UAE VAT FAQ’s – Gems And Jewellery Sector

Registration

Q How to calculate the Threshold limit for VAT Registration?

To determine whether a Person has exceeded the Mandatory Registration Threshold and the Voluntary Registration Threshold, the following shall be calculated:

1. The value of Taxable Goods and Services.
2. The value of Imports received by the Person.
3. The value of the whole or relevant part of Taxable Supplies that belong to said Person if he has, wholly or partly, acquired a Business from another Person who made the supplies.
4. The value of Taxable Supplies made by Related Parties (in specific cases).

Q What is the prescribed Threshold limit for Mandatory Registration as per VAT Legislation?

The threshold limit for mandatory registration is AED 375,000. A person shall be liable to register when his total taxable supplies and import exceeds the Mandatory Registration Threshold over the previous 12-month period, or when it is likely to exceed in the next thirty (30) days. Article (7) Executive Regulation (VAT) & Article (13) Federal Decree-Law (VAT).

Q What is the prescribed threshold limit for Voluntary Registration as per VAT Legislation?

The threshold limit for voluntary registration is AED 187,500. A person shall be eligible to voluntarily register when his total taxable supplies and imports or the expenses (which are subject to Tax) exceeds the Voluntary Registration Threshold during the previous 12-month period, or if it is likely to exceed in the next thirty (30) days. Article (8) Executive Regulation (VAT) & Article (17) Federal Decree-Law (VAT).

Q Can a person take two registration under a single license?

No, Business under one single license cannot have separate Tax Registration Number (TRN). Article (14) of Federal Decree-Law (VAT).

Q Explain the concept of Tax group registration for related parties in UAE?

• Two or more persons conducting Businesses may apply for Tax Registration as a Tax Group if all of the following conditions are met:
• Each shall have a Place of Establishment or Fixed Establishment in the State.
• The relevant persons shall be Related Parties.
• One or more persons conducting business in a partnership shall control the others. Article (14) of Federal Decree-Law (VAT)

Q Is registration under Tax Group mandatory for related parties in UAE?

It is not mandatory for related parties to register as a tax group. However the government has retained the right to assess related parties based on their economic, financial and regulatory practices in business and register them as a tax group if their relation is proved. Article (14) of Federal Decree-Law (VAT)

Q Are wholesalers, having 100% Reverse charge mechanism (RCM) taxable supplies, required to take registration under VAT?

Yes, only a registered taxable person can exercise the option to supply goods under Reverse Charge Mechanism as notified under Cabinet Decision No. (25) of 2018. The said notification is only applicable for trade of Gold and Diamonds between Registrants in the UAE.

Q Is it compulsory for Bullion traders to Register under VAT, as all their sales are Zero rated?

Authority may except a Taxable Person from mandatory Tax Registration, upon his request, if his supplies are only subject to zero rate. Thus, Dealers of Gold Bars (investment precious metals) can apply for Registration Exception if their supplies are restricted to Zero Rate supplies. Article (15) Federal Decree-Law (VAT).

Q Shall units situated in Free Zone and Designated zone apply for VAT Registration?

As per the Cabinet Decision No (59) of 2017, there are a select list of free zones which have been identified as designated zones. It is to be noted that out of the many free Zones in UAE only 20 have been notified as designated Zones. Registration of units in Free Zones (which are not notified as designated zones) will be treated like any other entity in UAE and the mandatory Registration threshold will get applicable on it. However VAT Registration of a unit in a designated zone will be dependent on the place of supply of the goods and services supplied by the unit. If the place of supply of any supply made by the designated zone unit is within UAE (State) then, the said unit will (subject to mandatory registration conditions) most likely have to register under Federal Decree-Law (VAT)

Outward Supply

Q What is the rate of Taxation on Jewellery and Investment Precious Metal?

The standard rate of 5% shall be imposed on any supply or Import of Jewellery. Further, supply of investment precious metals is zero-rated. Article (3) Federal Decree-Law (VAT) & Article (36) Executive Regulation (VAT).

Q What is the meaning of the phrase Investment Precious Metal?

The phrase “investment precious metals” means gold, silver and platinum that meet the following standards:

1. The metal is of a purity of 99 percent or more. and;
2. The metal is in a form tradeable in global bullion markets. Article (36) Executive Regulation (VAT).

Q Is tax applicable on Advances received from the customer?

Yes, VAT is applicable on Advance money received from customers. Date of supply shall get triggered on the date of receipt of payment. Article (25) of Federal Decree-Law (VAT)

Q Is VAT applicable on free supplies of samples and commercial gifts?

