Dubai's Polished Diamonds - an Industry Hanging in the Balance
July 24, 25
Guest Memo. Peter Meeus is former managing director of Antwerp Diamond Bourse and HRD, a co-founder of the Kimberley Process Certification Scheme and honorary chairman of the Dubai Diamond Exchange.
The views expressed in this Memo are solely those of the author and do not necessarily reflect the views of affiliated or associated parties.
Dubai's ascent in the global diamond trade is undeniable, yet its polished diamond business now confronts a critical threat. Opaque regulations, punitive taxes, and mounting costs are pushing diamantaires, particularly from key markets, to look elsewhere - a stark reminder of past industry shifts that demand urgent, decisive action to preserve its hard-won leadership.
A century ago, Dubai stood as the undisputed pearling capital of the world, yet the advent of cultured pearls ushered in an overnight shift that shattered that dominance, forcing the emirate to adapt, pivot, and ultimately thrive through oil, trade, and tourism. History, however, whispers a stark warning: once a hub loses its competitive edge, recovery often remains out of reach. Today, as Dubai asserts its pre-eminence in the global diamond sector, particularly as the world's leading hub for rough diamonds since 2021 and a top-three global centre overall, its polished diamond business stands at a similar precipice. Mounting tax ambiguities, punitive regulations, and soaring operational costs threaten to drive traders away, risking a mass exodus that could see its hard-won sparkle fade for good.
Firstly, it is important to acknowledge that Dubai's journey to becoming a global trading powerhouse is truly exceptional. Dubai's rise to eminence did not come easy. I have had the honour to work for over 12 years with Ahmed Bin Sulayem, Executive Chairman and CEO at Dubai Multi Commodities Centre (DMCC). Under his outstanding leadership, Dubai's diamond sector had to sail through difficult weather, often culminating in storms instigated by NGOs who on their turn often were pushed against Dubai by competing entities.
However, bearing in mind the Ruler of Dubai, HRH Sheikh Mohammed bin Rashid Al Maktoum's mantra: "In the race to excellence there is no finish line," Dubai meticulously cultivated an ecosystem of world-class infrastructure, unmatched connectivity, and a business-friendly environment.
This soon propelled Dubai to the forefront of the gold and rough diamond trade. In 2024, its polished diamond trade alone surged past USD 13.1 billion, contributing to a remarkable cumulative total (rough and polished) of USD 57.5 billion over the past five years. Growing by a staggering 32 per cent to USD 16.9bn in 2023, polished diamonds represent nearly 50 per cent of the UAE's total diamond trade, underscoring their pivotal role in its strategic expansion.
In the same spirit, any business, company and government entity - no matter how successful it becomes - has to keep a deep sense of self-criticism and always check for weaknesses and threats. Indeed, despite these impressive figures and inherent advantages, a significant share of the global polished diamond trade, particularly from key players in Israel, continue to bypass the UAE in favour of direct routes to established markets such as the United States, Antwerp, and Hong Kong. Through a combination of predictable regulatory landscapes, deep pools of experienced professionals, and often, more favourable tax treatments for polished diamonds, each of these centres have instilled greater business confidence, and all this despite the recently enacted U.S. trade tariffs. For Dubai to truly hold on to, and leverage opportunities presented by agreements like the Abraham Accords in boosting the UAE-Israel polished diamond trade, the UAE must urgently address its existing and forthcoming structural barriers.
One of the most critical obstacles is the existing VAT framework. While the UAE applies a reverse-charge VAT mechanism to rough diamonds, this crucial benefit does not consistently extend to polished diamonds, thereby diminishing Dubai's global competitiveness. Although Cabinet Decision No. 127 in January 2025 aimed to extend the VAT reverse-charge mechanism to polished diamonds and a broader range of precious stones, for many, this feels like too little, too late. This inconsistency, coupled with high corporate tax rates directly undermines the UAE's ability to attract high-value polished diamond activity and compete effectively. As an example, in Belgium and the U.S., inter-company diamond trades are entirely VAT exempt.
As an additional issue, albeit one for another day, the culpability of highly-paid consultants in this evolving crisis, cannot be overstated. Global advisory firms like PwC find themselves in a glaring conflict of interest, reportedly advising the UAE Ministry of Finance on imposing these very taxes, while simultaneously counselling entities like the Dubai Multi Commodities Centre (DMCC) on mitigating them. This duality has only amplified uncertainty, leaving traders in a state of paralysis. One must question what advice these consultants offer their clients in competitive markets, and how they are delivering tangible growth.
Beyond VAT, the additional spectre of B2B taxation and opaque regulation has also made Dubai less competitive. Anecdotal statements from industry stakeholders include fines being issued for unclear reasons, with practically no recourse for contestation due to the absence of any industry ombudsman, while significant taxes and fees are actively pricing out SMEs from the market.
While praise should be given to the UAE government for its equally giant leaps in combatting anti-money laundering and counter terrorism financing, AML regulations have now become more stringent than in any other major centres. Diamantaires in Dubai are effectively being treated like banks, with every transaction above AED 55,000 (USD 15,000) requiring full disclosure. Even an elementary cost comparison with other key markets reveals some startling comparisons. For instance, Belgium has a special corporate incomes tax regime for diamond traders which is reportedly substantially cheaper than Dubai, while any large companies in the emirate paying amounts over USD 3 million in interest (or 30 per cent of EBITDA, whichever is higher) are not eligible for tax deductions, even if paid to banks. Operating expenses in Dubai are also notorious, running an estimated 35 per cent higher than its competitors, while shipment and customs charges are 45 per cent steeper than in Belgium or the U.S. As a result, Dubai has already seen some lab-grown diamond businesses move their operations to Belgium as a direct consequence of these mounting pressures.
This situation echoes the stark warning from Dubai's pearling legacy, which didn't vanish due to competition, but inaction in the face of disruptive change. The diamond sector, now a cornerstone of its economic diversification, faces a similar fate. Traders are already voting with their feet, convinced the environment is becoming less hospitable, and once they depart, reclaiming their business will be an insurmountable challenge.
All this being said, this isn't the first time the UAE has found itself in a similar situation. In the face of mounting pressure on gold and rough diamonds, the UAE Cabinet recognised the imperative for swift action, and on 1st May 2018, decisively reversed the tax on both commodities. This pivotal and wise decision was taken based on a DMCC in-depth analysis of Dubai's competitive position in the rough diamond trade and not only saved both industries from decline but allowed them to flourish, cementing Dubai's position as a top global destination.
The same decisive intervention is now urgently required for Dubai's polished diamond sector. By extending the VAT reverse-charge mechanism consistently to polished diamonds, enhancing corporate tax incentives, easing the administrative burden of AML for legitimate trades, and ensuring regulatory clarity ahead of the corporate tax filing deadline on 30th September 2025, the emirate still has time to avoid both the legal and compliance ambiguities that lead to costly retrospective adjustments. Additionally, this proactive approach will attract high-value polished diamond activity, enabling the emirate to fully leverage its underutilised bonded free zones, while highlighting Dubai's strategic advantages and robust infrastructure.
Global market volatility and shifting tariff regimes present a timely opportunity for the UAE to assert and uphold itself as a world leader in polished diamonds. Policy enhancements, particularly around taxation and regulation, could yield substantial gains in trade flows, investment, and economic diversification, while unequivocally elevating the UAE's prestige within the international gemstone sector. Dubai's diamond empire stands at a crossroads where a sobering assessment of its competitiveness and decisive action will undoubtedly dictate its ongoing success or untimely demise. As there is no finishing line in the search for excellence, the time to act is NOW.