The imposition of VAT on diamond and gold business in UAE can be considered to be a major change experienced by the jewelry industry. The sector has been hit hard by the change in the VAT process as the businesses have to pay VAT while purchasing diamond and gold. However, they have the option to recover the VAT paid at the time of filling the income tax returns. Owing to this, the cash flow and liquidity issues have faced some severe problems in the fast few months. However, the FTA has decided to change the charging mechanism for the registered jewelry business in UAE.

Details of VAT on Gold and Diamond

When a registered manufacturer is buying gold and diamond from another source supplying the metals, the supplier should not charge VAT at the time of supply. Instead, the manufacturer or the re-seller has to report for the VAT at the time of income tax return. Here, the recipient can also opt for VAT recovery at the time of return if only they meet the conditions under tax recovery rules.

New Rules put on VAT for Metals

As per the previous rule, when one registered VAT supplier would supply gold and diamonds to another supplier, the supplier was supposed to collect VAT from the other person. In addition, the receiver was supposed to recover tax for the supply at the time of the VAT tax return. Due to this, there has been a problem in cash flow for the registered businesses when they wish to purchase gold and diamonds.

Details of good under the scheme

Metals like diamonds, gold and the component containing these metals would be considered under the VAT scheme. The recent change in application of VAT on the registered business dealing with diamond and gold has a great relief to the businesses running in the sector. However, the scenario has changed and a reverse charge has been applied as per which the supplier is no more viable to collect VAT from the recipient. After this, the recipient will report about VAT due at the time of income tax return of the same. This will help ensure that there is smooth cash flow for VAT on the businesses dealing with gold and diamonds.

Goods not included in VAT mechanism

The goods subject to zero-rate is not included in the new VAT charge applicable.

  • Export of diamond, gold and jewelry containing diamond and gold
  • Supply of investment relating to precious metals

What Conditions should be Considered to Apply Mechanisms on Suppliers?

  • The receiver of the product should be a registered business person with VAT in UAE at the time of supply.
  • The condition applies only to the purchase of gold, diamond, and items containing diamond and gold.
  • The receiver must want to purchase the goods to resell or produce to another product considering one of the components to be gold or diamond.
  • The receiving business must have confirmation of registration for VAT at the time of supply to get goods for manufacturing or reselling purposes. Here, the VAT would be due at the time of supply.

What are the obligations imposed on suppliers?

It is important for the supplier to have information about the following facts

  • Getting a declaration from the receiver
  • The receiver should be registered under VAT rules as per validation given by FTA

Is diamond and gold items subjected to 5% VAT?

The gold, diamond and the items containing the metals should be subjected to the following conditions

  • Check whether the receiver of the metal is registered for getting VAT at the time of supply
  • Check the item is meant for reselling, manufacturing or others made from gold or diamond and even the principal item should contain either diamond or gold

For clarifying all your queries about VAT, company incorporation, VAT registration, return filing and more, GCC Filings is a great option by all means.

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