Taxes on Gold Purchase in the UAE
Dubai in the UAE is also known as the city of gold. Sellers and traders in Dubai buy and sell approximately 75 billion USD worth of gold annually. Dubai is known to sell some of the world’s cheapest and purest gold which makes it one of the most selling precious metals of all time. Gold has an irreplaceable place in various cultures where it is considered to be a carrier of good luck and fortune. It is important to be aware of the fact that gold is a commonly traded commodity and the gold rate in UAE is determined internationally.
Gold and its products are subjected to high levels of taxation globally, however, in the UAE gold and its products have very little tax applicable to them which makes Dubai the real paradise for gold lovers.
Earlier Dubai and the UAE sold tax-free simply on the current gold rate in the UAE which was the primary reason behind the growth of the gold souks and stores in and around Dubai. However, value-added tax or vat has been introduced in the UAE since January 2018.
The rate of VAT applicable to the purchase of gold and its products is 5% in Dubai that is the lowest in the world. Moreover, there is no import duty on the raw material of gold like gold bars and TT bars which makes it very convenient for various traders to bring in gold from different places in the UAE tax-free.
Tourists buying gold in Dubai can claim about 85% of the total VAT back by making use of tax refund tourist scheme at places like Dubai international airport.
The primary reason behind implicating low levels of tax on gold and its products in Dubai is to ensure that the overall trade of gold does not get affected by the new taxation scheme by the government.
The taxation on gold and its products in Dubai is the lowest in the entire world. However, while buying gold in Dubai you might have to pay low taxes and manage to purchase on the current gold rate in UAE but you might be subjected to high custom duty while bringing back gold from Dubai. For instance, Gold purchased in Dubai is subjected to about 24% custom duty while entering Finland.
The demand for gold and its products is suffering in the UAE due to the recent taxation change. Statistics reveal that demand for gold jewelry has gone down by about 25% in 2018. The decline in demand is not completely VAT driven. The economy has been struggling which has led to job cuts majorly in the industries that were dominated by the expats. Drop-in gold demand is a casualty because of the negative wealth effect. To counter the drop in demand November 2018 witnessed the introduction of the refund scheme for tourists which allows them to claim back 85% of the VAT on purchases equal to or above AED 250.
The major impact of taxation on gold is that it has boosted the level of transparency across the gold trade in the UAE. Stores and shops that have adapted quickly to the administrative and logistical changes in the system have managed to gain the market share. The government of the UAE is planning to introduce hallmarking for gold products to protect buyers and the trade from fraud and enhance the credibility of the UAE’s gold market internationally.
In a Nutshell
The gold market functions in such a way that you cannot hold a stock for very long. The value of the investment is high and there is a need for faster delivery and logistics for which Dubai turns out to be one of the best locations globally. Taxation has increased the transparency of the trade in-country and allowed the authorities to get a firm grip over the trade.