FTA publishes new Cabinet Decisions granting special VAT treatments to certain industries
The United Arab Emirates (UAE) Federal Tax Authority (FTA) has published two recently approved Cabinet Decisions on the Value Added Tax (VAT) treatment of gold and diamonds, and exhibitions and conferences.
Cabinet Decision No. (25) of 2018 on the Mechanism of Applying Value Added Tax on Gold and Diamonds between Registrants in the State
This Decision relates to the VAT treatment of the supply between VAT registered businesses of gold, diamonds, and any products where the principal component is of gold or diamonds, where the recipient of the supply intends to use the products for resale or to produce new gold or diamond products. The decision will be effective as of June 1st, 2018.
According to the Decision, when a supplier makes a supply of such gold and diamond products to a VAT registered business which is authorized to resell those products or use them to produce new gold or diamond products, the supplier will not calculate tax on this supply and instead the recipient will be responsible for calculating the tax on the supply and all applicable tax obligations. A written declaration from the recipient will be required in order for the supplier to apply this VAT treatment.
This Decision only effectively applies to wholesale supplies of gold and diamond products. Sales of jewellery to the final consumer remain subject to VAT at 5%, and sales of investment metals remain subject to the zero rate as mentioned in the Executive Regulations. The impact of this new approach is to alleviate the cashflow burden of VAT on the wholesale gold and diamond market within the UAE.
Businesses operating in this sector should start taking action to request the required declarations from their customers, as well as re-configuring their ERP systems, to enable them to apply the new VAT accounting approach from 1 June onwards.
Cabinet Decision No. (26) of 2018 on the Refund of Value Added Tax Paid on Services Provided in Exhibitions and Conferences
This Decision relates to VAT charged on certain supplies relating to exhibitions, conferences, and related services and is effective immediately. The effect of the Decision is that the supplier of exhibition and conference services shall, in certain cases, not be required to collect the VAT from the customer and will instead declare the output tax charged on its VAT return and receive an immediate refund for that amount. This VAT treatment only applies where the recipient of the exhibition and conference services is not established in the UAE and is not registered (or obliged to be registered) for VAT. As a result, this Decision effectively alleviates the burden of UAE VAT on businesses which are only in the UAE for a very short time in order to attend exhibitions and conferences.
The Decision does not, however, remove the obligation of a non-resident business to register for VAT in the event they make taxable supplies in the UAE. Therefore, where non-resident businesses attending such events make any sales to consumers during the event, they should consider whether they are then obliged to register for VAT in the UAE.
A user guide and form has also been published for suppliers of such services, and any businesses operating in this sector should review the guide in order to understand the process changes which shall now be required as a result of the new VAT treatment. In particular, invoice templates may need to be reviewed in some cases where they are issued to non-resident recipients and additional tax codes applied in the ERP system to identify such revenue.