RCM is a mechanism by which the registered customer/importer is responsible for accounting for VAT instead of the supplier. Generally, the Reverse charge mechanism applies to the import of goods and services from outside the UAE. Cabinet Decision No. 127 of 2024 expands the scope of Goods on which the domestic reverse charge applies to include, in addition to gold, diamonds and jewellery made thereof, other specified precious metals, precious stones and jewellery made thereof if supplied between tax registrants in the UAE subject to conditions specified in the latest public clarification VATP043. This amendment is effective from February 26, 2025 with no retrospective effect.

Here is a brief overview of public clarification VATP043, which replaces VATP032.

What are the goods covered within the scope of the Domestic Reverse Charge mechanism?

Precious Metals (Gold, silver, palladium and platinum), Precious Stones(Natural and manufactured (synthetic) diamonds, pearls, rubies, sapphires and emeralds.) and Jewellery made of any Precious Metals, Precious Stones or a combination thereof, provided that the value of such Precious Metals or Precious Stones is higher than the value of other components.

The recipient of precious metals and precious stones must account for VAT under RCM if all of the following conditions are met.

Conditions

a) The Recipient of the precious goods must be VAT registered in the UAE.

b)The recipient must intend either to resell the precious goods or use them in the production or manufacture of other precious goods.

c) The recipient must provide a written declaration confirming conditions a and b, and

d) The supplier must receive and verify that the recipient is registered for VAT and retain the declaration from the recipient before the date of supply.

The application of Reverse charge mechanism is restricted to the supply of precious goods and cannot be extended to the service for making or manufacturing of precious goods unless the services are part of a single composite supply.

Making services

The service of making/manufacturing jewellery consisting of Precious Goods is referred to as “Making Services” and the consideration charged for this service is referred to as “Making Charges”.Any Taxable Person that supplies Precious Goods and Making Services for a single price has to consider whether the supply constitutes a single composite supply of a Precious Good or multiple supplies consisting of both the Precious Good and Making Services.

1. Single composite supply

When both the Precious Goods and the Making Services are supplied together for a single, all-inclusive price, and the following conditions are met, the supply is treated as a composite supply of Precious Goods:

1. The Precious Goods are the principal component, and the Making Services are incidental or ancillary to the main product.
2. The two components are closely linked, making it impractical to separate them.
3. No separate pricing is shown for the goods and services.
4. Both the goods and services are supplied by the same entity.

If all these conditions are fulfilled, the transaction qualifies as a single composite supply. In this scenario, the reverse charge mechanism may apply, provided the criteria under Cabinet Decision No. 127 of 2024 are satisfied.

To comply with this, both the supplier and the recipient must keep proper documentation, including a Tax Invoice that reflects a single consolidated price and clearly states that the reverse charge mechanism has been applied.

2. Multiple supply

If the supplier charges separate prices for the Precious Goods and the Making Services, the transaction is considered a multiple supply. This means each component—goods and services—must be treated individually for VAT purposes:

• VAT on the Precious Goods may still be accounted for under the reverse charge mechanism, assuming all applicable conditions are met.
• However, VAT on the Making Services must be charged and reported by the supplier, as these services are not covered under the reverse charge mechanism for multiple supplies.

What will happen to the supplies made before February 26, 2025?

The updated domestic reverse charge mechanism for Precious Goods is not applied retroactively, and there are no special transitional provisions in place. This means that, excluding gold and diamonds, any supplies of Precious Goods made prior to February 26, 2025, are subject to the standard VAT rules. In such cases, the supplier is responsible for charging, accounting for, and reporting the VAT.

To determine whether a supply falls before or after this date, suppliers should refer to the date of supply rules outlined in the UAE VAT legislation.

Practical example

Company A supplies Gold,Platinum (precious metal) and Diamond (precious stone) to Company B for a price of AED 10,000including making charges amounting to AED 1,000 on 1^st February 2025. Company B is a trader who deals in selling jewellery, precious metals and stones.

Case 1(Supply happened before 26 February 2025)

In the above example, the supply of platinum and diamonds from Company A to Company B will not fall under the Reverse Charge Mechanism (RCM). Therefore, Company A must account for VAT on the receipt of platinum and diamonds under the normal VAT rules. However, the receipt of gold is subject to the Reverse Charge Mechanism.

Case 2 (Supply happened after 26 February 2025)

In this case, the supply of gold, platinum, and diamonds will fall under the Reverse Charge Mechanism, as they are classified as precious goods in accordance with VATP043. However, the service charge will not qualify for reverse charge treatment since it is separately mentioned in the invoice and therefore does not form part of a single composite supply.

Case 3 (When the making charge is not separately mentioned)

In the above example, if the price of the gold, platinum and diamonds and their making charges are not separately identifiable on the invoice or quote and impossible to separate, and both goods and service supplied by the same supplier, then the entire value of the supply will attract RCM including making charges following the VAT treatment of the principal supply (i.e. supply of precious goods and precious stones).

Conclusion

The Ministry of Finance’s latest announcement, Cabinet Decision No. 127 of 2024introduces major changes to VAT compliance for businesses dealing in precious metals and stones. This move aligns the UAE’s VAT framework with global best practices, offering businesses greater flexibility, simplified compliance, and improved cash flow management. For Jewellery businesses, correctly identifying the nature of the supply of goods, including related services, and whether a supply is a composite or multiple supply is essential to ensure proper VAT compliance. Misclassification could result in incorrect tax treatment and potential penalties.