UAE VAT Update: FTA releases update on VAT treatment on sale of Gold and Diamonds
The UAE Federal Tax Authority recently published the Cabinet Decision No. (25) of 2018 on the ‘Mechanism of Applying Value Added Tax on Gold and Diamonds between Registrants in the State’.
Per the said decisions, where a business supplies gold or diamonds to a VAT-registered recipient, and the recipient is purchasing the goods in order to either resell, produce or manufacture gold and diamond based products, the supplier will not be required to account for VAT on such sales or report it on its VAT return. Instead, the VAT-registered recipient will be required to account for the tax and include the output tax due on the supply on its VAT return.
The recipient will then also be able to recover the VAT on the supply on the same VAT return, subject to its normal input tax recovery position. As a result, fully taxable businesses which purchase gold and diamonds for resale, production or manufacture will not have to make payment of the VAT due on the Supply.
In order to apply the mechanism on the supply of gold or diamonds, the following conditions must be met:
- The recipient of the goods must be registered for VAT in the UAE at the date of supply.
- The recipient must be purchasing gold or diamonds, or products where the principal component is gold or diamonds.
- The recipient must be purchasing the goods in order to resell, produce or manufacture them into another product where the principal component is gold or diamonds.
- The recipient business must have provided confirmation in writing that it is registered for VAT at the date of supply, that the purposes of obtaining the goods is for resale, production or manufacture of such goods, and that it will account for the VAT due on the supply.
This decision is to provide much needed impetus to the industry, as it provides a solution to the problem of cash-flow on account of VAT. Accordingly, it is very important for businesses dealing in wholesale supply or manufacturing of gold, diamonds or products where principal component is gold or diamonds, to take note of the above mentioned changes and take appropriate measures.
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