VAT on Gold and Precious Metals in UAE
VAT on Gold and Precious Metals in UAE remains one of the most technically nuanced areas of UAE tax law in 2026. The United Arab Emirates, being a global hub for gold trading and jewellery manufacturing, has established specific VAT rules to accommodate the unique nature of the precious metals industry. These rules are designed to reduce cash flow burdens on registered businesses while ensuring that the tax is collected fairly and efficiently at the right stage of the supply chain. Whether you are a gold trader, refiner, jeweller, or investor, understanding these rules is not optional; it is essential for compliance with the Federal Tax Authority (FTA).
The VAT On Gold and Precious Metals in the UAE
The UAE introduced VAT at a standard rate of 5% on 1 January 2018 under Federal Decree-Law No. 8 of 2017. Gold and precious metals, by their very nature, are traded at high values, which means even a 5% VAT charge can represent a substantial cash amount. Recognising the sensitivity of this industry, the UAE government incorporated special provisions for gold and precious metals under Cabinet Decision No. 25 of 2018 and subsequent amendments. These provisions primarily cover two mechanisms: the Profit Margin Scheme and the Reverse Charge Mechanism. Both are intended to simplify compliance and reduce the financial pressure on businesses operating within this sector.
In 2026, these provisions continue to govern the application of VAT to transactions involving gold in its various forms: raw gold, gold bars, gold coins, gold jewellery, silver, platinum, and other investment-grade precious metals. The FTA has continued to refine its guidance, and businesses must stay updated to avoid penalties, interest charges, and audit-related complications.
What Is the Profit Margin Scheme for VAT on Gold and Precious Metals?
Definition and Purpose
The Profit Margin Scheme is a special VAT accounting method that allows eligible businesses dealing in second-hand goods, including used gold jewellery and second-hand precious metal items, to calculate VAT only on the profit margin they earn, rather than on the full selling price of the item. This approach is particularly beneficial in the gold jewellery resale sector, where businesses frequently buy back old jewellery from consumers who are not VAT-registered and therefore cannot issue a VAT invoice. In such cases, charging VAT on the full resale price would create an unfair double taxation situation, since the original consumer paid VAT when they first purchased the item.
Eligibility Criteria Under the Profit Margin Scheme
Not every business dealing in gold can use the Profit Margin Scheme. As of 2026, the FTA requires that specific conditions be met. The goods must be second-hand, meaning they have been previously used and are being resold without being significantly altered or refined. The original purchase must have been made from an unregistered seller, a private individual or an entity that did not charge VAT on the transaction. The seller using the scheme must be a VAT-registered taxable person in the UAE. Additionally, the business must maintain clear, separate records for goods sold under the Profit Margin Scheme, as mixing these with standard-rated transactions is a common compliance error that attracts FTA scrutiny.
How VAT Is Calculated Under the Profit Margin Scheme
Under the Profit Margin Scheme, VAT is calculated on the difference between the purchase price and the selling price, in other words, the gross profit margin. For example, if a gold jewellery retailer in Dubai purchases a second-hand gold necklace from a private customer for AED 2,000 and resells it for AED 2,800, the taxable margin is AED 800. VAT at 5% is then applied to this AED 800, resulting in a VAT liability of AED 40, rather than the AED 140 that would have been due had VAT been applied to the full AED 2,800 sale price. This significantly reduces the tax burden and makes the scheme commercially attractive for businesses in the used jewellery trade.
It is important to note that businesses using this scheme cannot issue a standard VAT invoice to the customer that shows a separate VAT amount. They must instead issue a margin scheme invoice that clearly indicates the scheme is being applied. Input tax credit on the purchase of the second-hand item cannot be claimed, since no VAT was paid on that purchase from the unregistered seller.
The Reverse Charge Mechanism for Gold and Precious Metals
Understanding the Reverse Charge in the UAE Context
The Reverse Charge Mechanism (RCM) is one of the most significant VAT tools available for business-to-business transactions involving gold and precious metals in the UAE. Under this mechanism, the obligation to account for and pay VAT shifts from the supplier to the recipient (buyer) of the goods, provided both parties are VAT-registered businesses in the UAE. This mechanism is specifically designed to address the risk of VAT fraud and missing trader scenarios, which have historically plagued gold markets globally.
