The Federal Tax Authority (FTA) clarified that the recently issued VAT reverse charge mechanism on gold and diamond is only for commercial transactions between registered dealers
In a press statement, the FTA noted that non-registered businesses are still required to pay the five percent VAT on their purchases of gold and diamonds. The tax due will be stated in the tax invoice issued by the registered merchant, who, in turn, pays it forward to the FTA, reported WAM.
Meanwhile, registered dealers shall not charge VAT when supplying another tax registered merchant with gold, diamonds or products where the principal component is of gold or diamonds, as long as the latter intends to resell such products, or use them to manufacture gold, diamonds or products where the principal component is of gold or diamonds. The registered recipient must include such supplies in his tax returns.
FTA Director-General Khalid Ali Al Bustani explained that the reverse charge mechanism applies on three categories of supplies –gold, diamonds or products where the principal component is of gold or diamonds, such as jewellery. This procedure does not apply to zero-rated supplies, namely exports of gold, diamonds or products where the principal component is of gold or diamonds; as well as the supply of investment grade precious metals.
Al Bustani said the recent Cabinet order on VAT “builds on the government’s efforts to facilitate the implementation of the tax system in the UAE, ensuring its consistency with the highest international standards.”
Conditions for transactions
The FTA outlined that four conditions have to be met for supplies to be eligible for the reverse charge mechanism on gold and diamonds.
Retailers must be registered for VAT with the FTA on the date of supply; the purchase must be made with the intention to resell the supplies, or use them to manufacture products where the principal component is of gold or diamonds; the recipient must declare to the supplier (in writing) that he/she is registered with the FTA at the date of supply and that his/her intention from purchasing the supplies is to resell them or to produce or manufacture products where the principal component is of gold or diamonds; and finally, the recipient must state his/her intention to account for the tax on this supply in his/her tax return.
The Federal Tax Authority has also published a template that the registered recipient can provide the supplier to ensure the above four conditions are met. The Authority also called on the supplier to verify the recipient’s registration status using the Tax Registration Number Verification tool available on the FTA website.
