Applicability of VAT on Gold Making Charges in the UAE

Tax agents in the UAE welcome the new Public Clarification (VATP029) issued by the Federal Tax Authority (FTA) as it brings more clarity over the VAT treatment on the making charges of Gold received by the gold jewellers. As per the UAE VAT regulations, tax registrants who supply gold are not required to charge VAT on the supply of Gold if they meet conditions specified 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.

In such cases, a reverse charge mechanism applies where, instead of the supplier, the registered recipient needs to account for VAT on the supply. However, the reverse charge mechanism applies only to the supply of the goods by the registrant and not services. Moreover, if the supplier charges separately for both the gold prices and making services or reflects the price of these components separately, the supplier must impose VAT on the service component.

Consult with VAT consultants in Dubai to understand when to apply the reverse charge mechanism and when to impose VAT on the service component. More details can be obtained by going through the following blog:

Reverse Charge Mechanism on the Supply of Gold Items

Suppliers of gold items should note that the reverse charge mechanism on gold can be applied only to gold products and not services. VAT registrants selling gold items need not impose VAT on the supply of the following conditions are met:

  1. The recipient is a VAT registrant
  2. The supplier retains a written declaration from the recipient that confirms all of the following details
  • 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 will account for the VAT on the Gold Items supplied to him

Once all these conditions are met, the recipient can calculate the VAT on the value of the Gold he received and comply with all the relevant tax obligations related to that supply. VAT consultants in Dubai can assist the recipients to calculate the amount and comply with the VAT obligations.

VAT on Single Composite Supplies of Gold Items

The supply of gold will be regarded as a single composite supply if the supplier charges a single price for the Gold item, including the making charge. However, it should meet the following conditions as well to be deemed a single composite supply:

  • The supply consists of a principal component (the Gold item) and ancillary or incidental elements (the making service), or these two elements are closely linked to constitute a single supply making it impossible/unnatural to split
  • The price of the gold product and its making charge are not separated
  • The same supplier provides the Gold Item and the making service

Applying Reverse Charge Mechanism on Single Composite Supplies

If the supply is a single composite supply, it would qualify for a reverse charge mechanism provided all the conditions listed in Cabinet Decision No. 25 are met. In such a case, both the supplier and the recipient must retain adequate supporting documents such as a valid tax invoice from the supplier that reflects one single consideration for the Gold Item (including the making service) and states that the reverse charge mechanism was applied. The assistance of tax agents in Dubai can be used to accurately apply the reverse charge mechanism and organise the necessary documents.

VAT on Multiple Supplies of Gold Items

A supplier of a gold item will be making multiple supplies if he charges separately for the gold item and the making service or reflects the prices of those elements separately. In such cases, the supplier must treat each component as a separate supply and apply the exact VAT treatment to each separate component. In the case of multiple supplies, only the VAT on the Gold items is eligible to be accounted for in the reverse charge mechanism, given all the conditions as per the Cabinet Decision No. 25 are met. Since the supply of making services are not eligible for the application of the reverse charge mechanism, the supplier must account for VAT on the making charges if he is a taxable person.

Consult with the Best VAT Consultants in Dubai, UAE

It is advisable for gold jewellers to avail of the services of tax agents in Dubai to clearly understand the VAT treatment on gold-making charges. VAT consultants in Dubai such as Jitendra Chartered Accountants (JCA) can help the gold items suppliers to account for VAT on the gold price and make service charges. We can advise you on the situations where the reverse charge mechanism can be applied and the instances where the supplier must account for VAT. JCA has an FTA-approved tax agent who can assist the gold jewellers in the entire process. Consult with JCA today to ensure complete VAT compliance in the UAE without any hassle.