ABU DHABI 31 May 2018: The Federal Tax Authority (FTA) said the UAE Cabinet decision to exempt Value Added Tax (VAT) relates only to commercial transactions between gold and diamond dealers registered with the FTA.
It is understood that retail buyers will have to pay the 5 per cent VAT on gold and diamond purchases.
FTA said the cabinet decision seeks to provide the adequate legislative environment and infrastructure for the gold and diamonds sector to thrive.
The decision also improves cash flow among registered suppliers of gold and diamonds, reduces their tax burden, helps them maintain smooth commercial operations, and cements the UAE’s status as a leading global hub for the gold, diamond and jewellery trade sector.
Reverse Charge
As per the reverse charge mechanism, 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.
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.
Non-registered Firms
Non-registered businesses are still required to pay the 5% 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.
FTA Director General Khalid Ali Al Bustani explained that the reverse charge mechanism 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 FTA outlined that four conditions have to be met for supplies to be eligible for the reverse charge mechanism on gold and diamonds, namely: the recipient 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 or 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.
Licensing Procedure for Exhibition and Conference Services to Refund VAT to Registrants
FTA said the cabinet decision to refund VAT on services provided at exhibitions and conferences seeks to cement the UAE’s status as a leading destination for local, regional and international forums.
The decision supports the UAE leadership’s directives to ease the tax burden on business sectors, and empower them to play an effective role in the country’s sustainable development.
FTA called on businesses providing exhibition and conference services as defined by the Authority to register in the VAT system and acquire a Tax Registration Number (TRN), as well as a license from the FTA to provide these services according to a set of conditions that allow them to recover taxes on their services.
Refunds on Services
Refunds can be claimed for two types of services, the Authority indicated; the first is the grant of the right to access, attend or participate in a conference, while the second is the grant of the right to occupy space for the purpose of conducting a conference or an exhibition.
The new Decision reflects the widespread awareness around the importance of the dynamic exhibitions and conferences sector, which attracts investors from financial markets around the world. The UAE has become a magnet for investors across all sectors with its robust infrastructure and diversified economy.
Six Conditions
The FTA explained that according to the Cabinet Decision, six conditions must be met to be able to recover VAT on services provided for exhibitions and conferences: The supplier must request the refund on their tax return for the same tax period where the services were supplied; the amount claimed must be equal to or less than the tax imposed on the supply of services for exhibitions and conferences; the recipient of services must not have a permanent establishment or fixed establishment in the UAE; the recipient must not be registered or required to register for tax in the UAE; the recipient must not have paid tax to the supplier; and finally, the supplier must receive a written confirmation from the recipient corroborating the three previous conditions.
The Authority went on to clarify that the Cabinet Decision applies to any exhibition held under a permit from the competent local authority for a period not exceeding seven days, as well as any formal meeting between persons of shared interest licensed by the competent local authority also for a period not exceeding seven days.