustration along with new VAT regulations and Now consultant services for VAT Compliance In UAE.
Value Added Tax on Diamond and Gold
In scenarios where a business supplies gold and diamonds to a VAT-registered individual intending to resell the goods or use them in the production of gold and diamond-based products, the supplier is relieved from charging VAT on the supply.
Instead, the onus falls on the recipient to report and account for the applicable VAT in their VAT return. The recipient can recover this VAT in the same return, provided they meet the conditions for input tax recovery.
Example:
If ABC Jewel LLC provides diamonds valued at AED 10,000 to the registered entity GemGlow Jewels for resale, JewelCraft Emporium is exempt from imposing a 5% VAT on the supply. GemGlow Jewels are then responsible for reporting the VAT due (i.e., AED 500) in their VAT return and can recover this amount in the same return. This arrangement effectively spares GemGlow Jewels from incurring any cash outflow in connection with the purchase of diamonds.
New VAT Regulations for Gold and Diamonds
The recent adjustment in the VAT application for the trade of gold and diamonds among licensed entities brings relief to the industry. The earlier practice of forward charging VAT, where the supplier collected VAT at the time of the transaction, led to cash flow constraints for purchasing firms.
This has now transitioned to a reverse charge mechanism, allowing recipients to declare and reclaim VAT payable on the sale in the same VAT return while the seller does not recover VAT on the sale. This shift ensures that businesses buying gold and diamonds will no longer face cash flow issues due to VAT implications.
What items are included in this program?
The items eligible for the new VAT regulations include:
- Gold
- Diamonds
- Products predominantly composed of gold or diamonds
Now Consultant Services
To better understand VAT on gold and diamond purchases in the UAE, Now Consultant provides a comprehensive road map for the required VAT process. The expert team of Now Consultants provides services to a wide range of VAT Services in UAE, encompassing VAT registration, VAT return filing, VAT audit, VAT refund, VAT accounting, and VAT deregistration.
FAQs:
Does a Gold Bar Include VAT?
In the UAE, gold bars are regarded as investable assets and are not subject to VAT. Gold bars are not subject to this tax, unlike gold jewelry.
Is There VAT on The Reselling of Gold In The UAE?
No, when a business sells gold or diamonds to a VAT-registered person in the UAE for the purpose of resale, VAT is not applicable to the supply.
