VAT Public Clarification VATP029 on Gold – Making charges
The Federal Tax Authority (FTA) has issued a new VAT Public Clarification VATP029 on Gold – Making Charge (“VAT Public Clarification VATP029”, “Public Clarification”) providing guidance on the application of the UAE VAT legislation regarding the fee received for the crafting of a gold item by jewelers.
- This clarification is applicable only for Gold Items, I.e., Gold or products consisting mostly of gold.
- Which do not qualify for zero-rating. (As per Cabinet Decision No. 25)
- The Export of Gold items.
- Supply of Investment precious metals which do not qualify for RCM as per Cabinet decision no. 25.
THE KEY HIGHLIGHTS OF THIS PUBLIC CLARIFICATION:
When Tax registrants supplying gold are not required to impose VAT.
Tax registrants supplying gold are not required to impose VAT on the supply of gold and products which mostly consist of gold if below conditions are met:
- Recipient is VAT registered
- Supplier retains a written declaration from the recipient that gold items will be used to produce other gold items or to re-sell gold items received
- Recipient shall account for VAT on the gold items supplied
Special Reverse Charge Mechanism.
In such cases, VAT in respect of the gold is accounted for under a special reverse charge mechanism, which requires the registered recipient to account for VAT on the supply instead of the supplier.
- The reverse charge mechanism only applies to the supply of goods (and not services) by a registrant and applies to gold and products consisting mostly of gold that do not qualify for zero-rating.
- In some instances, gold price and making charge are shown separately on the tax invoice, and in other cases both are reflected as a total price. If the supplier charges separate considerations for the gold and the making service, the supplier is required to impose VAT on the service component.
- Where supplier supplies gold items and making services, the supplier needs to consider whether the supply constitutes a single composite supply of a Gold Item or multiple supplies consisting of both goods and services.
Single Composite or Multiple Composite Supply Assessment.
The RCM provisions under Cabinet Decision No. 25 only applies to goods and not to services. Therefore, where the supplier supplies Gold Items and making services, the supplier needs to consider whether the supply constitutes a single composite supply of a Gold Item or multiple supplies consisting of both goods and services.
Single Composite Supply.
Single composite supply can qualify for reverse charging if the supplier charges a single price for the Gold Item, including the making charge, if the following condition are met:
- The supply consists of a principal component (Gold Item) and ancillary/incidental elements (the making service)
- The price for the Gold Item and the making charge is not separated
- The Gold Item and the making service are supplied by the same supplier
If the conditions are met, the supply of the Gold Items (including the making service) would constitute a single composite supply which may qualify for reverse charging if all of the requirements of Cabinet Decision No. 25 are met.
In such a case, both the supplier and recipient are required to retain sufficient supporting evidence, including a valid tax invoice issued by the supplier reflecting one single consideration for the Gold Item (including the making service), and stating that the reverse charge mechanism was applied.
If the supplier charges separately for the Gold Items and for the making service, the supplier is required to treat each component as a separate supply and apply the correct tax treatment to each separate component.
In instances of multiple supplies, only the VAT related to the Gold Items may be accounted for under the reverse charge mechanism provided all the requirements of Cabinet Decision No. 25 are met.
Supplier will be required to issue valid tax invoices in respect of the taxable supply of making services if the supplier is a taxable person. The tax invoice should reflect the date of issue as well as the original date of supply.
Input Tax Recovery.
If the recipient is a registered person, the input tax may be recovered in accordance with the general input tax recovery rules.
The FTA also provides that since the document is issued merely for clarification and guidance purposes, where a supplier had applied incorrect VAT treatment previously, the supplier shall submit a voluntary disclosure and pay the due amount with FTA.
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