Mastering RCM for Precious Metals and Stones in the UAE
The UAE, being a global hub for trade, has made strong its position in the industry of precious metals and stones. To become competitive and align with best international tax practices, the Ministry of Finance of UAE has issued Cabinet Decision No.127 of 2024 with the effective date of implementation from 25th February 2025. This cabinet decision updates the Reverse Charge Mechanism (RCM) for domestic transactions related to precious metals and stones. This step is for boosting the industry to manage the cash flow of the business by applying a Reverse Charge Mechanism for local transactions.
In this blog, we will explore the details of significant updates, key features and their implications for businesses operating in the industry of precious metals and stones.
What is the Reverse Charge Mechanism (RCM)?
Generally, VAT applies to the forward charge mechanism whereby the VAT is charged by the supplier and collected from the customer. Under the Reverse Charge Mechanism, the responsibility of VAT is shifted from supplier to customer whereby the customer is responsible for reporting the VAT to the authority. In most of the cases, RCM applies where the UAE registrants import goods or services to UAE and since the supplier is a foreign entity which is not registered for VAT in the UAE, the VAT liability is shifted from supplier to customer. There are certain cases, where the same concept applies to domestic transactions.
Previously, under Cabinet Decision No. 25 of 2018, domestic transactions happening for gold and diamond were eligible for domestic RCM. However, the new cabinet decision expands the scope to certain other precious metals and stones.
Expanded Scope of the RCM
The new decision expands the range of goods covered for the application of RCM including;
- Precious metals: Gold, silver, palladium, and platinum
- Precious stones: Natural and synthetic diamonds, pearls, rubies, sapphires, and emeralds.
- Jewelry: Jewelry items made from the above precious materials, given that the value of the previous components exceeds that of other materials used.
This move from the UAE authority aims the simplify VAT compliances for transactions within the industry and help the business to maintain the cash flow.
Key Updates Introduced by Cabinet Decision No. 127 of 2024
1. Recipient Declarations
The customer (recipient of goods specified above) shall submit two written declarations to apply the Reverse Charge Mechanism
- Confirmation letter stating that the goods are purchased for reselling purposes or for manufacturing, not for own consumption.
- Confirmation of the status of VAT registration with the Federal Tax Authority (FTA). The recipient must account for the VAT and the supplier shall take the confirmation and verify the status of VAT registration of the recipient of the goods.
2. Supplier's Responsibilities
Once RMC applies, the supplier treats the transaction as outside the scope of VAT and is no longer liable to account for VAT. However, they must;
- Verify the recipient’s VAT registration.
- Maintain records of the submitted declarations.
3. Compliance and Documentation:
- Businesses must make sure that documents relating to the RCM have been maintained and the accounting system is updated by applying RCM for the relevant transactions.
- Non-compliance by the recipient makes the supplier liable for VAT. Any compliance by the recipient of the goods makes the supplier liable for VAT
Benefits of the Reverse Charge Mechanism
The updated RCM offers several advantages to businesses:
- Cash Flow Efficiency: The application of RCM improves the healthy cash flow of the customer since they do not need to pay VAT for the transaction. Since the goods are for reselling purposes, the final VAT liability is transferred to the consumer. This makes positive cash flow for the industry.
- Simplified Compliance: VAT and accounting become more simplified for tax registrant entities in the precious metals and stones industries.
- Global Alignment: This cabinet decision aligns UAE’s domestic tax law with international standards and emphasizes UAE as a global market.
Who Needs to Act?
Businesses dealing in gold, silver, diamonds, and other precious metals and stones must prepare for these changes. Specifically:
Suppliers: Make sure that the relevant declarations are collected and verified from the customer for each transaction where RCM is applied.
Buyers: Account VAT in the buyer’s return and keep relevant documentation relating to the transactions where RMC applied.
Accountants and Compliance Teams: Update internal systems and train staff to implement the RCM changes effectively. The accounting and compliance teams must be trained on the application of RCM and documentation requirements for every transaction.
Steps to make sure Ensure Compliance
1. Review Transactions: Identify whether transactions involving the qualified goods are eligible for application of RCM or not.
2. Update Accounting Practices: The businesses are required to make internal accounting policies to align the new decision of the Reverse Charge Mechanism (RCM).
3. Maintain Documentation: The key step is proper recording of transactions in the VAT returns and maintaining the proper documentation for every transaction where RCM is applied.
4. Seek Professional Advice: Wherever there is a doubt or further clarity required, make sure advice is taken from VAT experts like Flyingcolour Tax and Accounting Services.
Conclusion
The new announcement of the Ministry of Finance through Cabinet Decision No.127 of 2024 marks significant shifts in VAT compliance for industries dealing in precious metals and stones. This streamlines the UAE VAT with international best practices and gives flexibility to businesses with simplified compliance and positive cash flow.
To learn more about RCM for Precious Metals and Stones in the UAE, book a free consultation with one of the Flyingcolour team advisors.
Disclaimer: The information provided in this blog is based on our understanding of current tax laws and regulations. It is intended for general informational purposes only and does not constitute professional tax advice, consultation, or representation. The author and publisher are not responsible for any errors or omissions, or for any actions taken based on the information contained in this blog.