The UAE recently updated its VAT regulations on B2B transactions involving precious metals and stones. The cabinet decision issued by the Ministry of Finance, introduces significant changes aimed at streamlining tax procedures and enhancing the competitiveness of the trading sector.

The new decision expands the application of the Reverse Charge Mechanism to include a broader range of precious metals and stones. Under this, the responsibility for accounting for VAT shifts from the supplier to the buyer in B2B transactions.

This means that VAT-registered businesses supplying specified goods are no longer required to charge or collect VAT from other VAT-registered customers. Instead, the buyer must calculate, declare and report the VAT in their tax returns.

The updated rules apply to:

Precious metals: Gold, silver, palladium, and platinum.

Precious stones: Natural and manufactured diamonds, pearls, rubies, sapphires, and emeralds.

Jewellery: Items with these precious materials, provided that the value of the precious metals or stones exceeds the value of other components.

Who bears the cost of VAT in B2B transactions?

When it comes to gold or diamonds, the VAT responsibility largely depends on the Reverse Charge Mechanism (RCM). Under this:

The buyer, if VAT-registered in the UAE, declares and pays VAT directly to the Federal Tax Authority (FTA), rather than the seller collecting it.
Businesses purchasing these goods for taxable purposes - resale or manufacturing - can reclaim the VAT as input tax in their VAT returns. This ensures that VAT does not become a financial burden during intermediate transactions.

Thus, the cost of VAT does not directly impact sellers or buyers in the supply chain as long as the buyer is eligible to recover the input tax.

Will shoppers face higher jewellery prices?

The new VAT rules are designed to maintain the status quo for consumers, ensuring no significant increase in jewellery prices. Here's why:

B2B VAT neutrality:
Since businesses can recover VAT paid on inputs, the new rules do not add cumulative tax burdens along the supply chain. The final price of jewellery remains unaffected by upstream VAT accounting mechanisms.

Retail VAT remains unchanged
Consumers continue to pay the standard VAT rate of 5% on the retail price of jewellery, as mandated by UAE law. The final retail price reflects the value added at each stage of production, not an accumulation of unrecovered VAT.

Competitive market dynamics
The UAE's jewellery market is highly competitive, encouraging retailers to absorb operational efficiencies and ensure attractive pricing, further mitigating any potential cost implications.

Benefits of Cabinet Decision No. (127) of 2024 on VAT

Simplified compliance
The RCM reduces administrative burdens on sellers by shifting VAT reporting responsibilities to buyers, streamlining tax compliance in the supply chain.

Improved cash flow
Buyers manage VAT payments directly, allowing them to reclaim input VAT without financial strain. This enhances liquidity for businesses engaged in the trade of high-value goods like precious metals and stones.

Aligned with global practices
The UAE’s approach reflects international VAT standards, enhancing its appeal as a global hub for precious metals and gemstones.

The changes introduced by Cabinet Decision No. (127) of 2024 offer significant benefits to businesses while ensuring that consumers face no additional costs when purchasing jewellery. By leveraging the Reverse Charge Mechanism, the UAE’s VAT framework continues to support economic competitiveness and compliance efficiency without disrupting the retail market.

For consumers, the 5% VAT on jewellery purchases remains unchanged, ensuring pricing stability. For businesses, the new rules enhance clarity and liquidity, fostering a more robust trading environment in precious metals and stones.

Umais Butt, Special to Gulf News

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