Shoppers at Gold Souq in Deira, Dubai. Image Credit: Virendra Saklani/Gulf News

Abu Dhabi: Khalid Ali Al Bustani, the Director-General of the UAE’s Federal Tax Authority, on Wednesday said cabinet’s decision to decrease the impact of VAT on gold and diamond sector would allow the industry to thrive.

“This Decision from the Council of Ministers builds on the government’s efforts to facilitate the implementation of the tax system in the UAE, ensuring its consistency with the highest international standards. The Decision also supports the local gold and diamonds sector, and ensures its stability and competitiveness,” he said.

The Decision also improves cash flow among registered suppliers of gold and diamonds, reduces their tax burden, helps them maintain smooth commercial operations, and cements the UAE’s status as a leading global hub for the gold, diamond and jewellery trade sector, he said.

The decision, announced on May 1, rolls back the 5 per cent Value Added Tax (VAT) on gold and diamond sectors at the wholesale level. As per the reverse charge mechanism, registered dealers shall not charge VAT when supplying another tax registered merchant with gold, diamonds or products where the principal component is of gold or diamonds, as long as the latter intends to resell such products, or use them to manufacture gold, diamonds or products where the principal component is of gold or diamonds. The registered recipient must include such supplies in his tax returns.

The Cabinet Decision maintains that Taxable Persons are generally entitled to deduct the tax they incur on their inputs in their tax returns; hence registered gold and diamonds recipients can recover the tax they incurred on their purchases in the same tax return in which they calculate their due taxes, thus maintaining liquidity and cash flow.

Non-registered businesses are still required to pay the five per cent VAT on their purchases of gold and diamonds. The tax due will be stated in the tax invoice issued by the registered merchant, who, in turn, pays it forward to the FTA.