VAT on Profit Margin Scheme in UAE

By Muhammad Hassan   on 29 May 2020


Profit Margin Scheme

There is a recent public clarification (VATP002) regarding profit margin scheme for Value Added Tax (VAT) in the United Arab Emirates – UAE

Normally, a taxable person charges 5% VAT on supplies he makes during ordinary course of business but in profit margin scheme “the tax is the difference between the amount paid for an item and the price is sold for” (VAT on profit margin earned instead of original selling price).

In short profit margin scheme is a Value added Tax scheme that is only applicable on Second-hand-goods on which VAT has already been applied and Paid on its first supply.

Goods that fall under profit margin scheme:

  • Second-hand goods – Tangible movable property which is suitable for further use as it is, or after repair
  • Work of Art – Historical or archaeological interest
  • Antiques – Goods which are 50 years old or more
  • Collectors’ items – Coins, Stamps, Currency
  • Eligibility Conditions for the profit margin scheme

    There are certain conditions to be fulfilled by a taxable person for the above eligible goods:

  • The goods must have purchased from a un-registered taxable person
  • The taxable person Supplier of the goods already using the profit margin scheme and ;
  • The input tax is not recovered under article 53 of Cabinet Decision No. 52 of 2017 UAE Vat.
  • Record Keeping

    Where a taxable person uses the profit margin scheme must keep the following records in relation to the supplies he made

    Example

    ABC Company buys cell phone for AED 1000 from a member of a public and then sold to its customer for AED 1500. The calculation will be as follow for his VAT register

    Sale Price = 1500

    Purchase = 1000

    Profit Margin = Sale price less purchase price = (1500-1000=500)

    This 500 will be VAT inclusive and the vat will be as follow;

    Output VAT = 500/21*1= 23.81

    Where the Input VAT will be nil (0)

    Disclaimer: Content posted is for informational & knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. The view/interpretation of the publisher is based on the available Law, guidelines and information. Each reader should take due professional care before you act after reading the contents of that article/post. No warranty whatsoever is made that any of the articles are accurate and is not intended to provide, and should not be relied on for tax or accounting advice.

    You can access Law including Guidelines, Cabinet & FTA Decisions, Public Clarifications, Forms, Business Bulletins for all taxes (Vat, Excise, Customs, Corporate Tax, Transfer Pricing) for all GCC Countries in the Law Section of GCC FinTax. 


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