Reverse Charge Redefined: FTA Clarifies Scope Expansion for Precious Goods

The Federal Tax Authority (FTA) has issued Public Clarification VATP043 (replacing VATP032) to provide essential guidance on the updated Reverse Charge Mechanism (RCM) for transactions involving precious goods in the UAE. This clarification follows Cabinet Decision No. 127 of 2024, which significantly expanded the scope of RCM, effective from February 26, 2025.

This shift is more than a technical update; it’s a strategic move to secure VAT collection, streamline cash flow for VAT-registered businesses, and combat potential fraud in the high-value precious metals and stones sector.
The New Scope: Broader Than Ever
The previous RCM largely focused on domestic supplies of gold and diamonds. VATP043 confirms the sweeping expansion introduced by the Cabinet Decision, bringing a much wider range of high-value commodities under the mechanism.
The scope of Precious Metals now includes Gold, Silver, Platinum, and Palladium. Furthermore, the definition of Precious Stones has been expanded significantly to cover natural and synthetic diamonds, Pearls, Rubies, Sapphires, and Emeralds. The RCM also applies to Jewelry made from these materials, provided the value of the precious components exceeds the value of other components used in the piece.
This comprehensive expansion means that a significant portion of the business-to-business (B2B) trade in luxury and industrial precious materials now falls under the RCM, fundamentally changing how suppliers and buyers handle VAT in these transactions.
Compliance Hinges on Documentation
The core operational burden of the expanded RCM falls heavily on documentation and verification. VATP043 clearly outlines the strict conditions that both the supplier and the recipient must satisfy for the RCM to apply to a B2B transaction:

1. Recipient is VAT-Registered: The buyer must be registered for VAT in the UAE.
2. Intent of Use: The buyer must intend to either resell the precious goods or use them in the production or manufacture of other precious goods.
3. Mandatory Declaration: The recipient must provide the supplier with a written declaration confirming both their VAT registration status and their intent of use before the date of supply.
   Crucially, the supplier must receive and verify the recipient’s declaration. If these conditions are not met, the supplier is obligated to charge and remit standard 5% VAT, shifting the liability and cash flow impact back to the traditional method.
   The Critical Clarification on ‘Making Services’
   One of the most valuable aspects of VATP043 is the guidance provided on making services (such as charges for assembly, cutting, or manufacturing jewelry).
   The FTA clarifies that the RCM applies only to the supply of the Precious Goods themselves, and not generally to the services used to modify them. However, an exception exists:

• If the supplier charges a single composite price for the precious goods and the making service, and the making service is incidental and inseparable from the supply of the goods, the entire transaction may be treated as a single composite supply subject to the RCM.
• If the making charges are separately invoiced, the service component remains subject to standard 5% VAT, even if the goods component is covered by RCM.
  This clarification is vital for manufacturers and jewelers who often combine the sale of materials with a service fee, requiring businesses to meticulously review their invoicing practices.
  Key Takeaway for Businesses
  VATP043, coupled with the Cabinet Decision, confirms that the UAE is actively strengthening its VAT controls in high-risk sectors. For businesses trading in precious materials, proactive compliance is non-negotiable:
• Systems Update: Update all Enterprise Resource Planning (ERP) and accounting systems to correctly apply RCM to the expanded list of goods, effective February 26, 2025.
• Training & Verification: Ensure sales and compliance teams are fully trained on the mandatory written declaration requirement and the process for verifying the recipient’s VAT registration number (TRN) via FTA tools.
• Invoicing Precision: Clearly define and separate charges for goods versus services to ensure the correct VAT treatment is applied, especially in composite supplies.
  This expansion offers a cash flow advantage and simplified compliance for compliant businesses, but non-compliance—particularly regarding documentation—will expose the supplier to the risk of becoming jointly liable for the uncollected VAT.