VAT update: FTA Issues Key VAT Clarifications on Barter Transactions, Precious Metals, and Imported Services

VAT Treatment of Barter Transactions (VATP042)

On 28 April 2025, the FTA released Public Clarification VATP042, confirming that barter transactions are subject to VAT in the same manner as monetary transactions. In such arrangements, each party is regarded as making a separate supply, and the value of the supply is determined based on the fair market value of the consideration received—excluding VAT.

If a supplier receives both monetary and non-monetary consideration, the total supply value is the sum of the cash received and the market value of the goods or services exchanged. The FTA also provides a three-tier valuation methodology to determine market value, based on fair market price, comparable transactions, or replacement cost.

Where both parties to a barter transaction are VAT-registered, each must issue a tax invoice in accordance with the standard VAT rules.

Reverse Charge Mechanism on Precious Metals and Stones (VATP043)

Effective from 26 February 2025, Cabinet Decision No. 127 of 2024 (CD127) expands the scope of the domestic reverse charge mechanism to include specified precious metals and stones—such as gold, silver, platinum, diamonds, pearls, rubies, and emeralds—provided these are the primary components of the transaction.

According to Public Clarification VATP043 (issued 30 April 2025), the RCM applies where the recipient:

• Is VAT-registered in the UAE;
• Intends to resell or use the goods in the production or manufacture of other qualifying precious goods;
• Provides a written declaration confirming both VAT registration and intended use.

In such cases, the supplier is relieved from charging VAT, and the recipient must self-account for VAT. However, failure to submit the required declaration transfers the VAT obligation back to the supplier—while disqualifying the recipient from input tax recovery.

Services such as jewellery manufacturing (commonly referred to as Making Services) fall outside the RCM unless provided as part of a composite supply with the Precious Goods. Where a single price is charged for both goods and services, and the goods are the principal element, the RCM may still apply.

Input and Output Tax on Concerned Services (VATP044)

In Public Clarification VATP044, the FTA reiterates the requirements for accounting VAT on imported services—defined as Concerned Services. When such services are received from foreign suppliers but the place of supply is deemed to be the UAE, the UAE-based recipient must account for output tax under the reverse charge mechanism.

Registrants must issue tax invoices to themselves for each Concerned Service received. However, the FTA provides an administrative concession allowing recipients to rely on the supplier's invoice, provided:

• The invoice accurately reflects the transaction;
• VAT is properly accounted for under the RCM;
• Sufficient records are retained to substantiate the supply.

Input tax on imported services can be recovered if the services are used for taxable business purposes and the registrant has paid (or intends to pay) the consideration within six months of the agreed payment date.

Documents:
https://tax.gov.ae//Datafolder/Files/Pdf/2025/VATP042-Barter-Transactions-28-04-2025.pdf

https://tax.gov.ae//Datafolder/Files/Pdf/2025/VATP043-Precious-Metals-and-Precious-Stones-01-05-2025.pdf

https://tax.gov.ae/Datafolder/Files/Pdf/2025/VATP044-Concerned-services-Tax-invoices-and-input-tax-recovery-26-05-2025.pdf