FTA clarifies VAT rule for gold
New Cabinet decision on the reverse charge mechanism for the gold and diamond sector will only pertain to commercial transactions between registered dealers.
dubai — The Federal Tax Authority (FTA) on Wednesday clarified that the new Cabinet decision issued about VAT reverse charge mechanism for the gold and diamond industry will only pertain to commercial transactions between registered dealers.
As per the reverse charge mechanism, registered dealers shall not charge Value Added Tax (VAT) when supplying to 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.
Khalid Ali Al Bustani, directorgeneral, FTA, explained that the reverse charge mechanism (RCM) applies on supplies of gold and diamonds between registered businesses. This includes 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.
The authority said the impact of VAT on sales of gold and diamonds to be reduced between registered dealers according to reverse charge mechanism. Thomas Vanhee, Partner, Aurifer Middle East Tax, said Cabinet decision only applies in B2B situation where the diamonds and gold are sold for resale or manufacturing. In other words retail sales of gold and diamonds are still fully subject to VAT at five per cent.
He pointed out that rumours have it that the gold lobby in Saudi Arabia is requesting similar reliefs from the government. Nirav Shah, director, Fame Advisory, said the Cabinet decision on transaction for gold and diamond trade which takes place between two VAT registered businesses will not be required to charge VAT. Only recipient needs to account under reverse charge. “This is very positive for the industry as it will reduce compliance burden on wholesale segment. It’s a welcome move,” Shah said.
“While this is a welcome move, one needs to be careful as recoverable input tax can only be claimed as credit for any taxable supply, such treatment could be treated as being outside the scope as these invoices are not to be reported, hence one needs to be careful while claiming input tax credit if majority of turnover consists of whole sale trade sales,” he added.
The Cabinet decision maintains that taxable persons are generally entitled to deduct the tax they incur on their inputs in their tax returns; hence registered gold and diamonds recipients can recover the tax they incurred on their purchases in the same tax return in which they calculate their due taxes, thus maintaining liquidity and cash flow.
— waheedabbas@khaleejtimes.com