UAE Issues VAT Legislation to Ease Gold, Diamond Trade Slumps

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By Matthew Kalman

The United Arab Emirates has published legislation introducing a value-added tax reverse-charge mechanism for the wholesale trade in gold and jewelry.

The legislation, dated May 22, was introduced several months after the country instituted a 5 percent VAT, causing sales to plummet in the gold and diamond industry. The area accounts for about a quarter of all Dubai’s non-oil foreign trade, and jewelry executives have been urging the government to offer relief.

Under the reverse-charge mechanism, VAT on wholesale transactions is recorded in business accounts without any actual payment. This is intended to ease cash flow without affecting the retail purchaser’s final tax liability.

“This constitutes an important decision for the diamond and gold sector,” Thomas Vanhee, founding partner at Aurifer tax advisers in Dubai, said in an email May 29. He noted that “retail sales of gold and diamonds are still fully subject to VAT at five percent,” while the import and sale of precious metals for investment are already zero-rated.

The law is effective from June 1 and applies when both the supplier and purchaser are VAT-registered and licensed to conduct the relevant business.

In transactions involving “gold, diamonds and any products where the principal component is of gold or diamonds,” and where “the acquisition of the goods is for the purpose of resale or use to produce or manufacture any of the goods,” the recipient “shall calculate the tax on the value of the goods supplied to him and shall be responsible for all applicable tax obligations related to the supply and for calculating the due tax in respect of such supplies,” the law states.

Bringing Relief

“Importantly, the buyer needs to declare in writing that he can buy with application of the reverse charge. Buyer and seller are also potentially jointly liable for the VAT applicable on the sale of these diamonds or gold,” Vanhee said. “Rumours have it that the gold lobby in Saudi Arabia is requesting similar relief.”

Saudi Arabia also introduced VAT in 2018. The four remaining Gulf Cooperation Council countries are expected to introduce VAT by Jan. 1, 2019.

Shiraz Khan, senior tax adviser at Al Tamimi and Co. law firm in Dubai, said in a May 29 email the legislation will help ease cash-flow issues for businesses in the sector.

It means the “onus to account for VAT on the supply of diamond and gold will shift from the investor and wholesaler to the VAT registered manufacturer or retailer,” Khan said.

Big Questions

“There remains information outstanding from the Ministry of Finance that is to be revealed,” said a spokesperson for the Dubai Multi Commodities Center, who declined to comment further.

While the legislation may ease some issues for the UAE’s jewelry industry, its wording may create new problems, warned Jeremy Cape, tax and public policy partner at Squire Patton Boggs law firm in London.

“The cabinet decision is not well drafted,” Cape said by email May 29. “It applies in relation to ‘Gold, diamonds and any products where the principal component is of gold or diamonds.’ What does ‘principal component’ mean? Largest component by mass? By value? From the perspective of the customer?”

“The question of whether VAT is chargeable by the supplier or not may also require an analysis of whether a supplier was aware ‘or was supposed to be aware’ of a recipient’s non-registration,” he said. “It’s generally not a good idea for a tax analysis to depend on awareness or hypothetical awareness. I see much trouble ahead for suppliers in applying this cabinet decision to gold and diamonds.”

To contact the reporter on this story: Matthew Kalman in Jerusalem at

To contact the editor responsible for this story: Penny Sukhraj at

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