The UAE Federal Tax Authority (FTA) issued a public clarification (VATP029) to provide gold jewelers or suppliers and registered dealers in the country guidance on the application of Value Added Tax on the supply of gold items, and products, and making changes. UAE VAT consultants can provide further clarity on indirect tax legislation in relation to gold jewelry suppliers, gold supplies, and making changes.
Scope of VATP029 Clarification on VAT Treatment of Gold
This clarification is mainly applicable to gold items that consist primarily of gold and don't qualify for the zero-rating as per Cabinet Decision No. (25) of 2018. Because the export of all gold items and supply of precious metals for investment are not eligible for the special VAT reverse charge mechanism, they do not fall under the purview of this clarification.
The applicability of VAT treatment on gold items will be determined by whether the supplier makes consideration of one (1) composite supply for each gold item/product or multiple supplies comprising both item and service. If the supplier views it as a single supply or multiple supplies, the applicability will be determined accordingly.
The VAT legislation on gold items and making service charges apply to a supplier that obtained confirmation from the FTA in writing with the help of VAT experts in UAE that the recipient of the supply is registered for VAT in UAE on the date when the supply is made. Additionally, the purpose of the good or supply must be for resale, manufacture, and/or production, and the recipient will calculate VAT on supply acquisition.
Types of Consideration of Supply for VAT Treatment of Gold
1. Single composite supply
If the supplier sets a single rate for the gold product, which takes into account the making charge, such supply will be considered as one or single composite supply if each of these three conditions is satisfied:
- The supply of gold consists of one primary component (which is the gold item) and the ancillary or incidental element (e.g. the making service). It may also be these components have been closely linked they already constitute a composite supply that would be close to impossible or unnatural if the elements are split;
- There is no distinction between the price of the gold item/product and making charge;
- The same supplier provides both the making service and the gold item.
In the event that all of the aforementioned conditions are satisfied, the provision of the gold item (along with the making service) would be considered as one or single composite supply that may be eligible for reverse charging in accordance with Cabinet Decision No. (25).
In this context, both the supplier of the gold item and the recipient are to keep sufficient supporting evidence, such as the transaction's valid tax invoice which was issued by the gold item supplier. The invoice should also reflect a single consideration, and states that the VAT reverse charge mechanism has been applied. Application of the reverse charge mechanism should be done by a tax accountant or VAT consultant in Dubai.
2. Multiple supplies
It is considered that the supplier of a gold item is making several or multiple supplies if the same supplier charges individually for the gold item and the making charge, or if the price of the components is reflected in a manner that differentiates them from one another. In such a case, the supplier is to regard each component as a distinct supply and to apply the appropriate VAT treatment to each of the components individually.
In cases where there are several supplies, the only VAT that can be accounted for by a VAT consultancy firm on behalf of a VAT-registered business using a reverse charge mechanism is the VAT that is associated with the gold items. This is provided that all of the requirements outlined in Cabinet Decision No. (25) are satisfied.
For multiple supplies, the supply of making service charges does not qualify for the special VAT reverse charge mechanism established by UAE Cabinet Decision No. (25). Therefore, a supplier registered for VAT in UAE has to account for the VAT on the making service charge.
In addition, the supplier is required by the FTA to provide valid tax invoices with regards to the supply of making service charges which is taxable where such supply has to be regarded as a distinct supply or where the supply doesn't represent a part of one composite supply. The date of issuance, as well as the date the goods or services were initially supplied, should be included on the tax invoice. Input tax may be recouped according to the general rules governing the recovery of input tax.
One of the primary reasons for the clarification being published by the Federal Tax Authority is to address critical or key concerns, which include ensuring the United Arab Emirates remains competitive in the local and international markets for gold and diamonds.
Due to the complexities of UAE VAT regulations, the implications are frequently overlooked until it is too late. Contact VAT Registration in UAE for expert assistance on VAT planning and tax compliance which require the skills and knowledge of seasoned tax specialists. VAT assessments, VAT analysis, not to mention risk measurement that's associated with a business in UAE are time-consuming activities. With our VAT experts in UAE, you will receive strategic advice and assistance in dealing with the Federal Tax Authority. Our dedicated UAE vat consultants can help you consider VAT's full impact on your business, so contact us today!