Introduction
A significant change has taken place in the UAE VAT landscape with the implementation of Cabinet Decision No. 127 of 2024, which expands the Reverse Charge Mechanism (“RCM”) to cover a wider range of precious metals, stones, and related jewellery. In response, the Federal Tax Authority (“FTA”) issued Public Clarification VATP043 (replacing VATP032), offering essential guidance on the updated regime.
Our earlier article, “Precious Metals and Gemstones Traders Beware: UAE Cabinet Expands RCM Scope,” examined the legislative changes introduced by Cabinet Decision No. 127 of 2024. This new clarification now explains how these changes apply in practice for traders, manufacturers, and other VAT-registered businesses in the precious goods sector.
This article discusses Public Clarification VATP043 and elaborates on the guidance provided by the FTA.
Expanded Scope and Clarified Definition
VATP043 confirms that, as of the effective date of Cabinet Decision No. 127 of 2024, the RCM applies not only to gold and diamonds but also to a broader category of “Precious Goods,” which includes:
- Precious metals: gold, silver, platinum, and palladium.
- Precious stones: diamonds (natural and synthetic), pearls, rubies, sapphires, and emeralds.
- Jewellery made from any of the above, provided that the value of the precious component exceeds that of other components.
Conditions for RCM to Apply
The FTA outlines four conditions that must all be met for the RCM to apply:
- The recipient is VAT-registered in the UAE.
- The recipient intends to resell the Precious Goods or use them in the production or manufacturing of Precious Goods.
- The recipient must provide a written declaration to that effect prior to the date of supply.
- The supplier verifies the recipient’s VAT registration and retains the declaration.
If any condition is not met, the RCM does not apply. In such cases, the supplier must charge and account for VAT in the standard manner.
Making Services: Composite or Multiple Supplies?
VATP043 offers detailed guidance on how to treat making services (such as charges for assembling or manufacturing jewellery):
- When a supplier charges a single price for both the goods and the making services, and all RCM conditions are met, this may be treated as a single composite supply subject to the RCM.
- If the supplier separates the charges for goods and making services, then these become multiple supplies. In that case, only the goods might qualify for RCM, while making services remain subject to standard VAT treatment.
Suppliers must therefore carefully assess whether they are making a composite or multiple supply and apply the correct VAT treatment to each component.
Exclusions and Exceptions
The RCM does not apply in the following situations:
- The goods do not qualify as Precious Goods.
- The recipient is not VAT-registered.
- The required declaration is missing or submitted after the supply.
- The supply qualifies as a zero-rated export (direct or indirect).
- The supply occurs prior to the effective date of Cabinet Decision No. 127 of 2024 (with the exception of gold and diamonds under Decision No. 25 of 2018).
- The transaction occurs outside the scope of UAE VAT (e.g. within Designated Zones in specific conditions).
Compliance and Documentation Requirements
VATP043 stresses the importance of maintaining proper documentation. Suppliers must:
Keep a copy of the written declaration from the recipient.
- Confirm the recipient’s VAT registration using the FTA’s TRN verification tool.
- Issue tax invoices that clearly reflect whether the RCM has been applied.
- Maintain records to substantiate the classification of the supply (composite vs. multiple).
Transitional Provisions
VATP043 also confirms that the expanded scope of the RCM does not apply retrospectively. Supplies made before the effective date of Cabinet Decision No. 127 of 2024 will not fall under the new RCM regime—this aligns with what we previously noted in our article, “Precious Metals and Gemstones Traders Beware: UAE Cabinet Expands RCM Scope”, wherein we have clarified that supplies taking place prior to the effective date of Cabinet Decision No. 127 of 2024 will not be subject to the expanded RCM regime.
Conclusion
Public Clarification VATP043 provides welcome clarity for businesses dealing in precious goods, but it also introduces heightened compliance obligations. Given the significant implications of misapplying the RCM — particularly in terms of VAT liability and input tax recovery — businesses must review their supply structures, contracts, and invoicing practices on an immediate basis.
As we noted in our previous commentary, this is a critical moment for the sector. With the FTA now providing a detailed operational roadmap, the onus is on businesses to implement these changes correctly and ensure proper documentation is in place.
This Article is prepared by Mohamed El Baghdady, Partner, Head of Tax and Financial Crimes, Marwan Alnooryani, Senior Tax Associate, and Ameena Al Jasmi, Trainee Lawyer, at Habib Al Mulla & Partners Law Firm.
Seek Legal Counsel
Our expertise in tax law and regulations allows us to provide clients with effective and accurate tax advice, taking into consideration their unique circumstances and needs.
Our tax and financial crimes team, led by our Head of Tax and Financial Crimes, Mohamed El Baghdady, has successfully advised and represented clients across various industries, including, but not limited to, consumer goods and retail, services, real estate, oil & gas and banking and finance, before the Government authorities, tax tribunals and courts. Our clients have been successful in multiple tax disputes before the committees and courts.
For further information, please contact, Mohamed El Baghdady, Partner, Head of Tax and Financial Crimes, on mohamed.elbaghdady@habibalmulla.com.
Disclaimer
The content provided in this article is intended for informational purposes only and does not constitute legal advice. While every effort has been made to ensure the accuracy and completeness of this information, the article does not offer a guarantee or warranty regarding its content. The matters discussed in this article are subject to interpretation, and legal outcomes may vary based on specific facts and circumstances. We recommend that readers seek individual legal counsel before making any decisions based on the information provided. If you require specific legal advice, please contact us directly.. For specific advice, please contact our team directly.
