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:
Eligibility Conditions for the profit margin scheme
There are certain conditions to be fulfilled by a taxable person for the above eligible goods:
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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