Due to many queries and misunderstandings related to eligible goods under the Profit Margin Scheme, UAE Federal Tax Authority has published a clarification defining the eligibility of the good and the VAT applicability on goods under Profit Margin Scheme.
It is really important for every business to identify the goods which qualify to be sold under the Profit Margin Scheme, especially for the transitional periods where such inventory was purchased without VAT prior to implementation of VAT in the UAE on 1st Jan 2018.
According to the Clarification made by FTA,
Only those goods which have previously been subject to VAT before the supply in question may be subject to the profit margin scheme. As a result, stock on hand of used goods which were acquired prior to the effective date of Federal Decree-Law No. (8) on Value Added Tax (“VAT law”), or which have not previously been subject to VAT for other reasons, are not eligible to be sold under the profit margin scheme. VAT is, therefore, due on the full selling price of such goods.
Eligible Goods Under Profit Margin Scheme
The goods that qualify to be sold under the Profit Margin Scheme are given below. But such goods can only be supplied under Profit Margin scheme only if they were subject to VAT previously.
Let me put this in simple terms:
- If the goods are purchased paying VAT after implementation of VAT then such second-hand goods, antiques or collector’s item can be sold under Profit Margin Scheme.
- If the seller already holds the stock of goods purchased prior to implementation of the VAT is not eligible to be sold under Profit Margin Scheme. Under such circumstances, VAT will be applicable on the full selling price.
List of Allowed Goods Under
- Second-hand goods, meaning a tangible, movable property that is suitable for further use as it is or after repair.
- Antiques i.e. goods that are over 50 years old.
- Collectors’ items i.e. stamps, coins, currency and other pieces of scientific, historical or archaeological interest.
If the goods were purchased prior to 2017 or earlier and the original was not subject to VAT then the good is not eligible to be sold under Profit Margin Scheme and VAT will be applicable to the full selling price.
In addition to the above, if the goods were purchased in 2018 or later from a supplier who did not charge VAT on the supply and/or the goods were purchased before implementation of VAT then the good is not eligible to be sold under the profit margin scheme and VAT should be applied to the full selling price unless evidence is available to show the good had been subject to VAT on an earlier supply.
Furthermore, if the goods were purchased in 2018 or later from a supplier and it is known that the good would have been purchased by the supplier in a period after the effective date of the VAT then The good is eligible to be sold under the profit margin scheme where you have evidence to show that the good has been subject to VAT on an earlier supply.
Evidence or information of that the good was subject to Tax include but is not limited to:
- Information relating to the date the good was first manufactured, sold or brought in to use. (Example, Car purchased/registered after implementation of VAT)
- Evidence that the supplier paid VAT on their original purchase. (Tax Invoice Copy)
You can download the clarification VATP002 from the link below:
Profit Margin Scheme – Eligible Goods
Disclaimer: The information provided above is for educational purpose and cannot be considered as a legal advice. We recommend you to consult Tax experts before making decisions. Reference to support the explanation have also been provided.
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