An essential scheme provided by the Federal Tax Authority in UAE is the Profit Margin Scheme. It is a relevant scheme which helps one to calculate the value-added taxes while dealing with goods and trading in the UAE. This scheme is valid for specific products, and there are firm conditions which have to be fulfilled to supply the respective goods under this scheme. Therefore, if you are one of those who is looking forward to calculating the taxes on your products, make sure to know these details thoroughly.
The scheme allows the taxable person to successfully calculate the VAT in UAE on the eligible supplies based on their earned profit margin and not on their actual selling prices. It is also applicable on the second-hands items on which the VAT has already been charged for the first supply.
List of Eligibility for the Profit Margin Scheme
There are specific eligibility criteria allotted for the goods to get under the Profit Margin Scheme under VAT in the UAE. These criteria are:
- The products must be purchased or obtained from either an unregistered body or a taxable being who has already applied for the profit margin scheme on the same goods beforehand, or
- Where the taxable person recovered the input taxes on the buying of these goods agree with Article 53 of VAT executive Regulations.
One thing to take in consideration is that if the goods have been purchased paying the required amount of VAT after its successful implementation, then these second-hand goods and items can be sold under the Profit Margin Scheme.
How to Calculate the Profit Margin under the Profit Margin Scheme
The profit margin refers to the difference between the amount paid on the purchase of the goods and the amount received on sale of the same. It can be considered to be inclusive of the taxes. This is why we need to calculate the amount in back-calculation from the amount of the profit margin. Let us see it through a mathematical derivation:
Profit Margin= Amount received on the sale of the product – the amount received on the purchase of the same.
If the Profit Margin comes down to zero or if there is any loss, the value of the supply is also zero for the VAT purposes.
However, if you want to calculate the tax under this scheme, follow the formula given below:
Tax amount= (Value of the goods inclusive of the tax multiplied by the tax rate) ÷ (100 added with the tax rate)
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Things to consider about the Profit Margin Scheme
As we move towards the end of these topics, here are some of the essential things to consider about this scheme available in UAE:
- One requires to maintain a proper stock or record book showcasing all the required details of the goods sold or purchased under the Profit Margin Scheme.
- The invoices must contain the personal details of the taxable person like the name, tax registration number, address, etc.
- The invoice must also contain the required details of the products like the date of purchase, the consideration payable for the goods, etc.
As a whole, this scheme provides the taxable people to calculate to personal taxes based on the profit margin earned on the supply and not based on the sale value. It is meant for certain goods and not for any services. Also, one needs to notify the authorities concerned for the utilization of the scheme accordingly to avoid any hassles in the future.