Key VAT Changes: Reverse Charge Mechanism for Precious Metals & Stones

Navigating VAT Changes: Understanding the Reverse Charge Mechanism for Precious Metals & Stones in the UAE

The UAE continues to establish itself as a global trade center, particularly in the precious metals and stones sector. To enhance tax compliance and support cash flow management, the Ministry of Finance has introduced Cabinet Decision No. 127 of 2024, which will take effect from February 25, 2025. This decision expands the Reverse Charge Mechanism (RCM) for domestic transactions involving precious metals and stones, reshaping VAT obligations for businesses in the industry.

Understanding the Reverse Charge Mechanism (RCM)

Typically, VAT is applied under a forward charge mechanism, where suppliers collect tax from buyers and remit it to the authorities. RCM reverses this process, shifting VAT responsibility to the recipient, who must declare and pay it directly.

RCM is commonly used for imported goods and services from foreign suppliers not registered for VAT in the UAE. However, this new regulation extends RCM to certain domestic transactions, marking a significant shift in tax compliance.

Previously, under Cabinet Decision No. 25 of 2018, RCM applied only to gold and diamonds. The new update now includes a broader range of precious metals and stones.

Expanded Scope of RCM

The UAE government has now broadened the coverage of RCM to include:

• Precious metals, including gold, silver, palladium, and platinum.

• Precious stones, including natural and synthetic diamonds, pearls, rubies, sapphires, and emeralds.

• Jewelry made from these materials where the precious component holds the dominant value.

This expansion aims to simplify compliance and enhance liquidity within the sector.

Key Requirements Under the New RCM Regulations

Buyer’s Responsibilities

Businesses purchasing applicable goods under RCM must submit:

• A declaration confirming that the goods are for resale or manufacturing, not for personal use.

• Verification of VAT registration status with the Federal Tax Authority (FTA).

Supplier’s Responsibilities

Suppliers are no longer required to collect VAT on transactions subject to RCM but must:

• Verify the buyer’s VAT registration status.

• Maintain proper documentation of the recipient’s declarations.

• Keep transaction records for audit purposes.

Compliance and Documentation

Businesses must ensure proper VAT accounting for RCM transactions. Any non-compliance by the buyer could shift VAT liability back to the supplier.

Benefits of the New RCM Update

• Improved cash flow management by eliminating the need for immediate VAT payments.

• Simplified compliance, reducing the VAT collection burden on suppliers.

• Alignment with international tax standards, reinforcing the UAE’s status as a leading trade hub.

Who Needs to Take Action?

If your business deals in gold, silver, diamonds, or other precious metals and stones, it is essential to prepare for these changes. Steps to take include:

• Suppliers should ensure they collect and verify required declarations before applying RCM.

• Buyers must account for VAT properly and maintain necessary documentation.

• Accountants and compliance teams should update accounting systems and train employees on the new RCM requirements.

How to Ensure Compliance

• Review transactions to determine which qualify under the new RCM regulations.

• Update accounting systems to align with the latest VAT policies.

• Maintain accurate documentation of all RCM-related transactions.

• Seek professional advice from VAT experts to ensure full compliance.

Need Help Navigating the New RCM Rules?

Understanding and implementing these VAT changes can be complex. Alwahat Accounts & Internal Audit Services specializes in VAT advisory, tax compliance, and financial structuring to help businesses seamlessly adapt to evolving regulations.

Contact us today to ensure full compliance and optimal financial planning

Disclaimer

The content of this blog is intended for informational purposes only and is based on our current understanding of tax laws and regulations. It should not be considered as professional tax advice, consultation, or a substitute for expert guidance. Neither the author nor the publisher assumes responsibility for any inaccuracies, omissions, or actions taken based on the information provided.