VAT implications in making charges- Jewelery Sector

The Federal Tax Authority (FTA) issued a new public clarification (VATP029) recently detailing the applicability of VAT legislation on the making charges received by gold jewellers.

Issue

Pursuant to Cabinet Decision No. 25, VAT in respect of gold is accounted for under a special reverse charge mechanism (RCM) which allows the registered recipient to account VAT on the supply instead of the supplier. Importantly, this RCM mechanism only applies to the supply of goods by the registrant. In other words, if the supplier charges separate considerations for the gold and the making service charges or reflects these components separately, the supplier is required to impose VAT on the service (i.e., making charges) component.

WHAT IS OUR ANALYSIS?

For the purpose of this clarification, the scope only covers gold and products where the principal component is gold or diamonds. This indicates that the supply of precious metals for investments (based on the purity of the gold and metals traded in the global bullion market) falls outside the scope of this clarification.

As indicated above, in the UAE any tax registrants supplying gold items shall not impose VAT on their supply and instead, the customer shall account VAT under RCM if the following requirements are met:

• The recipient is registered for VAT
• The supplier retains a written declaration from the recipient confirming that they use such gold items to produce or manufacture other gold items or to resell them
• The recipient shall account for VAT on the gold item supplied

The complexity arises when the supplier sells the gold item with making charges to the recipient. In such a situation, the supplier must consider whether the supply constitutes a single composite supply of a gold item or multiple supplies.

HOW MBG CAN HELP YOU?

?The MBG team comprises tax and legal professionals who are highly experienced in interpreting statutes and examining evidence and supporting documents.

We help companies meeting tax compliance obligations, optimize cost, mitigate risks, and avoid unnecessary penalties using various approaches.

Contact us to discuss this tax update in more detail.