VAT is applicable on free supplies of samples and commercial gifts, subject to a condition that supply below a limit of AED 500 per recipient in last 12-month period shall be considered for exception for charging VAT. Commercial gifts have not been defined by the VAT Legislation. In general parlance, any Gift given to customers like lucky draw gifts, complementary gifts to customers etc. could be understood as commercial Gifts. Gifts to self, friends, family, employees, etc. may be understood as Non-commercial Gifts. The Exception limit of AED 500 is not applicable for Non-commercial Gifts. Article (5) Executive Regulation (VAT).

Q What is the applicability of VAT on Gift Vouchers distributed to customers? If so what is the value of supply of gift vouchers?

VAT is not applicable on supply of Gift vouchers, unless the Consideration received for Gift Voucher exceeds its advertised monetary value. Further in a situation where, the consideration received exceeds its advertised monetary value on the voucher then the stated difference shall be the value for supply for voucher. For e.g. Where a gift voucher of AED 500 is sold for AED 400, then no VAT is applicable on sale of such voucher. However where a gift voucher of AED 500 is sold for AED 650, then VAT shall be applicable on the differential value (i.e. AED 150) as on the date of supply of voucher. Article (7) & Article (40) Federal Decree-Law (VAT).

Q Is Tax applicable on Jewellery utilized for personal purpose, taken without consideration?

Yes, VAT is applicable on jewellery utilized for personal use. Such supplies shall be considered as deemed supplies. Such deemed supplies are subject to general exception of AED 2000 worth of Output tax on deemed supplies for each Person for a 12-month period. Article (11) Federal Decree-Law (VAT) & Article (5) Executive Regulation (VAT).

Q Explain the concept of Reverse Charge Mechanism on sales made by wholesaler (B2B)?

Reverse Charge Mechanism moves the responsibility for the reporting of a VAT transaction from the seller to the buyer of a good or service. When a transaction is subject to Reverse Charge, the recipient of the goods or services reports both their purchase (input VAT) and the supplier’s sale (output VAT) in their VAT return. These two declarations offset each other from a cash payment point of view, but the authorities have full visibility of the transactions.

Q List all the items which are eligible to be sold under Business to Business (B2B) RCM scheme of Gems and Jewellery Sector?

Following are the items which are considered eligible for Business to Business (B2B) RCM scheme:

• Gold,
• Diamonds, and
• Any product where the principal component is of gold or diamonds.

Q List of few items which are not eligible to be sold under B2B RCM scheme of Gems and Jewellery Sector?

Following items are not considered eligible for Business to Business (B2B) RCM scheme:

• Silver,
• Platinum,
• Pearls,
• Artificial Jewellery, etc.

Q Will there be any tax implication if goods are transferred between related parties without any consideration?

Supply of asset without any consideration is within the scope deemed supply and the same is applicable to VAT. Accordingly, VAT is applicable on goods transferred between related parties without any consideration. Article (11) Federal Decree-Law (VAT)

Q What are the tax implication on inter branch transaction within the tax group?

Any supply made by a member of the Tax Group to another member of the same Tax Group may be disregarded. Thus Supplies within the Tax Group will not be considered as taxable supply. Article (12) Executive Regulation (VAT).

Value of Supply

Q How to determine the Value of supply for Jewellery?

• Value of supply with Consideration shall be as follows: Article (34) Federal Decree-Law (VAT)
• If the entire Consideration is monetary, the value of the supply shall be the Consideration less the Tax.
• If all or part of the Consideration is not monetary, the value of the supply is calculated as the overall monetary part plus the market value of the non-monetary part of the Consideration, and shall not include the Tax.

Value of supply without Consideration shall be as follows: Article (37) Federal Decree-Law (VAT)

• Value of the supply in the case where supplies are made without any consideration, will be equal to the total cost incurred by the Taxable Person to make this Deemed Supply of Goods.

Q What is the value of supply for pure gold?

Valuation of Pure Gold will be similar to the valuation provision prescribed above for supply with Consideration and supply without Consideration. Article (34) & Article (37) Federal Decree-Law (VAT).

Q What are the tax implication applied on repairing of jewellery?

VAT will be applied on repairing charges only. However if some gold is added while repairing goods, VAT shall be paid on additional gold used for repairing. Article (34) Federal Decree-Law (VAT)

Q What are the tax implication applied if a customer wants to exchange a coin/bullion with ornaments how will VAT be applied?

Since the customer is exchanging one product to the other; VAT will be levied on full value of the ornaments. If the customer is unregistered, than jeweler will have to book a non-taxable purchase from the customer. Article (34) Federal Decree-Law (VAT)

Q How will VAT apply if a customer wants to convert a chain to a mangalsutra?

