Why is gold exempt from VAT?

Have you ever wondered why you don't pay VAT on the purchase of gold coins or gold bars, while you do pay tax on other metals such as silver, platinum and palladium? What is the rationale behind this exemption? And why does it only apply to gold? In this article, we will explain more about the how and why of this VAT exemption for gold.

Why is gold exempt from VAT?

On 17 October 1998, a new law was adopted in the European Unionadopted investment gold was exempted from VAT throughout the eurozone. Since then, gold bars with a purity of at least 99.5% and a 'common weight' can be traded without VAT. A certificate of authenticity from the smelter is not required. Gold coins are also exempt from VAT, provided that they contain at least 90% gold, were minted after 1800 and provided that they are or have been legal tender in the country of origin. Also, the market value of the gold coin may not be more than 80% above the intrinsic value of the gold.

The reason why gold is exempt from VAT leaves nothing to the imagination. Below is the summary of the relevant law, which clearly explains that in this way the use of gold as a financial instrument is to bestimulate. In the past, gold was still subject to VAT in many European countries, but with the prospect of a common currency and free movement of capital within the Eurozone, it was decided to align the tax rules with regard to gold in all countries of the currency union.

'In order to encourage the use of gold as a financial instrument, this Directive introduces a tax exemption for the supply of investment gold. Previously, investment gold was subject to the ordinary tax regime. On the basis of this system, consignments of investment gold were in principle subject to VAT, but a number of Member States were able to exempt these supplies on a provisional basis. The new Directive eliminates this distortion of competition between Member States and at the same time strengthens the competitive position of Community gold on the market."

Buying gold is encouraged

Thus, gold is not only recognized as a financial instrument in many European countries, it is even encouraged as such. Apparently, Europe has taken into account a future in which savers and investors can convert money into gold and vice versa without restrictions. This is not the case everywhere in the world, because in the United States you have to pay profit tax when you manage to sell gold for a profit.

Every year, the European Commission publishes a overview which states exactly in which countries you can buy gold without VAT. Below are all countries where investment gold is exempt from VAT this year.

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

Why aren't all precious metals exempt from VAT?

In the European Union, only gold is recognised as a financial instrument. Precious metals such as silver, platinum and palladium are classified as a raw material, because these metals also have many industrial applications. The industrial applications of gold, on the other hand, are very limited, making this metal ideal as an alternative financial instrument for saving.

Central banks in the Eurozone also recognise gold as a financial instrument. All Eurosystem central banks have gold on their balance sheets, which is valued four times a year at the current gold price. That gold is not linked to the money, nor does it serve as direct collateral for the money that central banks put into circulation.