The Federal Tax Authority has published a public clarification to provide the guidance on the application of the VAT legislation with regards to making charges received by gold jewellers.

The key highlights of this public clarification are as follows:

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• Tax registrants supplying gold are not required to impose VAT on the supply of gold and products which mostly consist of gold if below conditions are met:

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• Recipient is VAT registered

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• Supplier retains a written declaration from the recipient that gold items will be used to produce other gold items or to re-sell gold items received

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• Recipient shall account for VAT on the gold items supplied

In such cases, VAT in respect of the gold is accounted for under a special reverse charge mechanism, which requires the registered recipient to account for VAT on the supply instead of the supplier.

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• The reverse charge mechanism only applies to the supply of goods (and not services) by a registrant and applies to gold and products consisting mostly of gold that do not qualify for zero-rating.

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• In some instances, gold price and making charge are shown separately on the tax invoice, and in other cases both are reflected as a total price. If the supplier charges separate considerations for the gold and the making service, the supplier is required to impose VAT on the service component.

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• Where 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.

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• Single composite supply: can qualify for reverse charging if the supplier charges a single price for the Gold Item, including the making charge, if the following condition are met:

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• The supply consists of a principal component (Gold Item) and ancillary/incidental elements (the making service)

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• The price for the Gold Item and the making charge is not separated

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• The Gold Item and the making service are supplied by the same supplier

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• Multiple supplies: If the supplier charges separately for the Gold Items and for the making service, 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. The supply of the making services does not fall under the special reverse charge mechanism. Supplier will be required to issue valid tax invoices in respect of the taxable supply of making services

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• In instances where a supplier applied incorrect VAT treatment, the supplier shall submit a voluntary disclosure.

Please note that this memo is for information purposes only and should not be construed as an advice. It does not necessarily cover every aspect of the
topics with which it deals. You should not act upon the contents of this alert without receiving formal advice on your particular circumstances.

If you would like to discuss Tax & VAT services, please drop us an email at info@premier-brains.com or call us at + 971 4 3542959.

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