The introduction of Value Added Tax (VAT) in UAE caused the sales of gold and diamond industry to plummet in the first quarter. The wholesale sales in Dubai fell 50 to 60 per cent in Q1 as compared to the previous year before VAT implementation. Hence, executives from the gold and diamond industry had been urging the UAE government for some relief. Their requests were answered with UAE government’s recent decision to exempt gold and diamond from VAT.
This measure is aimed at ensuring an efficient implementation of VAT while employing the best international standards. With policies like these, more corporates would be interested in a new business setup in Dubai. This step also aspires to maintain UAE’s high ranking in the ease of doing business indicators.
The VAT Reversed Charge Mechanism is for investors in gold, diamond, and precious metals. Precious metals to include silver and platinum with a purity of 99 per cent or more. They should be used in accordance with internationally accepted standards. As per the regulation, VAT on wholesale transactions would be recorded in business accounts without any actual payment. There will only be documented entries of five per cent VAT in the books of both buyers and sellers.
It will also enhance the competitiveness of the country in this sector. Additionally, it will also offer a positive environment for the growth of the country and support its position as a global hub for trade.
While the legislation may come as a relief for the gold and diamond industry, its wordings could cause some confusion. As per the legislation, ‘it applies to gold, diamonds and any products where the principal component is of gold or diamonds.’ The meaning of the term ‘principal component’ stands unclear. Could it mean the largest component by mass? Or by value?
For now, businesses are waiting for more clarifications and details. This legislation has offered a great relief to the wholesalers and retailers. It remains to be seen if newer amendments could also pass on the benefit to the end-users.
If you are looking for VAT consultants in Dubai, get in touch with us to schedule a consultation.