Why gold is exempt from VAT

Have you ever wondered why you don’t pay tax on gold coins or gold bars while you do pay tax on other metals such as silver, platinum and palladium? What is the idea behind this exemption? And why does it only apply to gold? In this article we will explain the tax exemption for gold in detail.

Why gold is exempt from VAT

On 17 October 1998, a new law was passed in the European Union exempting investment grade gold from VAT. Since then, gold bars with a purity of at least 99.5% and a ‘usual weight’ are traded without VAT throughout the euro zone. A certificate of authenticity from the refiner is not required. Gold coins are also exempt from VAT, provided they contain at least 90% gold, have been minted after 1800 and are or have been legal tender in the country of origin. The market value of the gold coin may not exceed the intrinsic value of the gold by more than 80% in order to be traded free of taxation.

Below is the summary of the legislation, which clearly explains its purpose to promote the use of gold as a financial instrument. In the past, many countries applied VAT on gold, but in preparation to the introduction of a common currency and free movement of capital, the European Union decided to unify the tax rules on gold in all countries of the currency union.

In order to promote the use of gold as a financial instrument, this Directive introduces a tax exemption for supplies of investment gold. Previously, the normal tax arrangements applied to investment gold. Under those arrangements, supplies of investment gold were in principle subject to VAT, but some Member States were authorized on a transitional basis to exempt them. The new Directive eliminates these distortions of competition between Member States and, at the same time, enhances the competitiveness of the Community gold market.

Promoting the use of gold

Gold is therefore not only recognized as a financial instrument in many European countries, it is even promoted as such. Europe apparently has taken into account a future in which savers and investors convert money into gold and vice versa without any tax penalty. This is not common practice in countries outside of the eurozone. In the United States for example, you have to pay capital gains tax when you sell gold at a profit.

Each year, the European Commission publishes an overview stating exactly in which countries you can buy gold without VAT. Below are all countries where investment gold is currently exempt from VAT.

In these countries gold is exempt from VAT (Source: European Commission)

Why are not all precious metals exempt from VAT?

The European Union only recognizes gold as a financial instrument. Other precious metals like silver, platinum and palladium are regarded as an industrial raw material, because these metals also have many industrial applications. The industrial applications of gold on the other hand are limited, making gold more suitable as an alternative financial instrument for savings.

Central banks in the eurozone also recognize gold as a financial instrument. All central banks in the Eurosystem have gold on their balance sheets, valued to market value in each quarter. Those gold reserves are not directly linked to the money in circulation and do not serve as direct collateral for the money that central banks put into circulation.

This article earlier appeared in Dutch on Geotrendlines.nl

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