VATP029 Gold Making Charge – VAT Public Clarification
VATP029 Gold Making Charge – VAT Public Clarification
The Federal Tax Authority has recently issued a public clarification – VATP029 on Gold Making Charge, providing that the suppliers of the gold jewellery are required to pay VAT on the making charges component by charging the same in the invoice, and the same would not be covered under the “special reverse charge mechanism”.
The UAE VAT Law, as applicable:
The suppliers of gold jewellery are not required to charge VAT in the invoice raised for the supply of gold items, which mostly consist of gold if the following conditions are satisfied:
- The recipient is registered under VAT; and
- The recipient gives a written declaration confirming the following:
- The recipient will use the Gold Items to produce or manufacture other Gold Items or to re-sell the Gold Items received.
- The recipient is registered for VAT on the date of supply.
- The recipient shall account for the VAT on the Gold Items supplied to him.
In such cases, the liability to account for and discharge VAT on such gold and products lies with the recipient, i.e., the same is covered under a special reverse charge mechanism.
Thus, the VAT Law, in the case of B2B transactions, shifted the responsibility on the recipient to discharge VAT on the “Gold and products”, not to the extent of consideration attributable to the making charges.
VATP029 VAT Public Clarification on Gold Making Charges
Now, considering the industry practice, the Tax Authority issued a clarification, providing guidance around the interpretation of the “special reverse charge mechanism” and VAT implication on the supplier of jewellery on supply of gold products, where making services are involved to VAT registered recipient.
It provides that the reverse charge mechanism applies only to the supply of “goods” and not to services.
Accordingly, where the supplier is providing gold jewellery (as goods) along with making services, then the supplier needs to determine whether these two supplies (of gold items and making services) can be construed as single composite supply or not.
To determine whether a combination of supplies can be treated as a single composite supply or not, the supplier needs to fulfil the following conditions:
- The supply consists of a principal component (Gold Item) and ancillary/incidental elements (the making service), or these components are so closely linked that they constitute a single supply which would be impossible or unnatural to split;
- 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.
Accordingly, in cases where making charges and the value of gold is not separately identifiable, then the recipient would be liable to discharge VAT on the entire value of the gold item, including making charges, and there shall be no VAT responsibility on the supplier of such transactions.
However, in cases where the supplier is charging a separately identifiable amount for making services, then to the extent of such making charges, the supplier must charge VAT in the invoice itself. Here, the supply of gold items and making services would be considered as separate supply, wherein on the gold item, the recipient would pay VAT under reverse charge mechanism, and on making charges, it would be supplier’s responsibility to charge VAT.
Voluntary Disclosure for gold making charges
The FTA also provides that since the document is issued merely for clarification and guidance purposes, the suppliers who have, so far, not discharged VAT on such separately identifiable making charges shall submit a voluntary disclosure and pay the due amount with FTA.
Exception:
The above provision does not apply to the following:
- Export of gold items outside UAE;
- Supply of “investment precious metals” as gold, silver and platinum, where the metal is of a purity of 99% or more and it is in a form tradeable in global bullion markets.
Open Questions: VATP029 Public Clarification on Gold Making Charges
With this Clarification, many supplementary questions arise, which need to be addressed by the authorities:
- Whether suppliers now can recover such VAT from the recipients? If yes, whether the recipient can recover the input tax?
- How would a supplier ensure that the recipient has not discharged VAT on making services also while accounting for VAT under a special reverse charge mechanism? This may lead to dual taxation on the same services.
