Reverse Charge Mechanism UAE 2025 for Precious Metals and Stones
The United Arab Emirates continues to refine its tax framework to align with global best practices and enhance compliance. A significant step in this direction is the introduction of Cabinet Decision No. 127 of 2024, which revises and expands the scope of the Reverse Charge Mechanism UAE 2025 applicable to precious metals and stones. This decision replaces the earlier Cabinet Decision No. 25 of 2018, broadening the tax landscape for entities engaged in the trading and manufacturing of these high-value goods.
Expansion of Scope
The 2024 decision extends the reverse charge mechanism beyond gold and diamonds to include a wider array of precious metals—gold, silver, palladium, and platinum—as well as precious stones such as diamonds (natural and synthetic), pearls, rubies, sapphires, and emeralds. It also covers jewellery crafted from these materials, provided their intrinsic value surpasses that of other components.
Key Compliance Conditions
To qualify for the reverse charge mechanism, stringent compliance measures must be adhered to:
- Recipient Registration: The recipient of the goods must be registered for VAT within the UAE.
- Intended Use: The recipient should have the clear intention of reselling the precious goods or using them in further production or manufacturing of similar goods.
- Written Declarations: Before the date of supply, the recipient is required to submit a formal declaration to the supplier, confirming their VAT registration and intended use of the goods.
- Supplier Obligations: Suppliers must verify the recipient’s VAT registration through approved channels and retain all relevant declarations and evidence
- Recipient Registration: The recipient of the goods must be registered for VAT within the UAE.
Composite vs. Multiple Supplies
A notable complexity arises when the supply includes both goods and making services. The VAT treatment depends on whether the supply constitutes a single composite supply or multiple distinct supplies:
- Composite Supply: If the goods and making services are closely integrated and priced as a single package, they may be treated as a composite supply, qualifying for the reverse charge mechanism, provided all conditions are met.
- Multiple Supplies: If priced separately, each element (goods and services) is treated independently for VAT purposes, and the reverse charge mechanism applies only to the goods, while standard VAT rules apply to the services.
Exemptions and Limitations
The reverse charge mechanism does not apply in several instances, including:
- Supplies that do not meet the definition of “Goods” under Article 1 of Cabinet Decision No. 127 of 2024.
- Supplies made to recipients not registered for VAT.
- Supplies where the recipient fails to provide the necessary declarations.
- Supplies considered exports subject to zero-rating.
- Supplies falling outside the VAT scope, such as those within Designated Zones.
Furthermore, the provisions do not apply retrospectively to supplies made before 15 February 2025, except in cases governed by the earlier Cabinet Decision No. 25 of 2018 regarding gold and diamonds.
Supplies Made Before 15 February 2025
An essential aspect of Cabinet Decision No. 127 of 2024 is its prospective application. The updated reverse charge mechanism comes into effect from 15 February 2025, and critically, it does not apply retrospectively. This means that supplies of precious metals, precious stones, and associated jewellery made before this date are governed by the previous VAT framework.
For clarity:
- General Rule: Any supply of precious goods before 15 February 2025 is not eligible for treatment under the new domestic reverse charge mechanism. Instead, such supplies continue to follow the standard VAT rules, where the supplier is responsible for charging, collecting, and remitting VAT to the Federal Tax Authority (FTA).
- Exception – Gold and Diamonds: The only exception pertains to gold and diamonds previously covered under Cabinet Decision No. 25 of 2018. Supplies of these goods could still be subject to the reverse charge mechanism before 15 February 2025 under the earlier regime. However, for other precious metals and stones, the new mechanism has no retroactive application.
- No Transitional Provisions: The legislation does not introduce any special transitional arrangements for supplies straddling the implementation date.
- Supplier’s Responsibility: For supplies before 15 February 2025 (excluding those covered under the earlier decision), the supplier must fully comply with regular VAT obligations—issuing tax invoices, charging VAT, and reporting these supplies in their tax returns.
Conclusion
The UAE’s revised approach to VAT on precious metals and stones signifies a move toward greater regulatory oversight and clarity. Businesses engaged in these sectors must meticulously comply with the updated requirements to benefit from the Reverse Charge Mechanism UAE 2025. Proper documentation, precise contractual terms, and rigorous verification processes are essential to ensure compliance and avoid potential tax liabilities. As the market adapts to these changes, proactive engagement with tax professionals and continuous monitoring of regulatory updates will be pivotal for sustained compliance.
