VAT Public Clarification (Barter & Precious Metals)

FTA issues Public Clarification on Valuation for Supply-Barter Transactions and Application of the Reverse Charge Mechanism on Precious Metals and Precious Stones between Registrants in the State for the purposes of Value Added Tax.
The Federal Tax Authority (FTA) recently issued two Public Clarifications under UAE VAT law that discuss the VAT treatment on:

Valuation of Supply for Barter Transaction.
Application of the Reverse Charge Mechanism on Precious Metals and Precious Stones between Registrants in the State for the purposes of Value Added Tax.

A gist of the key UAE VAT positions discussed in the Public Clarification have been summarized below.

Valuation of Supply for Barter Transaction.
The Public Clarification (VATP042) provides guidance on treatment regarding the value of supply in barter transactions under the UAE VAT regime i.e. where consideration is received in the forms of monetary transactions but also non-monetary transactions either wholly or part. i.e. in exchange of goods and services. We have tabulated the explanation provided.

Sr. No.	Topic	Comments
1	Coverage of VATP042	Barter Transaction involved at least two supplies, each supplying goods or services to other. It aims to clarify the VAT treatment, valuation and invoice obligation is applicable when consideration in non-monetary, either wholly or in part. Valuation of barter transaction - Where a supplier receives both monetary and non-monetary consideration, the value of supply is the monetary part plus the market value of the non-monetary part of the consideration, excluding the tax amount.
2	VAT Treatment	VAT on barter transactions is the same as that of a supply made for monetary consideration. In a barter transaction, as one party makes at least one supply to other party instead of monetary consideration, special valuation rules apply. Each party must evaluate the VAT impact on their respective supplies as: Taxable at 5%, Zero-rated, Exempt, or Outside the scope of UAE VAT.
3	Valuation of Supply	Wholly monetary consideration: If the entire consideration is received in cash, the value of supply = Total amount received minus VAT. Such supply is not called as barter transaction. Mixed or Wholly non-monetary transactions: When any part of the consideration is non-monetary, the value of supply = monetary amount received + Market value of non-monetary part (excluding VAT).
4	Determining Market Value	Similar Supplies: Use the price for similar goods/services under comparable conditions between unrelated parties in the UAE. Substitute Products: If no direct comparison is available, then use the value of substitute products. Replacement Cost: If not possible with above two principles, the market value shall be determined by use the replacement cost of identical goods or services from unconnected suppliers.
5	Tax Invoicing	In the Barter Transactions if both suppliers are registered then both parties must issue original Tax invoice to each other.

Application of the Reverse Charge Mechanism on Precious Metals and Precious Stones between Registrants in the State for the purposes of Value Added Tax.
The Public Clarification (VATP043) provides guidance on treatment regarding the application of reverse charge mechanism (RCM) for VAT on the supply of precious metals and precious stones between VAT-registered entities in the UAE.

Sr. No.	Topic	Comments
1	Coverage of VATP043	Goods covered under the reverse charge mechanism now applies to: Precious Metals: Gold, Silver, Palladium, Platinum. Precious Stones: Diamonds (natural and synthetic), Pearls, Rubies, Sapphires, Emeralds. Jewellery made from the above, if their value exceeds other components in the product. It aims to provide clarity on the VAT treatments of precious metals, precious stones, and related goods. It also clarifies when a transaction should be evaluated to determine whether it constitutes a single composite supply or multiple distinct supplies.
2	VAT Treatment	When the RCM Apply? Recipient (buyer) is registered for VAT in the UAE. The goods are intended for resale or manufacture. A written declaration confirming VAT registration and intended to resell or manufacture. Supplier must verify the recipient's VAT registration and retain all related documents. When does the RCM not apply?. Recipient is not VAT-registered. Recipient does not provide required declaration to supplier. The goods are exported (Zero Rated). The goods supplied before 15 February, 2025. The supply is outside the VAT Scope.
3	Determine of type of Supplies	A supply considered a single composite supply when: The supply consists of precious goods and related services (e.g. making charges) are closely linked, such as cannot be separated. A single price charged for both goods and services. Both goods and services are provided by the same supplier. If above conditions are met, then single composite supply may fall under RCM. A supply considered multiple distinct supply when: The supply of precious goods and making charges are charged separately. They are not dependent on each other or not closely linked. If above conditions are met, then VAT treatment will apply to each separate component.
4	Key Points	Supplier must issue proper tax invoices. Supplier must verify the recipient's VAT registration at FTA website and retain all related documents. If declarations are not provided, suppliers must charge VAT normally, and buyer cannot claim input tax.

Our Comments

The businesses and tax advisors/consultants should analyse amendments in Executive Regulations and Public Clarification issued in said regard to apply the changes appropriately and ensure no non-compliance.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

VAT Public Clarification (Barter & Precious Metals)

Contributor

Tax

Contributor

United Arab Emirates