All About the Profit Margin Scheme Under UAE VAT Law

The UAE has been known for the streamlined and stringent tax laws, which have been implemented. Even though with the stringent tax framework, the tax authorities have brought in place many tax benefits and business-friendly implementations and amendments, which has made it one of the leading and top business setup locations around the globe. The businesses operating in the UAE must be aware of the prevailing tax laws and the amendments that have been brought, which can enable the businesses to acquire such benefits and reduce the tax burden and liability. In this blog you will be able to know about the PMS or the profit margin scheme.
Many clients have multiple queries and approach me regarding the PMS under the VAT regulation and how it would help them to reduce the tax burden on the goods that they resell. The guide by the FTA clearly states the eligibility criteria, the calculation, and how it can be claimed. Here are a few of the guidelines regarding the PMS.

What is PMS?

In simple words, the profit margin scheme is an optional arrangement under the VAT that would allow the registrant, when opted, to calculate and apply tax only on the profit margin earned and not on the whole selling price for the resale of the goods.

What Transactions and Goods are Eligible for this Scheme?

Most of the business owners, especially those who are engaged in the sale of goods and services, approach our tax team to understand the eligibility criteria for the PMS. It is simple: the business owners or the businesses can apply the scheme without any prior approval of the FTA on the resale of the goods. It must be kept in mind that the goods that are resold must have been subject to the VAT prior and are sold under the eligible transaction. This would further avoid the entities from paying multiple taxes on the goods where the input tax could not be recovered.

What is the Eligible Transaction As Per the PMS Under VAT?

The eligible transaction as per the PMS would include the transaction where the purchases are with any of the persons who are not registered, purchases from any taxable person who has already applied the scheme, or where the VAT recovery has been restricted on such goods under Article 53 of VAT.

What are the Eligible Goods As Per the PMS?

Now the most common query of the entities is regarding the goods that are eligible under the PMS. The goods include second-hand goods, antiques that are more than 50 years old, collectors’ items, etc.

What is the Eligibility for the Imported Goods?

If the resale includes any imported goods, then it would be eligible if the VAT has not been recovered during the import during the filing of the VAT return; also, if the VAT is not recoverable under Article 53, it would be eligible.

How is VAT Ascertained Under PMS?

The calculation of the VAT is simplified; it is calculated by reducing the purchase price from the selling price, and the profit margin is determined based on which the VAT percentage is applied.

What is the VAT Return Reporting and the Tax Invoice Requirements Under the PMS?

The entities are expected to report the selling price and the profit margin in BOX 1 and the purchase price in BOX 9, along with verifying the reporting location.
For the tax invoice, it must clearly highlight that “VAT charged with reference to PMS” and must adhere to further standard requirements.

What are the Record-keeping Requirements?

The maintained documents, which are expected to be maintained by the resellers, include the following:
• Stock book
• Purchase invoices
• Self-issued invoices
• Proof of prior charge of VAT on goods

How Can CDA Help?

CDA’s team has been providing the VAT services to its client for more than a decade, which has made it one of the leading accounting, auditing, and tax consultancy firms in the UAE. The business entities can approach our expert tax consultants to understand the prevailing tax regulations of the UAE and understand the available reliefs and reductions that can reduce the tax burden. The experts would assist in the calculation of accurate tax returns, timely filing of returns, adherence to compliance, and many more.
To know more about the tax services, connect our team now !

Mitesh Maithia

Tax Manager

Mitesh is a Tax Professional with expertise in direct, indirect, and international taxation, including transfer pricing, since 2018. Passionate about making complex tax matters simple, he shares insights to help businesses stay compliant and forward-looking.