The Federal Tax Authority (FTA) has issued a new VAT Public Clarification VATP029 on Gold – Making Charge (“VAT Public Clarification VATP029”, “Public Clarification”) providing guidance on the application of the UAE VAT legislation regarding the fee received for the crafting of a gold item by jewelers.
VAT Public Clarification summary
The newly published VAT Public Clarification VATP029 specifies that the suppliers of gold items are required to impose VAT on the service of making a jewelry item if a separate fee for such service is identified and charged by the jeweler.
VAT Public Clarification VATP029 applies only to gold and products consisting mostly of gold, referred to as “gold items”, that are subject to VAT under a special reverse charge mechanism (RCM) stipulated in the Cabinet Decision No. 25 of 2018 on the Mechanism of Applying Value Added Tax on Gold and Diamonds between Registrants in the State (“Cabinet Decision No. 25”), which requires the registered recipient to account for VAT on the supply instead of the supplier.
The Public Clarification confirms that, where the supplier charges a single price for the gold item and the making charge, the supply can be construed as a single composite supply of a gold item subject to VAT under RCM. However, where the charge for the crafting service is reflected separately, the supplier will be regarded as making multiple supplies and would be required to apply the correct tax treatment to each separate component.
The Clarification further reminds taxpayers that the supply of services does not fall under the special mechanism described in Cabinet Decision No. 25. Consequently, the supplier would be required to account for VAT on the service of producing a gold item (i.e. RCM is not available) and meet various relevant reporting and record-keeping obligations. The recipient might be entitled to recover the VAT charged, provided all necessary conditions prescribed by the UAE VAT legislation are met.
The guidance further prompts the taxpayers to submit a VAT Voluntary Disclosures in order to correct any instances where an incorrect VAT treatment (i.e. RCM) on the supplies of services related to the crafting of gold items was applied in the past.
KPMG has a team of experienced tax specialists that can help you assess your current tax position, prepare VAT Voluntary Disclosures and clarification requests, advise on the appropriate tax treatment, or represent you in front of the FTA as registered tax agents.
We are happy to discuss your specific circumstances with you and determine the way forward should you have any questions or concerns in this regard. Please get in touch with your usual KPMG contact or any of the tax professionals below.