UAE Guide: What is VAT Profit Margin Scheme in Dubai?
Profit Margin scheme in Dubai, UAE is in which, the Registrant may, in any Tax Period, calculate and charge Tax based on the profit margin earned on the Taxable Supplies. The profit margin is the difference between the purchase price of the Goods and the selling price of the Goods, and the profit margin shall be deemed to be inclusive of Tax(Tax amount= Value inclusive of tax * tax rate ÷ (100 + tax rate)).
The Taxable Person may calculate Tax on any supply of Goods by reference to the profit margin in the following situations:
1) Where he made a supply of Goods mentioned in the paragraph below which were purchased from either:
a) A Person who is not a Registrant.
b) A Taxable Person in Dubai, UAE who calculated the Tax on the supply by reference to the profit margin.
2) Where he made a supply of Goods for which Input Tax was not recovered in accordance with Article (53) of Dubai Cabinet Decision (52) of 2017 on the executive regulations of the Federal Decree Law No. (8) of 2017 on Value Added Tax.
The Goods to which above paragraph refers are Goods which have been subject to Tax before the supply which shall be subject to the profit margin scheme and those Goods are:
1) Second-hand Goods, meaning tangible movable property that is suitable for further use as it is or after repair.
2) Antiques, meaning goods that are over 50 years old.
3) Collectors’ items, meaning stamps, coins and currency and other pieces of scientific, historical or archaeological interest.
Example: A VAT registered second-hand goods dealer, Second Hand Stop, purchases a used car from a consumer, Mr. Omar. The purchase price is AED 10,000. After the required repairing and refurbishing, Second Hand Stop supplies the car to another consumer, Mr. Rahul, for AED 15,000. The tax will be calculated on AED 5,000 which will come out as AED 238 (5,000 * 5 / (100 + 5))
The reason for introduction of the Profit Margin Scheme was because the goods on which the Profit Margin Scheme is applicable are mainly second-hand goods on which VAT has already been levied at the time of its first supply ( to avoid double taxation).