VAT Public Clarification
Profit margin scheme – eligible goods
It is essential that businesses correctly identify those goods that qualify to be sold under the profit margin scheme in transitional periods where ‘second-hand’ goods may not have been subject to VAT prior to the implementation of VAT in the UAE.
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 that 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 to the full selling price of such goods.
Goods that qualify to be supplied under the profit margin scheme:
Only certain goods are eligible to be supplied under the profit margin scheme. Those goods are listed below but may only be supplied under the scheme where they were subject to VAT before the supply which shall be subject to the profit margin scheme:
- Second-hand goods, meaning tangible moveable 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.
Conditions to apply the profit margin scheme:
A VAT registered business may apply the profit margin scheme to eligible goods in the following circumstances:
- The goods must have been purchased from either:
- A person who is not registered for VAT; or
- A taxable person who calculated VAT on the supply by reference to the profit margin, i.e.a VAT registered business that already applied the profit margin scheme on the same goods.
- The taxable person made a supply of the goods where input tax was not recovered in accordance with Article 53 of Cabinet Decision No. 52 of 2017.
A taxable person will not be allowed to apply the profit margin scheme in such cases where he has issued a tax invoice or any other document mentioning an amount of VAT chargeable in respect of the supply.
Goods purchased prior to the introduction of VAT:
As mentioned above, it is a requirement of Article 29(2) of Cabinet Decision No. 52 of 2017 that the goods which are eligible to be sold under the profit margin scheme are those which have previously been subject to tax. As a result, goods which would ordinarily be eligible to be included within the scheme, but which were purchased during a period in which they would not have been subject to VAT, are not eligible for the scheme.
|If a good was purchased in…..
|….and the original purchase was….
|2017 or earlier
|not subject to VAT
|the goodies are not eligible to be sold under the profit margin scheme, and VAT should be applied to the full selling price
|2018 or later
|from a supplier who did not charge VAT on the supply, and the good may have been purchased in a period prior to the effective date of VAT
|the goodies are 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
|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 VAT
|The goods 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 that good was subject to tax previously:
As mentioned above, a supplier should be confident that the good has previously been subject to tax in order to apply the profit margin scheme. Such evidence or information of this position could include but is not limited to:
- Information relating to the date the good was first manufactured, sold or brought in to use e.g.in the case of a car, the date the car was first registered would indicate its sale would have been subject to VAT if it was registered on a date after 1 January 2018;
- Evidence that the supplier paid VAT on their original purchase e.g. by asking the supplier for a copy of the tax invoice relating to their purchase of the good.
This Public Clarification issued by the FTAismeant to clarify certain aspects related to the implementation of the Federal Law No 7 of 2017 on Tax Procedures, Federal Decree-Law No 8 of 2017 on Value Added Tax and their Executive Regulations.
ThisPublicClarificationstatestheposition of the FTAandneither amends nor seeks to amend any provision of the aforementioned legislation. Therefore, it is effective as of the date of implementation of the relevant legislation, unless stated otherwise.