Since original product is getting converted to different product, VAT will be levied on full value of mangalsutra. However, if it is termed as repairs only than VAT will be payable on additional gold value and labour charges. Article (34) Federal Decree-Law (VAT)

Q Whether packing material or complimentary bags, which are distributed to customer needs to be billed in the Invoice, if so, at what value?, if not does than whether it needs to be listed with zero value in the invoice or can be omitted?

Supply of Jewellery along with packing material or complimentary bags is considered as single composite supply. In a typical transaction of sale of Jewellery, the Principal component of this transaction is Jewellery while packing material or complimentary bags are secondary components. Accordingly, VAT will only be charged on the Principal component (i.e. sale of Jewellery). Furthermore, supply of packing material & complimentary bags do not have to be mentioned on the invoice. Article (46) Executive Regulation (VAT)

Q How to provide for Discounts given to customers? Considering both Cash Discount and Trade Discount?

VAT is calculated on the discounted price of the product. Both Cash Discount and Trade Discount are allowed as a deduction from Taxable value of supply. Article (39) Federal Decree-Law (VAT) & Article (28) Executive Regulation (VAT)

Place of Supply and Date of Supply

Q How to determine the Place of supply for Jewellery?

For a supply of goods, the place of supply is the location of the goods when the supply occurs. So, if the goods are located in the UAE during the supply, then they’re treated as supplied in the UAE and they are taxable under UAE VAT. If the goods are located outside the UAE during the supply, they’re treated as an out-of-scope supply. Special rules apply when there is a cross-border supply, a supply of water and energy, or a supply of real estate. Article (27) Federal Decree-Law (VAT)

Q What is the Date of supply for making supply of Jewellery?

• The date of supply for goods I s the earliest of the following dates: Article (25) Federal Decree-Law (VAT)
• Transfer of goods, if they’re being transferred under the supervision of the supplier
• The date when the recipient takes possession of the goods, if they’re being transferred but not under the supervision of the supplier
• Completion of assembly or installation of the goods
• On arrival of the goods, if they are being imported from outside the UAE
• Receipt of payment
• The date when a tax invoice is issued
• The recipient’s acceptance of supply/date within 12 months after the goods were transferred or places at the client’s disposal (if the supply was on a returnable basis)

Inward Supply

Q List inward supplies on which VAT credit is non recoverable?

• Following are the inward supplies on which VAT credit is non recoverable; Article (53) Executive Regulation (VAT)
• Procurement of Entertainment services for anyone not employed by the Person, including customers, potential customers, officials, or shareholder or other owners or investors.
• Where Goods or Services were purchased to be used by employees for no charge to them and for their personal benefit including the provision of entertainment services, except in the cases where it is legally obligated by labour law, it is in the normal course of business or is a deemed supply
• Input Tax credit on motor vehicle which was purchased, rented or leased for use in the Business but is used for personal purpose.

Q Is there any VAT liability on booking unfix purchase of commodity like Gold etc.?

Purchase of pure gold at an unfixed price (unfixed consideration) is a zero rated supply as it is considered an investment precious metal. Thus, there is no VAT incidence on the said transaction. Further, to substantiate this transaction, an invoice is to be raised when the Gold is booked at a certain unfixed price; on a later date when the price of gold is fixed, supplementary credit note or debit note to the original shall be raised for the differential amount considering the reduction or increase in value of supply, respectively.

Q What is the maximum time limit for making payment of Purchases / Expenses, in order to retain claim the benefit of Recoverable Input Tax ?

Payment for Purchases / Expenses has to be made in full or in part for the supply in (6) six months from the date of supply to retain the right to claim the benefit of Recoverable Input Tax. Article (64) Federal Decree-Law (VAT)

Q What factors are to be considered for availing VAT credit on purchases?

Conditions for claiming recoverable input tax credit on purchase / Expenses:

• The Taxable Person receives and keeps the Tax Invoice or Import documentation on which Input Tax was paid.
• The Taxable Person pays the Consideration for the Supply or any part thereof, within 6 months from date of supply.
• The activity of Purchase / Expense shall be conducted in the course of doing the Business Article (55) & Article (58) Federal Decree-Law (VAT)

Q What shall be the value of import of jewellery for the purpose of VAT calculation?

• The Import value of Goods consists of: Article (35) Federal Decree-Law (VAT)
• The customs value pursuant to Customs Legislation, including the
  • Value of insurance,
  • freight
  • Customs fees and
  • Excise Tax paid on the Import of the Goods.

Note : If it is not possible to determine the value as given above the value shall be determined based on alternate valuation rules stated in the Customs Legislation.

