Profit Margin Scheme is an important system for calculating VAT in the UAE. This system applies to specific products, and certain conditions must be met in order to supply products under the margin system. In this article, let’s understand how profit margin works.
What is a profit margin scheme?
A profit margin scheme is a scheme in which the taxable person has the option of calculating tax on the basis of the rate of return on the supply rather than on the sales amount.
Can the profit margin system be used for the supply of goods and services?
The profit margin system applies only to the supply of certain specified goods and not to services.
What goods can be supplied under UAE’s VAT-based profit margin scheme?
The following goods can be supplied under the profit margin programme:
Used goods, i.e. H. movable property suitable for further use in its original condition or after repair. 4,444 antique items. H. Items older than 50 years
Collector’s items, i.e. H. Stamps, coins, currency
Why was this system created?
Most of the products to which the margin system is applied are second-hand products that are already subject to value-added tax at the time of initial delivery. When these goods are purchased from a registered antiquarian, usually from an unregistered consumer, no value added tax is levied, so the antiquarian cannot recover the input tax at the time of purchase. Therefore, if these goods are sold by a second-hand goods seller, it is not appropriate for the seller to have to pay his VAT on the entire sales amount, as this would amount to double taxation of the goods. Therefore, for such supplies, provision is made to pay his VAT only on the profits derived from the supplies.
What happens if a person who is subject to VAT purchases a product?
A registered second-hand goods dealer may purchase second-hand goods from a registered person. In this case, the supplier will charge VAT on the delivery. If the used goods seller chooses differential taxation on the delivery of these used goods, the seller will not be entitled to a refund of the input tax paid. If the second-hand goods seller does not choose differential taxation, he is entitled to a refund of the input tax paid.
What conditions apply to the supply of goods under a profit margin system?
The supply of goods under a profit margin system must meet one of the following conditions:
They must be purchased either by a person who is not VAT registered or by a taxable person who supplies the goods under a profit margin regime.
Input tax is not refundable on the purchase of the product.
In short, therefore, it is important to ensure that input VAT is not recoverable on goods supplied under the margin regime.
Do I need to notify the FTA about the supply of goods under a profit margin scheme?
No, a person supplying goods under a profit margin scheme does not need to disclose this to the FTA. For transactions that meet the criteria of the profit margin system, an individual can collect the appropriate VAT and report these sales on her regular VAT return.
In the next article, we will discuss how to calculate VAT based on the rate of return scheme and how his VAT calculations under normal circumstances compare with calculations based on the rate of return scheme.
You can also register for VAT Registration on our website: