NEW VAT LEGISLATION ISSUED TO EASE GOLD AND DIAMOND TRADE
For recovering from the declining sale of gold, the UAE Cabinet had adopted a law to introduce VAT Reverse Charge Mechanism for the investors in gold, diamond and precious metal. As per the proposed changes, VAT is to be levied only on the making charges ( value addition ) and not on the gold value. Under the proposed changes, there would be no actual payment of VAT on the business to business transactions and there would only be documented entries of 5% VAT in the books of the buyer as well as the seller with no fee payment. It is the recipient who has to pay the tax instead of overseas supplier and then he has to record VAT on the purchase and sale that would lead to cancellation and would result in a tax free transaction.
5 months after UAE had instituted 5% VAT, Cabinet Decision No 25 of 2018 on the Mechanism of Applying VAT on Gold and Diamond Registrants between in the state has been introduced with an aim to :
- plummet the sale of gold and diamond
- To ease the cash flow without affecting the retail purchaser’s final tax liability
Article 4 of the resolution states that the decision is to be implemented from 1st June,2018 and would be published in the official gazette.
RULES TO BE APPLIED IN CASE A SUPPLIER MAKES SUPPLY OF GOODS TO A REGISTRANT RECIPIENT IN THE STATE AND THE RECIPIENT INTENDS TO EITHER RESELL SUCH GOODS OR USE THEM TO PRODUCE OR MANUFACTURE ANY OF THE GOODS ( Article 2 (1) of the Cabinet Resolution No 25 of 2018 )
In case the registrant recipient declares in writing :
- The acquisition of the goods is for the purpose of resale or use to produce or manufacture any of the goods
- The recipient is registered on the date of supply
- The recipient shall calculate tax on the value of the goods supplied to him
Then the supplier would not be liable for the purpose of calculating tax in relation to the supply of goods and would not include it in his tax return.
It is the recipient who has to :
- Calculate tax on the value of goods which are supplied to him
- Has to be responsible for all the applicable tax obligations related to the supply
- Calculating due tax in respect of such supplies
SITUATIONS IN WHICH PROVISIONS OF (1) WOULD NOT APPLY :
- Where the supplier was aware of was supposed to be aware that the recipient was not a registrant at the date of supply
- In case the supplier has not verified that the recipient is registered at the authority in accordance with the written declaration as per the means approved by the authority
- In case the taxable supply is subject to tax at zero rate in accordance with the clauses (1) or (8) of Article (45) of the referenced Federal Decree Law No 8 of 2017
CASE WHERE THE RECIPIENT AND THE SUPPLIER IS TO BE LIABLE JOINTLY AND SEVERALLY ( Article 2 (3) of the Cabinet Resolution No 25 of 2018)
In case the supplier was aware or was supposed to be aware that the recipient was not registered for tax purposes at the date of supply, then the supplier and the recipient would be liable jointly as well as severely liable for any due tax and relevant penalties in respect of the supply.
This step would :
- allow the investors in gold, diamond and precious metals to conduct business with ease and would also contribute in stabilising the gold and diamond sector in the UAE as well as stimulating investment in the sector.
- facilitate the investors for investors and would contribute to the stabilisation of the country’s oil and diamond sector as well as stimulate investment.
The wholesale jewellery sector would see a major revival of sales as the emirate would reinstate its appeal as the most competitive global jewellery sourcing hub since only 10% of the gold which is imported into Dubai is consumed locally and the rest is re exported.This mechanism records VAT on wholesale transactions in the business accounts without any actual debit or payment which would ease the cash flow on the part of the retailers as they will not have to worry about their final tax liability as well.