Background
On 15 September 2023, our Tax Department at Habib Al Mulla and Partners have published an article on titled “UAE’s Cabinet Subjects Electronic Devices to Domestic Reverse Charge”, wherein we have noted that the Cabinet of Ministers (“Cabinet”) in the United Arab Emirates (“UAE”) subjected supplies of electronic devices to mandatory domestic reverse charge (“RCM”) for UAE VAT purposes, highlighting the fact that such Cabinet Decision contained slightly different rules from those stipulated under Cabinet Decision No. 25 of 2018 on the Mechanism of Applying Value Added Tax on Gold and Diamonds between Registrants in the State (“Cabinet Decision No. 25 of 2018”).
In a surprising and swift move, the Cabinet made another noteworthy update. On 16 December 2024, the Cabinet issued Cabinet Decision No. 127 of 2024 on the Application of the Reverse Charge Mechanism on Precious Metals and Gemstones among Registrants in the State for the Purposes of Value Added Tax (“Cabinet Decision No. 127 of 2024”).
This article aims to provide an in-depth look at Cabinet Decision No. 127 of 2024, analyzing the key legal and practical implications for businesses involved in the trading of precious metals and gemstones in the UAE.
Nature of Cabinet Decision No. 127 of 2024
As evidenced from the title of Cabinet Decision No. 127 of 2024, and the provision of Article 4 therein, Cabinet Decision No. 127 of 2024 is a successor legislation to the former Cabinet Decision No. 25 of 2018, with the new Cabinet Decision abrogating the former one in full. This is clearly outlined in Article 4(1) of Cabinet Decision No. 127 of 2024, which states that “Cabinet Decision No. 25 of 2018 on the Mechanism of Applying Value Added Tax on Gold and Diamonds between Registrants in the State, shall be abrogated”.
This shift marks an important change in the UAE’s VAT framework, and businesses operating in the sector must pay close attention to the implications of this transition. With the repeal of the earlier legislation, taxpayers must reassess both the legal and practical impacts to ensure full compliance with the updated provisions.
Effective Date of Cabinet Decision No. 127 of 2024
When assessing legislative succession, it is important to establish the exact timeframe during which each set of regulations is applicable. In the case of Cabinet Decision No. 127 of 2024, understanding the transition from the previous Cabinet Decision No. 25 of 2018 is key to ensuring clarity and compliance.
Article 4 of Cabinet Decision No. 25 of 2018 clearly states that the decision came into effect on 1 June 2018, just nine days after its issuance on 22 May 2018. Therefore, the provisions of Cabinet Decision No. 25 of 2018 governed the period from 1 June 2018 until the effective date of the new Cabinet Decision No. 127 of 2024.
In a notable shift, Cabinet Decision No. 127 of 2024 introduces a more business-friendly approach. Article 5 of the new decision stipulates that the decision shall be published in the Official Gazette and will take effect 60 days following its publication. This provision provides businesses with an extended window of time to familiarize themselves with the revised obligations, ensuring a smooth transition.
Given that Cabinet Decision No. 127 of 2024 was published in the Official Gazette on 27 December 2024, it will take effect on 25 February 2025, 60 days thereafter.
The timeline for the application of the two Cabinet Decisions is summarized as follows:
Time period | Governing Legislation |
1 June 2018 – 24 February 2025 | Cabinet Decision No. 25 of 2018 |
25 February 2025 onwards | Cabinet Decision No. 127 of 2024 |
This clear distinction ensures that businesses can effectively manage their compliance obligations during this transition period.
Transitional Provisions
It is common for legislators to include specific transitional provisions when introducing a new law to ensure a seamless shift from one legislative framework to another. However, in the case of Cabinet Decision No. 127 of 2024, no such transitional provisions have been explicitly included. This approach mirrors the absence of transitional provisions in Cabinet Decision No. 91 of 2023 on the Application of the Reverse Charge Mechanism on Electronic Devices among Registrants in the State for the purposes of Value Added Tax.
Despite the lack of dedicated transitional provisions, this position should not pose significant challenges for businesses, particularly in the context of the UAE VAT legislation. UAE VAT obligations are closely tied to the rules for determining the date of supply, a well-established principle under the VAT legislation.
