UAE gold shoppers will feel no impact from VAT rule change

Dubai: Gold and jewellery shoppers in the UAE will not face any extra costs from the new VAT rules issued by the Ministry of Finance late last week. They will continue to pay the 5% VAT on their purchases, which they have been doing since early 2018. (Tourists to the UAE won’t have to pay even the 5% on these buys, as they can reclaim at the time of exit from the country.)

“It’s clear that there will be no additional price impact on the shopper going to a jeweller in the UAE,” said Girish Chand, Senior Partner at MCA Management Consultants.

Jewellery retailers moved quickly over the weekend to reassure shoppers - residents and tourists - that nothing has changed for them after the UAE decision to apply the ‘Reverse Charge Mechanism’ to include precious metals and stones among VAT-registered businesses in the UAE.

Gold prices remain stubbornly high at $2,689 an ounce, while the UAE gold rate for a gram of 22K is at Dh301.75 after starting the year at Dh294.5.

“There is no higher cost for shoppers from the revised VAT rules for businesses in precious stones,” said a bullion dealer. “It’s more to do with the cash flow management of these businesses rather than anything at the shopper level.”

Jewellery retailers as ‘tax collectors’

But, for the UAE’s gold and jewellery trade, the new UAE rules will make their cash flow and tax compliance processes that much more smoother.

“As per the new method, retail jewellers in the UAE collect the tax - the VAT - from their customers,” said Joy Alukkas, Chairman and Managing Director at Joyalukkas, which operates one of the biggest jewellery store networks in the UAE. “In effect, we will be acting as a tax collector on behalf of the government.

“The proposed rules reduce the administrative burdens at the jewellery wholesale and trading level and foster business growth in UAE.”

The gold and jewellery sector represents one of the key sectors for the UAE economy, and where possible, the UAE authorities have made ease of doing business a priority. In announcing the VAT rule changes, the Ministry of Finance emphasizes the ‘government's ongoing commitment to supporting the precious metals and gemstones trading sector in the country’.

What is new VAT rule on precious stones?

From now on, VAT-registered suppliers in the UAE will no longer be responsible for charging and collecting VAT on goods sold to VAT-registered business customers, essentially made up of wholesalers and retailers.

Instead, the VAT-registered customer - say, the gold retailer - will be responsible for calculating and declaring the VAT on their purchases and reporting it in their VAT return.

“Say on a Dh100 transaction, the bullion seller will not charge VAT to the retailer,” said Chand. “Under the new rules, it will be an ‘out of scope transaction’.

“The jewellery retailer will show the VAT liability of Dh5 payable in his return and in the same return claim the VAT credit of Dh5. So, there is no cash flow impact for the buyer, and only reflects the debit and credit of Dh5 in the return.”