A new Public Clarification, VATP029, was issued by UAE Federal Tax Authority (FTA) to provide clarity and further insight on VAT Treatment of gold items and making charges under Federal Decree Law No (8) of 2017 in relation to VAT and Cabinet Decision No (25) of 2018.
In this article, we’ll tackle all the aspects that are emphasized with the issuance of Public Clarification, VATP029. Taxable persons who underwent UAE VAT registration are encouraged to revisit current VAT treatment on gold and other related supplies with the help of VAT consultants in UAE to ensure they’re fully compliant with requirements set by UAE VAT legislation.
Calculation of VAT on Gold Items and Making Charges
In relation to the supply of jewelry or gold items where the primary component is gold or diamond, a VAT-registered supplier making such supply in the UAE to a recipient who intends to sell/use the supply to manufacture or produce goods, the following rules will apply on the calculation of VAT:
- The supplier will not be liable to calculate the tax on the supply;
- The recipient will calculate VAT on the value of the supply
Take note: this is subject to terms and conditions as per Federal Decree Law No (8) of 2017 in UAE on Value Added Tax.
As for the supply of investment precious metals, it is considered zero-rated if any of the following conditions is met:
- The supply is an investment in precious metal with at least 99 percent purity; or
- The supply is an investment in precious metal in the form that’s tradeable in the global bullion markets.
Obligations of VAT-Registered Businesses on Supply of Gold Items and Making Charges
The supplier and the recipient are to adhere to certain terms and conditions in accordance with UAE VAT Executive Regulations. UAE VAT consultants are to be sought for assistance on compliance.
A supplier needs to ensure the following:
- For a single composite supply, the gold item and the making service charge must constitute a single supply in order to apply the reverse charge mechanism or transfer tax reporting obligation to the recipient.
- For multiple supplies wherein the gold item and the making service charge are treated as separate supplies in one transaction, the supplier must account for VAT only on the making charge.
- The supplier must check whether or not the recipient has valid registration with the FTA on the day the supply is made.
- The acquisition or purchase of supply by the recipient is either for use to manufacture or produce other goods or for resale.
- The recipient will calculate VAT on the value of supply.
- Supplier obtains a declaration from a VAT-registered recipient of supply in accordance with the format required by the tax authority.
- A supplier must issue a valid invoice without accounting for VAT as the supplier isn’t liable for calculating tax related to the supply.
- A supplier must obtain a confirmation of the delivery of the supply.
- A supplier must verify the tax registration number of the recipient using the service of the Federal Tax Authority, TRN verification, prior to the transaction. It’s advised to retain screenshots of the webpage of the tax authority confirming the validity of the recipient’s TRN for further reference.
A recipient needs to ensure the following:
- For a single composite supply wherein gold item(s) and making charge constitute one supply, the recipient has to account for VAT on such supply and be responsible for tax obligations associated with the supply.
- For multiple supplies wherein the gold item(s) and the making charge are distinct, the recipient has to account only for VAT on the gold item(s).
- The recipient must receive the supply on or following the date of UAE VAT registration.
- The recipient must provide the supplier with a declaration containing true and accurate information.
- The recipient must account for tax liability than credit in books of accounts according to provisions in UAE VAT Law.
- The recipient is responsible for providing confirmation of a supply to the supplier. This confirmation must include facts regarding the date of transaction, the location of supply, and specifics regarding the goods. A recipient is also required to save a copy of the confirmation for future reference.
VAT-registered businesses are encouraged to revisit their books and ensure accuracy and full compliance with the UAE VAT Law. It’s possible that VAT treatment on the supply of gold items and making charges is incorrect. If errors are uncovered, VAT records must be amended. A VAT voluntary disclosure must be filed to disclose the errors in VAT accounting and avoid incurring VAT penalties.
Professional VAT consultancy services in UAE
The information that has been provided in this article is only meant to serve as a source of general knowledge; it is not intended to serve as a replacement for the advice of a VAT consultancy in Dubai or to be utilized in the process of decision-making.
Professional VAT consultancy services in UAE rely on the full understanding and assessment of unique transactions of a VAT-registered business. Call us today for application and compliance with constantly changing VAT regulations!