In the UAE, the Reverse Charge Mechanism for gold and precious metals applies to transactions where gold or diamonds are supplied in a form that meets the investment-grade definition — specifically, gold of 99% purity or higher and diamonds that have not been set in jewellery or other items. Cabinet Decision No. 25 of 2018 explicitly outlines the eligible goods for reverse charge treatment, and these rules have remained broadly consistent through 2026.
How the Reverse Charge Works in Practice
When a registered gold refiner or wholesaler supplies investment-grade gold to another VAT-registered business in the UAE, the supplier does not charge VAT on the invoice. Instead, the buyer is responsible for self-accounting for the VAT, declaring it as output tax in their VAT return while simultaneously claiming it as input tax, provided it is used for a taxable business purpose. The net effect is often zero, since the output and input tax cancel each other out. However, the transaction must still be reported accurately in the buyer’s VAT return under the relevant boxes designated for reverse charge transactions.
This mechanism dramatically reduces the cash flow burden on gold traders, who would otherwise need to finance the 5% VAT on multi-million-dirham transactions and wait for a refund from the FTA, a process that, while structured, still involves timing differences. By using the Reverse Charge Mechanism, the liquidity of gold businesses is preserved, making the UAE’s gold market more competitive globally.
Conditions for Applying the Reverse Charge Mechanism
For the Reverse Charge Mechanism to apply in 2026, both the supplier and the recipient must be registered for VAT in the UAE. The supply must be of eligible goods , principally gold, silver, or platinum meeting specified purity standards, or unset diamonds. The supplier must issue a tax invoice that clearly states that the reverse charge applies and that the recipient is obliged to account for the VAT. The invoice must include all standard UAE VAT invoice requirements, along with a specific notation such as “VAT to be accounted for by the recipient under the Reverse Charge Mechanism.” Failure to include this notation, or incorrectly applying the mechanism to ineligible goods, can result in penalties under the UAE Tax Procedures Law.
VAT on Gold Jewellery and the Standard Rate
It is important to distinguish between investment-grade gold and gold jewellery for VAT purposes. Gold jewellery, even when made of high-purity gold, is not eligible for the Reverse Charge Mechanism when sold to end consumers or businesses that are purchasing it as a finished product rather than as a raw material. Standard VAT at 5% applies to the retail sale of gold jewellery to consumers in the UAE. Jewellers must therefore charge 5% VAT on the full value of jewellery sold at retail and issue proper VAT invoices. This distinction between raw gold (eligible for RCM) and finished jewellery (standard-rated) is a common area of confusion, and businesses must ensure their classification of goods is correct at every point in the supply chain.
Key Compliance Requirements for Gold Businesses in 2026
Gold and precious metal businesses in the UAE must maintain rigorous record-keeping to remain compliant in 2026. This includes maintaining separate records for goods sold under the Profit Margin Scheme versus goods sold under standard VAT, documenting all Reverse Charge Mechanism transactions with appropriate invoices, filing accurate VAT returns on a quarterly or monthly basis depending on their turnover, and ensuring that all VAT registration details are current with the FTA. The FTA has intensified its audit activity across the gold sector, and businesses that cannot demonstrate a clear audit trail face administrative penalties that can be financially significant. Additionally, any voluntary disclosures for past errors must be filed promptly to minimise penalty exposure.
About My Taxman
Navigating the complexities of VAT on Gold and Precious Metals in UAE requires expert guidance, and that is precisely where My Taxman comes in. My Taxman is a trusted tax consultancy firm in the UAE, dedicated to helping businesses across all sectors achieve and maintain full compliance with the Federal Tax Authority’s requirements. With a team of experienced VAT professionals who have deep expertise in the gold and precious metals sector, My Taxman provides end-to-end VAT services from VAT registration and structuring to return filing, audit support, and voluntary disclosure management.
Whether you need help determining whether the Profit Margin Scheme or the Reverse Charge Mechanism applies to your transactions, or whether you simply need a reliable partner to handle your monthly and quarterly VAT obligations, My Taxman offers practical, affordable, and timely solutions tailored to your business needs. In an environment where tax regulations continue to evolve, having My Taxman by your side ensures that you are always one step ahead of compliance requirements so you can focus on growing your business with confidence.
