VAT in United Arab Emirates: Profit Margin Scheme
by SUDARSHAN PARAMASIVAM | DEC 09, 2018
The Federal Tax Authority (‘’FTA’’) issued a public clarification on Article 29 (VATP002) of the Executive Regulation of the Federal Decree-Law No. (8) of 2017 on Value Added Tax, few months ago. This has been further clarified by the FTA at an awareness session recently organised at the Abu Dhabi Chamber of Commerce and Industry in order to raise awareness among the taxable persons.
Profit Margin Scheme is a scheme that may allow the Registrant, in any Tax Period, to calculate and charge tax based on the profit margin earned on the taxable supplies and not based on the value of these supplies.
The profit margin is the difference between the purchase price of the Goods and the selling price of the Goods, and the profit margin shall be deemed to be inclusive of Tax.
What kind of goods are eligible to be supplied under Profit Margin Scheme?
- Second hand goods, meaning tangible moveable property that is suitable for further use as it is after repair;
- Antiques i.e. goods that are over 50 years old;
- Collectors’ items i.e. stamp, coins, currency and other pieces of scientific, historical or archaeological interest.
What are the key conditions to apply the Profit Margin Scheme?
- Only those goods which have previously been subject to VAT before the supply in question may be subject to the profit margin scheme. As a result, used goods acquired prior to the implementation of VAT or goods which have not previously been subject to VAT for other reasons are not eligible to be sold under the Profit Margin Scheme. There needs to be sufficient evidence or information to justify that the good was subject to previously.
- The goods must have been purchased from either:
- A person who is not registered for VAT.
- A registered business which has already applied Profit Margin Scheme on the same goods.
- The taxable person made a supply of the goods where input tax was not recovered in accordance with Article 53 of Cabinet Decision No. 52 of 2017.
Under what cases the Profit Margin Scheme will not apply?
- Used goods acquired prior to the implementation of VAT or goods which have not previously been subject to VAT for other reasons are not eligible to be sold under the Profit Margin Scheme.
- Where a tax invoice or any other document mentioning an amount of VAT chargeable in respect of the supply has been issued.
- Sufficient evidence or information is not available to justify that the goods have been subject to VAT previously.
How can we help?
Further, we can help you assess the eligibility of Profit Margin Scheme on the goods under question and advise on the implications and provide guidance in relation to the documentary requirements which need to be maintained to ensure compliance.