Issue

Cabinet Decision No. 127 of 2024 on the Application of the Reverse Charge Mechanism on Precious Metals and Precious Stones between Registrants in the State for the Purposes of Value Added Tax ('Cabinet Decision No. 127 of 2024') was issued to replace Cabinet Decision No. 25 of 2018 on the Mechanism of Applying Value Added Tax on Gold and Diamonds between Registrants in the State ('Cabinet Decision No. 25 of 2018').

Cabinet Decision No. 127 of 2024 expands the scope of Goods on which the domestic reverse charge applies to include, in addition to gold, diamonds and jewellery made thereof, other specified precious metals, precious stones and jewellery made thereof.

This Public Clarification explains the changes to the rules as implemented by Cabinet Decision No. 127 of 2024. The Cabinet Decision is effective from 26 February 2025.

Summary

The list of Goods^[1] within the scope of the domestic reverse charge has been expanded to include precious metals, precious stones and jewellery made thereof, provided that the value of such precious metals or precious stones is higher than the value of other components ('Precious Goods').

The specified precious metals are gold, silver, palladium and platinum.

The specified precious stones are diamonds (natural and manufactured/synthetic), pearls, rubies, sapphires and emeralds.

The following conditions must be satisfied for application of the domestic reverse charge on the supply of Precious Goods:

• The Recipient of the Precious Goods ('Recipient') must be registered for VAT in the UAE.

• The Recipient must intend to resell the Precious Goods or use them to produce or manufacture Precious Goods.

• The Recipient must provide a written declaration before the date of supply confirming the following:

  • the Recipient is registered for VAT in the UAE, and

  • the Recipient intends to resell the Precious Goods or use them in the production or manufacturing of Precious Goods.

• The supplier must, before the date of supply, receive and keep the declaration from the Recipient and verify that the Recipient is registered for VAT (via the FTA's approved means).

The application of the reverse charge mechanism is restricted to the supply of the Precious Goods and does not extend to Services for the making/manufacturing of jewellery, unless the Services are part of a single composite supply of Precious Goods.

Detailed analysis

Expansion of the scope of the domestic reverse charge on precious metals and stones

The scope of the domestic reverse charge has been expanded to cover precious metals, precious stones and jewellery made of any precious metals, precious stones or a combination thereof, provided that the value of such precious metals or precious stones is higher than the value of other components.

For the purposes of the domestic reverse charge mechanism, precious metals and precious stones are defined as the following:

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

• Precious stones: Diamonds (natural and manufactured/synthetic), pearls, rubies, sapphires and emeralds.

Conditions for the domestic reverse charge

All of the following conditions must be met to apply the domestic reverse charge on the supply of the Goods:^[2]

• The Recipient must be registered for VAT in the UAE.

• The Recipient must intend to resell the Precious Goods or use them to produce or manufacture Precious Goods.

The term 'resell' refers to an activity that forms part of the business of the Recipient. This resale can occur at either the wholesale or retail level.

The phrase 'producing or manufacturing' includes both partial and full production or manufacturing processes. For instance, if a Recipient acquires semi-finished jewellery components to integrate into a final jewellery product that will be sold, the Recipient is considered to be acquiring the Goods with the intention to produce or manufacture.

• The Recipient must provide the supplier with a written declaration prior to the date of supply which states that:

  • The intention of acquiring the Precious Goods is to resell the Precious Goods or use them in producing or manufacturing Precious Goods, and

  • The Recipient is registered for VAT.

• Prior to the date of supply, the supplier must receive and keep the declaration from the Recipient and verify that the Recipient is registered for VAT (e.g. via the TRN verification tool on the FTA's website).

• The supplier shall retain evidence of the confirmation from the TRN verification tool.

Where the above conditions are met, the Recipient must account for the VAT applicable on the value of Precious Goods they received (i.e. the supplier should not account for VAT on the Precious Goods).

