Federal Decree-Law No. 8 of 2017 regulates VAT in UAE, where an amount of 5% is levied as VAT on most commodities and services. This article explains the applicability of VAT on gold trade as per the latest VAT law in UAE.
Conditions to be Eligible for Exemption of VAT on Gold Transactions
To avail VAT exemption on gold trade in UAE, there are notable requirements that must be met as listed under VAT Law Federal Decree No. 8/017 and the Ministerial Decision No. 43/2020.
- High Purity Metals: VAT only taxes gold, silver, and platinum when the percentage purity was above 99%. The VAT exemption applies on very high-purity metals of investment-grade.
- Investment-Grade Products: Only the investment-grade commodities such as bars, coins, and bullions qualify as VAT-exempt commodities. They need to have purities within permissible limits set by the UAE FTA.
- Registered Businesses: The exemption applies on transactions between VAT-registered businesses. The supplier and the recipient should be VAT registered, and their transactions should meet the requirements of the VAT law.
Documentation Requirements
Business firms that seek to benefit from VAT exemption are required to provide the requisite documents. Federal Tax Authority regulation ensures transparency in accountability in a transaction involving VAT as:
- Transaction Records: Businesses must keep careful and accurate records of all kinds of transactions of gold including VAT invoices.
- Proof of VAT Registration: Proof of VAT registration should be furnished.
- Compliance with the tax laws of UAE: VAT filings must be maintained; VAT returns must be submitted on time; and all other regulations formulated by the FTA must be adhered to.
VAT Exemption Impact on Gold in the UAE
VAT exemption is also provided on importation and exportation of gold, platinum, and silver.
In 2022, the FTA published a public clarification (VATP029) on VAT in relation to the application of VAT on gold-making charges. It is an aspect that deals with businesses operating within the gold jewelry industry, thus clarifying the VAT to be applied to the service aspect of gold dealings. The main characteristics are highlighted below:
- Composite Single Supply: If a gold trade is made in one price with making charges it is considered as a composite supply. If gold is the major component, the total supply will be charged to VAT under the RCM.
- Multiple Supplies: If making charges are recovered separately, VAT has to be recovered on the making charges at the standard rate of 5%, and VAT recovered on gold is under the reverse charge mechanism.
- Exemptions: Exports of gold and investment-grade metals, which satisfy the purity requirement, have no VAT levied, which also makes them more attractive in international markets.
Reverse Charge Mechanism on Gold Trade
This scheme has been introduced under Cabinet Decision No. 25 of 2018, and reverse charge mechanism has been allowed in certain gold transactions, provided they comply with the following conditions:
- The recipient is VAT-registered at the time of the transaction.
- The recipient uses the gold for manufacturing, production, or resale purposes.
- Declaration by Supplier: The supplier must be given a declaration by the receiver to be VAT-registered and what use he will make of the gold.
If the above are satisfied, the receiver shall be held liable for accounting for VAT, and the supplier shall not be liable to pay VAT upon the transaction.
Key Points to Remember on Gold VAT Exemption in the UAE
- VAT exemption only on 99%+ pure gold and can be availed only on B2B supplies between VAT registered entities.
- The conditions of documentary compliance and eligibility needs to be complied with to claim the VAT exemption
- Reverse charge would apply only on the gold goods and not on services such as making charges unless and otherwise treated as composite supply
Businesses are advised to seek the expert services of premier Corporate Tax Consultants in UAE to seamlessly determine VAT taxability and ensure compliance with VAT regulations.
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Frequently Asked Questions (UAE VAT on Gold)
What is the UAE rate of VAT on gold? The UAE has imposed VAT on gold @5% however 99% pure or higher known as investment-grade gold is exempt from VAT on satisfaction of specific conditions.
How are gold transactions treated under UAE VAT law? VAT in the UAE is imposed at the point of sale. On the other hand, gold which is 99% pure or used for investment purposes may fall under the reverse charge mechanism.
Are there any VAT exemptions for gold in the UAE? Yes, VAT exemption applies to gold with a purity of 99% or higher, such as bars, coins, and bullion, particularly when used for investment.
How can VAT be reclaimed on gold purchases? Yes, VAT on gold purchases can be reclaimed if the purchase meets criteria for VAT refunds, particularly for goods purchased for export.
What is the VAT compliance on gold trade in the UAE? Businesses need to maintain a record of detailed transactions and proof of VAT payments. In the event of seeking exemption, eligibility should also be documented; reverse charge mechanism followed.
What Are the Steps to register for VAT as a gold trading business in the UAE? Register via the Federal Tax Authority (FTA) by providing details about your business and gold transactions and pay the required VAT while filing regular returns.
What are the UAE VAT Law non-compliance penalties on gold and how to avoid them?
Non-compliance of VAT law in the UAE include failure to pay VAT, incorrect VAT filings, or late registration that can result in penalties/fines. Accurate records and up-to-date knowledge of VAT rules are essential to avoid penalties.
Is gold import liable to VAT in the UAE? Yes, with certain exceptions that may apply specifically to investment-grade gold that fulfills purity levels, gold import is generally liable for VAT under reverse charge mechanism.
How to calculate UAE VAT on gold ornaments? Apply the regular VAT rate for 5 percent on the price of gold ornament. If they are 99 percent pure in quality, a VAT exemption rule may apply-therefore first check the rule.
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