Q Can we claim VAT Credit on Credit card machine charges levied by the Bank?

Yes, a taxable person can recover the VAT assumed on credit card commission charges, if the same are used for the purpose of business. Article (58) Federal Decree-Law (VAT)

Q Can we claim VAT Credit on Utility Services expenses like Electricity, Gas, etc.?

Yes, a taxable person can recover the VAT assumed on Electricity, Gas etc, if the same are used forperson the purpose of business. Article (58) Federal Decree-Law (VAT)

Q Can a taxable person claim VAT credit when the consideration for Purchases / Expenses is provided by a third person other than the recipient?

One of the primary consideration for claiming VAT credit is that the ‘Taxable Person’ (in our case the recipient) pays the Consideration for Supply. Thus in the absence of any other clarification, it may be inferred that VAT credit will not be available when the consideration for Purchases / Expenses is provided by any person other than the recipient. Article (55) Federal Decree-Law (VAT)

Q Can we claim VAT credit of any entertainment expenses incurred by the company for its employees?

Any expense where Goods or Services were purchased to be used by employees for no charge to them and for their personal benefit including the provision of entertainment services, are disallowed for the purpose of claiming VAT Credit, except in the cases where it is legally obligated by labour law, it is in the normal course of business or is considered a deemed supply. Article (53) Executive Regulation (VAT)

The phrase “entertainment services” shall mean hospitality of any kind, including the provision of accommodation, food and drinks which are not provided in a normal course of a meeting, access to shows or events, or trips provided for the purposes of pleasure or entertainment.

Invoice and Record Keeping

Q What are the essential features of an invoice raised by both Normal delaers and wholesalers?

Tax Invoice shall contain all of the following particulars:

1. The words “Tax Invoice” clearly displayed on the invoice.
2. The name, address, and Tax Registration Number of the Registrant making the supply.
3. The name, address, and Tax Registration Number of the Recipient where he is a Registrant.
4. A sequential Tax Invoice number or a unique number which enables identification of the Tax Invoice and the order of the Tax Invoice in any sequence of invoices.
5. The date of issuing the Tax Invoice.
6. The date of supply if different from the date the Tax Invoice was issued.
7. A description of the Goods or Services supplied.
8. For each Good or Service, the unit price, the quantity or volume supplied, the rate of Tax and the amount payable expressed in AED.
9. The amount of any discount offered.
10. The gross amount payable expressed in AED.
11. The Tax amount payable expressed in AED together with the rate of exchange applied where the currency is converted from a currency other than the UAE dirham.
12. Where the invoice relates to a supply under which the Recipient of Goods or Recipient of Services is required to account for Tax, a statement that the Recipient is required to account for Tax, and a reference to the Article (48) Federal Decree-Law (VAT)

Q How to account for Sales return as per VAT Legislation?

A taxable person shall raise a credit note to account for Sales Return of goods. Article (62) Federal Decree-Law (VAT)

Q How long must a taxable person retain VAT invoices for?

Any taxable person must retain VAT invoices issued and received for a minimum of 5 years.

Q What is the maximum time-period of storing the books of accounts?

The time period for holding and maintaining any of the records is as follows: Executive Regulations – Federal Law No. (7) of 2017 on Tax Procedures

1. For a period of (5) years after the end of the Tax Period to which they relate in the case of a Taxable Person.
2. For a period of (5) years from the end of the calendar year in which the concerned document was created in the case of non-Taxable Persons.
3. For a (15) years in the Tax Law for real estate records.

Q What records are to be maintained to be compliant with the law?

Without prejudice to the provisions related to record-keeping stated in any other law, the Taxable Person shall keep the following records:

1. Records of all supplies and Imports of Goods and Services.
2. All Tax Invoices and alternative documents related to receiving Goods or Services.
3. All Tax Credit Notes and alternative documents received.
4. All Tax Invoices and alternative documents issued.
5. All Tax Credit Notes and alternative documents issued.
6. Records of Goods and Services that have been disposed of or used for matters not related to Business, showing Taxes paid for the same.
7. Records of Goods and Services purchased and for which the Input Tax was not deducted.
8. Records of exported Goods and Services.
9. Records of adjustments or corrections made to accounts or Tax Invoices.
10. Records of any Taxable Supplies made or received in accordance with Reverse charge mechanism, including any declarations provided or received in respect of those Taxable Supplies.
11. A Tax Record that includes the following information:
    1. Due Tax on Taxable Supplies.
    2. Due Tax on Taxable Supplies pursuant to the Reverse charge mechanism.
    3. Due Tax after the error correction or adjustment.
    4. Recoverable Tax for supplies or Imports.
    5. Recoverable Tax after the error correction or adjustment.