The supplier is required to comply with all other Tax obligations incumbent on him, including, but not limited to, the issuance of a Tax Invoice that contains the particulars under Article 59(1)(l) of the Executive Regulation.

Cases where the domestic reverse charge is not applicable

The domestic reverse charge on Precious Goods is not applicable in any of the following cases:

• Where the items supplied do not meet the definitions of 'Goods' under Article 1 of Cabinet Decision No. 127 of 2024.

• Where the Recipient is not registered for VAT in the UAE.

• Where the Recipient does not submit the required declarations to the supplier.

• Where the supply of the Precious Goods is a zero-rated direct or indirect export.^[3]

• Where the supply of the Precious Goods is out of scope, e.g. where ownership of the Precious Goods supplied for resell transfers to the buyer inside a Designated Zone.

• The supply of Precious Goods before 26 February 2025, except in the case of gold and diamonds covered under Cabinet Decision No. 25 of 2018.

Failure to submit the required declarations

In instances where the Recipient fails to submit the required declarations, the domestic reverse charge mechanism will not apply and the supplier will be required to impose VAT on the supply of the Precious Goods.

In such case, the Recipient will not be eligible to recover the input tax incurred on the purchase of the Goods, even if a Tax Invoice was received from the supplier.

Making Services/Charges

The service of making/manufacturing jewellery consisting of Precious Goods is referred to as 'Making Services' and the consideration charged for this service is referred to as 'Making Charges'.

Any Taxable Person that supplies Precious Goods and Making Services for a single price^[4] has to consider whether the supply constitutes a single composite supply^[5] of a Precious Good or multiple supplies consisting of both the Precious Good and Making Services.

If the supplier charges a single price for the Precious Good, including the Making Service, the supply will be regarded as a single composite supply of the Precious Goods if all of the following conditions are met:^[6][7]

• The supply consists of a principal component (Precious Goods) and ancillary/incidental elements, e.g. related services (including the Making Service for Gold and Diamonds from 1 January 2023, and other Precious Goods from 26 February 2025), or these components are so closely linked that they constitute a single supply which would be impossible or unnatural to split.

• The price for the Precious Goods and the related services are not charged separately;

• The Precious Goods and the related services are supplied by the same supplier.

If all of the above conditions are met, the supply of the Precious Goods (including the making services) would constitute a single composite supply which may qualify for the reverse charge mechanism if all of the requirements of Cabinet Decision No. 127 of 2024 are met.^[8]

In such a case, both the supplier and Recipient are required to retain sufficient supporting evidence, including a Tax Invoice issued by the supplier reflecting one single price for the Precious Goods (including the making services) stating that the reverse charge mechanism was applied.

If the supplier charges separate prices for the Precious Goods and for the making services, the supplier is regarded as making multiple supplies.

In such a case, the supplier is required to treat each component as a separate supply and apply the correct tax treatment to each separate component.

In instances of multiple supplies, only the VAT related to the Precious Goods may be accounted for under the reverse charge mechanism, provided all the requirements of Cabinet Decision No. 127 of 2024 are met.

Since the supply of the related services does not fall under the special reverse charge mechanism under Cabinet Decision No. 127 of 2024 in cases of multiple supplies, the supplier is required to account for VAT on these services.

Furthermore, the supplier will be required to issue Tax Invoices in respect of the Taxable Supply of making Services where such a supply is regarded as a separate supply, i.e. where the supply does not constitute part of a single composite supply.

If the Recipient is a Registrant, the Input Tax may be recovered in accordance with the general Input Tax Recovery rules.

Supplies made before 26 February 2025

The amended domestic reverse charge mechanism on Precious Goods does not have retrospective application and there are no special transitional rules in this regard.

Consequently, with the exception of gold and diamonds, the supply of Precious Goods before 26 February 2025 does not qualify for the domestic reverse charge but falls under the normal VAT rules which requires the supplier to account and report for the VAT on such supplies.

For the purposes of determining whether the supplies occurred before or from 26 February 2025, the supplier shall consider the date of supply rules as provided in the VAT legislation.