For taxable persons seeking clarity on whether a particular supply falls under the scope of Cabinet Decision No. 25 of 2018 or Cabinet Decision No. 127 of 2024, the determining factor will likely be the date of supply. Where the date of supply is determined to be on or after 01 June 2018 up to 24 February 2025, the supply shall be subject to the former Cabinet Decision No. 25 of 2018. However, where the date of supply is determined to be on or after 25 February 2025, the supply shall be subject to the new Cabinet Decision No. 127 of 2024.
VAT Technical Provisions
When comparing the VAT technical provisions between Cabinet Decision No. 25 of 2018 and Cabinet Decision No. 127 of 2024, several differences are observed. For the ease of reference, we reproduce such differences in the form of bullet points below:
- The introductory paragraph in ‘Article 1 – Definitions’ has been revised to refer to the terms defined within the Federal Decree-Law No. 8 of 2017 on Value-Added Tax, and its amendments. Accordingly, several definitions were omitted for the avoidance of repetition.
- The definition of ‘Goods’ has been revised to expand the scope of application of the decision. The term ‘Goods’ is now defined as “Precious Metals, Gemstones, and jewelry made from any Precious Metals or Gemstones or a combination thereof, provided that the value of those Precious Metals or Gemstones is higher than the value of the other components”. Key differences include:
- The addition of the term “Precious Metals”, defined within Article 1 of the Decision as “Gold, Silver, Palladium and Platinum”.The addition of the term “Gemstones”, defined within Article 1 of the Decision as “Natural and manufactured (artificial) diamonds, pearls, rubies, sapphires and emeralds”.Replacing the term “products” with “jewelry”, clarifying the legislator’s intent in excluding non-jewelry products from the scope of the decision and avoiding any potential ambiguities.
- The introduction of an objective criterion for determining the “principal component” in mixed-component jewelry products, where the legislator put emphasized the value of precious metals or gemstones relative to the value of other materials used in the product.
- As for the tax technical provisions regulating the application of domestic RCM under Article 2 of Cabinet Decision No. 127 of 2024, we have observed that the text is a near-identical replica of Article 2 of Cabinet Decision No. 91 of 2023 on the Application of the Reverse Charge Mechanism on Electronic Devices among Registrants in the State for the purposes of Value Added Tax, with virtually no material changes.
This reflects a standardized and consistent approach by the UAE legislator in relation to the application of domestic RCM for the purposes of Article 48(8) of the Federal Decree-Law No. 8 of 2017 on Value-Added Tax, and its amendments.
Key differences in the provisions of Article 2 between Cabinet Decision No. 25 of 2018 and Cabinet Decision No. 127 of 2024 include the following:
- Restructuring of the provisions;
- Under the former legislation, the wording suggested that the application of domestic RCM is optional and discretionary to the relevant parties. However, under the new legislation, the wording strongly suggests that the application of domestic RCM is mandatory in the instances determined by the law.
- Under the former legislation, Article 2(3) contained a provision stating that both the supplier and recipient shall be held jointly liable for any tax-related liabilities arising from non-compliance with certain provisions of the decision. However, the wording of the new legislation explicitly determines the party liable for any tax-related liabilities, omitting the reference to any form of joint liability between the parties.
In Brief
The introduction of Cabinet Decision No. 127 of 2024 marks a significant development in the UAE’s VAT framework, expanding the scope of domestic RCM to include precious metals, gemstones, and related jewelry products. With this change, the UAE has adopted a more comprehensive approach to VAT application in the luxury goods sector, aligning with broader international trends while also providing businesses with an extended timeline for compliance. The absence of explicit transitional provisions does not pose a major obstacle for traders, as the determination of the date of supply remains the critical factor in applying the appropriate legislation.
While there are notable technical and procedural differences between the new and previous Cabinet Decisions, the overarching goal remains the same: ensuring clarity, compliance, and consistency in the application of VAT on luxury goods. Businesses operating in this space must take proactive steps to assess the impact of these changes, particularly in relation to the revised definitions, the new objective criterion for determining the principal component of mixed jewelry products, and the mandatory application of domestic RCM starting from 25 February 2025. By doing so, they can ensure smooth operations and avoid potential legal or financial complications in the face of evolving VAT rules.
Ultimately, while the expanded RCM scope may present challenges, it also offers an opportunity for businesses to refine their VAT practices, ensuring alignment with the latest legislative requirements in the UAE.
This Article is prepared by Mohamed El Baghdady, Partner, Head of Tax and Financial Crimes, and Marwan Alnooryani, Senior Tax Associate, and Ameena Al Jasmi, Trainee Lawyer, at Habib Al Mulla & Partners Law Firm.
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