Q What document shall be raised to acknowledge receipt of payment from customers in advance?

The VAT legislation provides for issue of alternative documents other than Tax invoice to substantiate collection of VAT. Accordingly an ‘Advance Receipt’ Note shall be raised to record advance received.

Q List the set of declaration that are to be collected by the supplier from a Taxable recipient to avail the benefit of Reverse Charge Mechanism?

The following declarations are to be requisitioned by the supplier from a Registrant Recipient in writing to avail the benefit of Reverse Charge Mechanism:

1. The acquisition of the Goods is for the purpose of resale or use to produce or manufacture any of the Goods
2. The Recipient is registered on the date of supply.
3. The Recipient shall calculate Tax on the value of the Goods supplied to him.

Return Filing

Q How to identify the tax period for filing returns?

• Taxable Persons must file VAT returns with the FTA on a regular basis, within 28 days of the end of the Tax Period, which shall be:

• Quarterly for businesses with an annual turnover below AED 150 m
• Monthly for businesses with an annual turnover of AED 150 m or more.

Q What are the details that are required to be reported in the VAT Return?

With respect to sales and other outputs, the following items will have to be reported in VAT 201 – Return:

• supplies of goods and services made which are subject to the standard rate of VAT per Emirate;
• tax refunds you have provided to tourists under the Tax Refunds for Tourists Scheme, if you are a retailer and provide tax refunds to tourists in the UAE under the official tourists refund scheme;
• supplies of goods and services received by the Taxable Person which are subject to the reverse charge provisions;
• supplies of goods and services made which are subject to the zero rate of VAT;
• supplies made which are exempt from VAT;
• goods imported into the UAE and have been declared through UAE customs; and
• where applicable, adjustments to goods imported into the UAE and which have been declared through UAE Customs.

With respect to purchases and other inputs, the following items will have to be reported in VAT 201 -Return:

• purchases and expenses that were subject to the standard rate of VAT and for which you would like to recover VAT; and
• any supplies which were subject to the reverse charge for which you would like to recover input tax.

Q How to provide for Sales Bills of previous period, in the current tax period return?

If the tax payable amount of bills that were missed in the previous month is less than AED 10,000 then you can correct this error in the current VAT Return in which you have discovered the error. If the tax payable amount of bills that were missed in the previous month is more than AED 10,000 then you should make a ‘Voluntary Disclosure’.

Q How to provide for Purchase / expense Bills of previous period, which the taxable person may have missed while filing previous terms return?

The Taxable Person may include the missed Purchase / expense Bills in the Tax Return for the subsequent Tax Period. Article (55) Federal Decree-Law (VAT)

Q How to claim Refund of Excess credit in the books of account

Every Taxable Person is required to file a VAT return summarizing the VAT due to the FTA for the tax period. When the input tax is greater than output tax on a VAT return, the Taxable Person is able to request a VAT refund after submission of the VAT return or at any later time when there is a credit owed to them. VAT 311 –Tax Refund form needs to be filed to claim refund of excess credit in the books of account

Q What are the disclosure requirements during import of Material in UAE?

A taxable person has to file VAT 301 – Import Declaration Form for VAT Payment. The following details are required for filing Import Declaration Form

• Customs Authority
• Declaration Number
• Declaration Date
• About Declaration – TRN number, import date, destination, etc. (will be automatically retrieved from the system)
• Declaration Details – HS Code, Import Value, Customs Duty, CIF Value, etc. (will be automatically retrieved from the system)

Q What is the penalty for Non-fling / Short Filing / Late Filing of Return?

Following are some of the important penalties prescribed by Cabinet Resolution No. (40) of 2017

Other Areas – Audit

Q What is the turnover limit for getting eligible for Audit under VAT Legislation?

There is no monetary limit beyond which Audit will get applicable. However FTA Authorities will suo motu select cases for the purpose of audit. It is mandatory for the FTA to conduct regular audits to check the compliance of various businesses to the tax laws. These audits can be conducted at the office or at any other place of business of the concerned party, as per the choice of the FTA. The notice of the same must be issued to the person/business by the FTA at least five days in advance.1

Disclaimer: The views expressed in this FAQ are matters of opinion. Our answers outlined under this FAQ are based on our understanding of the FTA UAE law and regulations prevailing as of the date of this document. Our answers/ views shall only serve as a reference point and should not be quoted in whole or in part, disclosed or made available to external parties / authorities or referred to in any document, without our prior written consent.

About Author

Author of this article is an Practicing CA based out of Mumbai. He can be reached at [email protected].