Cabinet Decision No. 127 of 2024 marks a significant update to the Value Added Tax (VAT) framework within the UAE, mainly concentrated on transactions concerning precious metals tax UAE among VAT-registered businesses. Effective from February 15, 2025, this decision introduces the Reverse Charge Mechanism (RCM), shifting VAT responsibilities from supplier to buyers for eligible transactions. This article will explore the implications, objectives, and compliance requirements of this legislative change.
Objectives of Cabinet Decision No. 127 of 2024
The primary goal of this decision is to streamline VAT processes within the UAE’s precious metals and stones sector, enhance competitiveness, and align with global best practices. By shifting VAT legal responsibility to buyers, the decision aims to lessen administrative burdens for providers at the same time as fostering growth in this vital industry.
Scope of Application
The expanded scope beneath Cabinet Decision No. 127 encompasses:
- Precious Metals: Gold, silver, palladium, and platinum.
- Precious Stones: Natural and artificial diamonds, pearls, rubies, sapphires, and emeralds.
- Jewelry: Items crafted from those materials, provided their value exceeds that of different components.
This broader inclusion replaces Cabinet Decision No. 25 of 2018, which constrained RCM application to gold and diamonds. Now, it covers a wider range of precious materials including VAT on gold and diamonds UAE and other high items.
Key Provisions of the Reverse Charge Mechanism
Supplier Obligations
Under the brand new RCM:
- Suppliers are no longer responsible for charging or collecting VAT on eligible transactions.
- They must retain written declarations from buyers confirming their VAT registration and intent to resell or use the goods for manufacturing purposes.
- Suppliers are required to verify buyers’ VAT registration status via approved methods.
Buyer Obligations
Buyers have to:
- Self-account for VAT on purchases by declaring it on their tax returns.
- Provide suppliers with two written declarations: one confirming VAT registration and another specifying the intended use of goods (resale or manufacturing).
Exceptions
The RCM does not apply if:
- The supply is subjected to zero VAT rate as per Clause 1 of Article 45 of Federal Decree-Law No. 8 of 2017.
- Buyers fail to publish required declarations prior to the transaction date.
Benefits for Businesses
Improved Cash Flow
By eliminating upfront VAT payments at the point of sale, businesses can reduce immediate cash-flow. For instance, a jewelry manufacturer buying AED 1 million worth of gold would avoid paying AED 50,000 in VAT upfront under RCM (assuming a 5% rate), instead self-accounting for VAT later.
Simplified Compliance
Suppliers benefit from reduced administrative responsibilities associated with VAT collection. Buyers benefit from readability in accounting practices by directly reporting VAT obligations.
Compliance Requirements
Businesses dealing precious metals and stones must adapt their accounting system to align with RCM provisions. This includes:
- Maintaining accurate records of transactions and declarations.
- Ensuring the right documentation as stipulated beneath Cabinet Decision No. 127.
Failure to conform might also additionally bring about consequences or disqualification from RCM benefits.
Comparison with Cabinet Decision No. 25 of 2018
| Aspect | Cabinet Decision No. 25 (2018) | Cabinet Decision No. 127 (2024) |
| Scope | Limited to gold and diamonds | Expanded to include other precious metals, stones, and jewelry. |
| Declarations | Single written declaration | Two written declarations required. |
| Supplier Responsibility | Joint responsibility with buyer if buyer is unregistered | Supplier only verifies buyer’s registration. |
| Non-compliance | Joint liability between supplier and buyer | Supplier bears no liability; buyer loses RCM eligibility. |
Implementation Timeline
This decision was posted on December 27, 2024, in Official Gazette Issue No. 790 and took effect on February 15, 2025. Businesses have till this date to make sure they are in compliance with new requirements.
Conclusion
Cabinet Decision No. 127 of 2024 represents an innovative step in improving the UAE’s regulatory framework for precious metals and stones trading. By introducing the Reverse Charge Mechanism, it simplifies VAT processes while supporting industry growth and competitiveness. Businesses must proactively adapt their practices to conform with those changes before the effective date. This decision underscores the UAE’s dedication to aligning its tax policies with international requirements at the same time as fostering economic prosperity within specialized sectors like precious metals and stones trading.
How ebs Chartered Accountants assist?
ebs Chartered Accountants can offer beneficial guidance to businesses navigating the complexities of Cabinet Decision No. 127 of 2024. With expertise in VAT advisory, compliance, and financial management, they ensure that businesses dealing with precious metals and stones fully understand and adhere to the Reverse Charge Mechanism (RCM) requirements.
Their team of VAT experts can help in verifying VAT registrations, preparing accurate tax declarations, and maintaining proper documentation to meet regulatory requirements. By leveraging their deep knowledge of UAE tax laws ebs chartered accountants allows businesses to streamline operations, avoid consequences and at the same time as staying compliant with the brand new VAT framework.
FAQs:
What is Cabinet Decision No. 127 of 2024?
It clarifies the application of the reverse charge mechanism on precious metals and stones in the UAE.
How does the reverse charge mechanism affect businesses?
Businesses must account for VAT on transactions involving precious metals and stones under the reverse charge mechanism.
When will Cabinet Decision No. 127 of 2024 take effect?
It will come into effect in 2024, providing clarity on VAT treatment for specific transactions.
Who does the reverse charge mechanism apply to?
It applies to registrants involved in trading precious metals and stones within the UAE.