Dubai is an age-old traditional trading market in the Middle East region due to its strategic location connecting the eastern and western worlds. The heritage souks of Dubai are well known for trading in many commodities which include spices, pearls, textiles and traditional homewares. Dubai is also a market for many precious metals like gold, silver and diamonds. Due to the thriving sector involved in the trade of the precious yellow metal, Dubai popularly known as ‘City of Gold’.
City of Gold
Gold trading is one of the most profitable business in Dubai. The sector contributes around 20% to the GDP of the UAE, where Dubai adds the lions share. The vibrant community includes more than 4,000 businesses directly involved in various trades around the precious metal. There are thousands of investors in the gold and diamond industry.
Gold is considered both as an investment and security by many people irrespective of cultures. It is available for trading in the forms of coins, bars, bullions and jewellery. The different carats available for trading- 24k, 22k, 21k and 18k gold. There are different charges involved in the gold retail purchases- Weight of gold, Charge of workmanship, wastage charges wherever applicable and VAT tax.
Scope of Investing in Gold Business in Dubai
Investors keen on starting a business in gold-related business activities can explore opportunities in the following streams.
Sourcing and Trading
Dubai and largely its partner Emirates do not have any commercial gold mines. Most of the gold sourced from the African and Latin American countries. Companies have introduced the practice of ‘responsible sourcing’ which prevents sourcing the metal from conflict-affected and the high-risk areas which finances illicit activities. DGCG and MCC free zone companies have already adopted the policy of ethical sourcing. More companies are signing up for certification that confirms the bullion used sourced responsibly/ethically. Gold forms a larger share of goods imported into the UAE, which was around 14% of total imports in 2014.
There are many businesses involved in the gold refining and manufacturing business. They include both national and international companies who source the gold themselves or from different traders in Dubai. The companies deploy all the latest technologies to enhance their capabilities and improve the process efficiencies. The refined and manufactured gold goods will pass through the chain, which involves many wholesalers, distributors and gold retailers.
Financing and Investment
Gold is one of the major investment instruments worldwide. Though most of the retail gold sold in physical form, there are many opportunities in the last many years to make an investment in electronic products by employing foolproof means. Dubai Multi Commodities Centre (DMCC) free zone has been formed by the Government to provide market infrastructure for global commodities trading. Organisations under DMCC such as Dubai gold Delivery Standard (DGD) and Dubai Gold & Commodities Exchange (DGCE) offer facilities and financial products to retail and institutional investors.
Benefits of Investing in Gold Business in Dubai
A range of Government and market benefits favour companies that are making investments in the gold sector.
VAT on Gold
Dubai is one of the famous markets for gold purchase. Tourists, immigrants and locals never let go off an opportunity to buy the yellow metal. Gold ornaments and jewellery are available at comparatively lower prices in Dubai. There is a VAT reverse charge mechanism in place- as per which registered dealers don’t charge VAT when selling to another registered dealer as long as the latter intends to resell/manufacture those products. However, the retail customers are charged VAT at a flat rate of 5% of the total value.
There are many places where the lead trading is around gold, diamonds and other precious metals. Companies can choose to start the business in either free zones or mainland Dubai. The benefits vary between the zones where the business is operating. DMCC and Dubai Gold & Diamond free zones offer a plethora of benefits which include tax exemption on imports & exports, no corporate and income taxes, 100% repatriation of funds along with providing security, ambience, Hallmarking and shuttle transports for customers. Companies are operating from the mainland like Dubai Gold Souk, which is a traditional gold market offer other benefits.
Gold is a popular decoration item. The locals consider gold as a symbol of wealth and status. The usage is in many ways to symbolise extravagant lifestyles. The other primary local consumers in Dubai are the expatriates from different countries working and saving money. The citizens from the India sub-continent form a significant part of the expatriate community, and traditionally gold plays a central role in all ceremonies of people of the sub-continent which makes them natural consumers. These benefits, along with very low taxes, has created a lot of potential in the local market for gold businesses. Additionally, locals and expatriates alike use their savings to invest in gold financial products.
Tourists from all around the world flock to Dubai to spend their holidays. Dubai offers many great experiences and adventures for tourists. Dubai is also known as shopper’s paradise due to the number of shopping choices on offer in more than 40 malls in Dubai. The Dubai Gold Souk is a popular tourist destination with splendid displays of gold crafts appreciating artistic skills. In the last few years, there is a surge in the tourists visiting from Asian countries who have been very keen on shopping for gold jewellery. The vast number of gold retailers, a variety of craftworks in gold jewellery and the tax and other benefits have made Dubai a hot destination for Gold shopping.
Dubai World Expo 2020
Dubai is hosting world expo 2020 from October 2020. This event is expected to boost revenues and incomes of all the sectors of the economy. Many UAE based retailers have announced plans to expand their operations before the event after deducing the impact of the global event and the aftermath.
We at Commitbiz can help our clients with setting up the business in gold trade. Our expert consultants have years of experience in loyally serving our customers by providing all required legal information and market insights. Please contact us to resolve your queries. We are happy to assist!