The Profit Margin scheme is a particular scheme where taxable individuals have the choice to calculate taxes on the profit margin earned upon supplying goods instead of on the sales value. VAT can be worked out under the profit margin scheme only upon the basis of the conditions that have been mandated under the VAT law in the UAE.
Goods mandated under the Profit Margin Scheme
Only those goods which have been notified, can be supplied under the Profit Margin Scheme. These are the eligible goods that you should know about:
- Second-hand goods, i.e. tangible and moveable property that is suitable for further usage as it remains or post repair.
- Collectors’ items, i.e. coins, stamps, currency and other items which are of historical, scientific and archaeological interest.
- Antiques, i.e. goods which are more than 50 years old.
The above mentioned goods can be easily supplied under the Profit Margin Scheme only upon being subjected to VAT prior to supply. The goods should have had VAT imposed on them before being supplied under this particular scheme. Now, in a scenario where the notified goods were bought prior to the 1st of January, 2018, when VAT was not in force, there are some aspects worth keeping in mind.
How Goods are considered upon purchase before VAT implementation under Profit Margin Scheme
The goods which are eligible for sale under the Profit Margin Scheme are those goods which have already been subjected to VAT. Hence, notified goods which are eligible for supply under the Profit Margin Scheme but since they were bought in a timeframe where they would not have been subjected to VAT, will not be eligible under this scheme. The notified goods bought before 1st of January, 2018, will not be eligible for being supplied under the Profit Margin Scheme. Upon supply of such goods, VAT will be imposed on the total selling price.
Suppliers should have information in advance about goods subjected to VAT for applying the Profit Margin Scheme suitably. Here are a few instances which work as evidence of goods being previously subjected to VAT:
- Information linked to the date of first manufacture, sale or usage of the good.
- Evidence of VAT payment by the supplier on original purchases.
More information about the Profit Margin Scheme
The Profit Margin Scheme is a specific scheme where taxable individuals have the option of calculating taxes upon the profit margins earned upon supply in place of the sale value. The scheme is only available for specified categories of goods and not on any services.
These goods are mostly second-hand or used goods upon which VAT has been imposed already at the time of first supply. Hence, when these goods are purchased by registered dealers of second-hand dealers, VAT is not imposed and no input tax becomes recoverable by the dealer upon the purchase. When these goods are sold by these dealers, it would not thus be suitable for paying VAT on the full sale value since it may lead to a double-taxation scenario. Hence, a provision has been made for VAT payment only upon the profit arising from the sale.
For further consultation regarding VAT in the UAE, registration, company incorporation, accounting, VAT filing and returns, GCC Filings is a good option for businesses across the UAE.