Gold and Diamonds – Amendment to Tax Treatment of Making Service
Issue
Jewellers generally receive a consideration for the supply of gold and diamond jewellery to cover the price of the gold and diamond as well as the Making Service.
In some instances, taxable persons supplying gold or diamond jewellery reflect the gold or diamond price and the Making Charges separately on the tax invoice issued for the supply, and in other cases both are reflected as a single price without disclosing the separate prices of each component.
This Public Clarification replaces VATP029 published in June 2022, and provides guidance on the application of the VAT legislation with regards to the Making Charges received by jewellers in accordance with the amendment to Cabinet Decision No. 25 of 2018 on the Mechanism of Applying Value Added Tax on Gold and Diamonds between Registrants in the State (“Cabinet Decision No. 25”).
Terms Used in this Public Clarification
For the purposes of this Public Clarification, the terms below shall have the meaning assigned against each:
- “Gold”: gold and/or diamonds.
- “Making Service”: the service of making/manufacturing Gold Items.
- “Making Charge”: the price charged by jewellers in return for making/manufacturing Gold Items.
Summary
Tax registrants supplying Gold are not required to impose VAT on the supply of Gold and products which mostly consist of Gold, if the conditions of Cabinet Decision No. 25 are met. In such instances, VAT in respect of the Gold is accounted for under a special reverse charge mechanism which requires the registered recipient to account for VAT on the supply instead of the supplier.
Based on a new decision by the Cabinet, the definition of goods in Cabinet Decision No. 25 has been amended to state that it may include Making Services directly in connection with the Gold, for the limited period between 1 June 2018 and 31 December 2022.
This temporary change in definition would allow for the application of the reverse charge mechanism on the Making Services that are directly in connection with the supply of Gold, where the conditions as stipulated in Cabinet Decision No. 25 of 2018 are met for that specific period only.
However, from 1 January 2023, the application of the reverse charge mechanism will be restricted to the supply of Gold and any products where the principal component consists of Gold.
Hence, if the supplier1 charges separate considerations for the Gold and the Making Services, or reflects the price of these components separately, from 1 January 2023, the supplier is required to impose VAT on the service component.
VATP032 – Gold and Diamond Making Charge – Amendment – 29 11 2022 Download the complete