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Profit margin scheme under VAT in UAE

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The public clarification regarding the profit margin scheme for value added tax in the United Arab Emirates states that typically a taxable person charges 5% VAT on supplies he makes during the ordinary business course. But in the profit margin scheme, a taxable person has an option to calculate tax on the profit margin earned on the supply instead of the sale value. In short, a profit margin scheme is a value added tax scheme that is only applicable on second hand goods on which VAT has already been applied and paid on its first supply.

Goods that fall under profit margin scheme are the second hand goods, tangible movable property, which is suitable for further use as it is or after repair, second work of art historical or archaeological interest, third, and takes goods which are over 50 years old or more and for collectors items, points, stems currency.

Now, what are the eligibility conditions for the profit margin scheme? certain conditions that are to be fulfilled by a taxable person for the about eligible goods are first, the goods must be purchased from an unregistered taxable person.

And second, the taxable persons suppliers of the goods already using the profit margin scheme and the input tax is not recovered under Article 53 of cabinet decision number 52 of 2017 do a VAT unit need to also keep in mind when a taxable person uses the profit margin scheme, he must give the following records in relation to the supplies he made. Stock register, where the detail of the goods purchased and sold under the profit margin scheme and purchase invoices showing the details of the transaction.

Let’s look at an example. ABC company buys a car for 80 or 70,000 from a public member and then sells it to its customer for 85,000. The calculation will be as follows for his VAT register, sale price is equal to 85,000 aed and purchase price is equal to 70,080 profit margin is equal to sale price minus purchase price which is 85,000 minus 70,000 which is equal to 15,080. As per law, this 15,000 will be deemed too inclusive of VAT and the VAT calculation will be as follows. Output VAT is equal to 15,000 divided by 1.05 which is equivalent to 714 .28

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