VAT Public Clarification On Gold-Making Charge in UAE

Gold-Making Charge

• The Public Clarification provides guidance on the application of the VAT legislation with regards to making charges received by gold jewellers.
• This clarification only applies to gold and products consisting mostly of gold, that do not qualify for zero-rating.
• Tax registrants supplying gold are not required to impose VAT on the supply of gold and products which mostly consist of gold, if the conditions of Cabinet Decision No. 25 of 2018 are met.
• The reverse charge mechanism only applies to the supply of goods by the registrant.
• If the supplier charges separate considerations for the gold and the making service or reflects the price of these components separately, the supplier is required to impose VAT on the service component.

Practical example

ABC Gold LLC a VAT-registered entity in the UAE mainland supplied gold to another VAT-registered entity XYZ Jewelry LLC in the mainland. The invoice split is as follows:

1. Gold items: AED 100,000/-
2. Making charges: AED 6,000/-

The accountant of ABC Gold LLC is of the opinion that the company is not required to charge VAT on entire consideration i.e., AED 106,000/- as long as the customer provides a declaration as per Cabinet Decision No. 25 of 2018.

Whether the argument of the accountant is correct?

Solution: Tax registrants supplying Gold Items, shall not impose VAT on the supply if the following requirements are met:

• The recipient is registered for VAT
• The supplier retains a written declaration from the recipient confirming all of 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.

It is important to note that the special reverse charge mechanism under Cabinet Decision No. 25 only applies to goods and not to services. 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.

If the supplier charges separately for the Gold Items and for the making service, or where the price of these components is 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 reverse charge mechanism, provided all the requirements of Cabinet Decision No. 25 are met.

The supply of the making services does not fall under the special reverse charge mechanism under Cabinet Decision No. 25 in cases of multiple supplies. Hence, the supplier is required to account for VAT on this service if the supplier is a taxable person.

In the present case, ABC Gold LLC can supply the gold worth AED 100,000/- to XYZ Jewellery LLC under a special reverse charge mechanism if they provide the declaration under Cabinet Decision 25 of 2018. But the making charges worth AED 6,000/- will attract VAT at standard rate.

*Important Note: Cabinet Decision No. (25) of 2018 on the Mechanism of Applying Value Added Tax on Gold and Diamonds between Registrants in the State was implemented in 01/06/2018. Therefore, the tax registrants should consider the applicability of this public clarification with effect from this date.

Any questions or queries on this, please revert to tax@hlbhamt.com

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