UAE VAT Public Clarification VATP029 – Interpretation

The Federal Tax Authority (FTA) in UAE has recently issued a public clarification – VATP029 on Gold Making Charges, 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‘.

Purpose of the clarification 

It provides guidance on the instances where the “Making charges or  the consideration received by gold  jewellers to cover the  price of gold” are taxable under VAT or not.

Scope

• 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)

Special Exclusions

• The Export of Gold items.
• Supply of Investment precious metals which do not qualify for RCM as per Cabinet decision no. 25.

Detailed Analysis

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 :

• If the supplier charges a single price for the Gold Item, including the making charge, the supply will be regarded as a single composite supply of Gold Items.
• 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.

Multiple Supplies :

• If the supplier charges separately for the Gold Items and for the making service, or where the price of these components are separately reflected, the supplier is regarded as making multiple supplies.
• In these cases, 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 RCM, provided all the requirements of Cabinet Decision No. 25 are met.
• The supplier is required to account for VAT on this making service if the supplier is a taxable person.
• The supplier will be required to issue valid tax invoices in respect of the taxable supply of making services.
• 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.

Correction of errors

Where a supplier had applied incorrect VAT treatment previously, the supplier shall submit a voluntary disclosure.

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.

However, the above provision does not apply to the articles which are specifically excluded, i.e.,

1. Export of Gold items outside UAE.
2. 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.

Author’s note to certain FAQs

• The given clarification will apply retrospectively, i.e, from the date of implementation of law – 01/06/2018.
• This public clarification is applicable on transactions occurring between the
  Registered Persons in UAE. Therefore, no impact on import of Jewellery.
• How to prepare invoice when we want to show Gold items and making charges separately?
  • B2B (RCM) will be applicable on Gold Items.
  • VAT on making charges will have to be levied separately in forward charge.
  • If required, separate invoices will have to be raised for both gold items and making charges.
• How to prepare invoice when we want to show both gold items and making charges together?

This will be shown as a Single composite supply, where Gold items will be considered as primary supply. RCM will be applicable on both.

NOTE :  This is one of the possible interpretations. However, there could be other views of experts on this.