Reverse Charge Mechanism on Precious Metals & Stones: What It Means for Business

The UAE government has introduced Cabinet Decision No. 127 of 2024, which applies the Reverse Charge Mechanism (RCM) to transactions involving precious metals and stones. This regulation, effective February 15, 2025, shifts the VAT responsibility from suppliers to registered buyers.

For businesses dealing with gold, silver, platinum, diamonds, pearls, rubies, sapphires, and emeralds, this change is significant. Let's break down what it means and how companies should prepare.

?Understanding the Reverse Charge Mechanism (RCM)

Under the RCM, the supplier does not charge VAT on eligible transactions. Instead, the recipient (buyer) must account for the VAT directly in their tax returns.

Key Provisions

What This Means for Businesses

1. Cash Flow Benefits for Buyers

Since VAT is not charged at the point of sale, businesses can improve cash flow by avoiding immediate VAT payments and claiming input tax credits.

Example: A jewelry manufacturer purchases AED 1 million worth of gold. Under the traditional system, they would have paid AED 50,000 in VAT upfront (assuming 5%). With RCM, they don’t pay this amount immediately but self-account for VAT in their return, reducing cash outflows.

2. Compliance Requirements for Sellers

Sellers must ensure they:

• Receive written declarations from buyers before transactions.
• Verify that buyers are VAT-registered.
• Maintain proper documentation to avoid tax penalties.

Risk: If a supplier fails to obtain the buyer’s declarations, they must charge and report VAT themselves—a major compliance burden.

3. Increased Responsibility for Buyers

Buyers must:

• Self-account for VAT in their returns.
• Keep clear records to justify VAT deductions.
• Ensure purchases qualify for RCM, as incorrect application could lead to penalties.

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What Businesses Should Do?

For Buyers (Jewelers, Manufacturers, Traders)

• Review Vendor Agreements: Ensure suppliers comply with declaration requirements.
• Upgrade Accounting Systems: Automate VAT self-accounting to avoid errors.
• Educate Finance Teams: Train staff on handling VAT under RCM.
• Maintain Proper Documentation: Keep purchase records and declarations for audits.

For Suppliers (Gold, Diamond & Jewelry Sellers)

• Obtain & Store Buyer Declarations: Verify VAT status before transactions.
• Adjust Invoicing Practices: Clearly state that VAT is not included due to RCM.
• Ensure Tax Compliance: Stay updated with FTA guidelines to avoid penalties.

?The UAE's adoption of the Reverse Charge Mechanism on precious metals and stones aims to simplify tax compliance and enhance cash flow efficiency for businesses. However, both buyers and sellers must proactively update their processes to ensure smooth compliance.

By following the outlined action points, businesses can not only remain compliant but also gain a competitive advantage in the market.

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Get Expert Guidance from N R Doshi & Partners LLC

Understanding and implementing VAT regulations like RCM can be complex. N R Doshi & Partners LLC specializes in tax advisory, VAT compliance, and financial strategy to help businesses navigate these changes seamlessly.

How We Can Help:

• VAT Registration & Compliance: Ensuring your business meets all legal requirements.
• Audit & Documentation Support: Helping you maintain proper records to avoid penalties.
• Financial & Tax Planning: Optimizing your cash flow and VAT liabilities.

Contact N R Doshi & Partners LLC today to ensure your business is VAT-ready for the upcoming changes. Let us handle your compliance while you focus on growing your business.

Visit our website www.nrdoshi.ae or schedule a consultation now +971 4 3528001.