The Federal Tax Authority (FTA) has recently released a clarification on the profit margin scheme for Value Added Tax (VAT) in the UAE.
The profit margin scheme allows a taxable person to calculate VAT on eligible supplies on the basis of the profit margin earned, instead of the original selling price.
The profit margin scheme is applicable on second-hand goods on which VAT has already been levied on the first supply.
Application of the Profit Margin Scheme
The profit margin scheme is applicable only to the supply of certain good. The goods which fall under the profit margin scheme are:
- Second-hand goods − tangible moveable property which is suitable for further use as it is, or after repair
- Antiques − goods which are over 50 years old or more
- Collectors’ items such as stamps, coins and currency
Eligibility Conditions for the Profit Margin Scheme
A taxable person may apply the profit margin scheme to the above eligible goods, subject to fulfilment of the following conditions:
- The goods must be purchased from either an unregistered person, or a taxable person who has applied the profit margin scheme on the same goods previously, or
- Where the input tax on the purchase of such goods was not recovered by a taxable person in accordance with Article 53 of the VAT Executive Regulations.
The FTA has clarified its position that the profit margin scheme cannot be used in instances where VAT was not charged on goods, for example if the goods were purchased prior to the implementation of VAT, or if stock is in hand which was also acquired prior to 1 January 2018.