All About Profit Margin Scheme under VAT in UAE
The profit margin scheme is a way of VAT calculation certainly on a product and services. Beneath this theme, you'll calculate VAT supported the ratio rather than the whole worth of the sale. This theme was introduced to avoid double taxation on the second-hand product. The merchandise eligible for the profit margin scheme are principally second-hand products, thereon tax has already been paid. When a vendor or dealer purchases from an unregistered associate, they don’t pay tax, so there's no input tax to recover. Therefore, whereas on merchandising these second-hand products, the dealer shouldn’t get to pay tax for the entire sales value. This is wherever the profit margin scheme is beneficial because it allows sellers to pay VAT solely on the profits created on the supply. Briefly, ratio theme could also be a worth superimposed tax theme that's solely applicable on second-hand-goods thereon VAT has already been applied and paid on its 1st offer. The FTA has processed its position that the profit margin theme can't be employed in instances wherever VAT wasn't charged on a product, as an example if the products were purchased before the implementation of VAT, or if stock is in hand that was additionally not heritable before one gregorian calendar month 2018. An introduction of VAT in UAE, VAT rate at 5% will be applicable to the supply of goods and services in the state.
Goods that fall under profit margin scheme
- Second-hand product –Tangible movable property that's appropriate for any use or repaired.
- Work of Art – Historical or archaeological interest
- Antiques – Product that is fifty years recent or tons of
- Collectors’ things – Coins, Stamps, Currency
Eligibility conditions for the profit margin scheme
There are boundless conditions to be consummated by a person for the eligible goods:
- The products must be purchased from an unregistered person
- The taxable person must have already applied to the profit margin scheme
- The input tax isn't recovered beneath article 53 of cabinet call No. fifty-two of 2017 UAE VAT
VAT consultants manage the impact of VAT on company profit. The profit margin scheme could be revised for paying tax on the offer of a second-hand product. The advantage of selecting the margin scheme is that the dealer has got to pay tax solely on the margin earned on the sale. As there is no relevancy of input tax recovery on these purchases, these dealers need to pay tax solely on the margin earned on the sale. However, dealers choosing the theme need to confirm that input tax has not been recovered on the acquisition of these products.
Following events can assist you to settle whether to use ratio theme or not
Goods were purchased before 01st Jan 2018
- VAT needs to be applied on full sales price, profit margin scheme won't be applied as a product wasn't subject to Vat before 01st Jan 2018
Goods purchased on or when 01st Jan 2018 from an unregistered provider and also the goods could be purchased before 01st Jan 2018.
- VAT needs to be applied on full price, profit margin scheme won't be applicable unless proof is obtainable to mean the products had been subject to VAT on associate earlier offers.
Goods purchased on or when 01st Jan 2018 from a provider United Nations agency purchased the products when 01st Jan 2018
- The product is eligible to profit margin scheme subject to proof showing that goods VAT charged on earlier offers.
How the Profit Margin Scheme Operates for Filing VAT Returns
The profit margin scheme provides that VAT is collectable on the sales value and also the damage to the goods. This will be illustrated as follows:
1. Dealer’s sale value of products AED 500
2. Fewer dealers damage AED 300
3. Dealer’s margin AED 200
Therefore, the profit margin is the difference between the acquisition value of the products and also the terms of the products. The formula for VAT collectable for the aim of VAT return filing under profit margin scheme:
Tax quantity= price comprehensive of tax * rate/ (100+tax rate)
Mr. Victor sells antique furniture which he bought from a member of the public for AED 2000. He then sold the dresser for AED 9000 then
Profit margin =9000-2000 = 7000
Tax Rate= 5%
Output tax =7000*5/ (100+5) =333.33
Input tax = 0
Why choose CDA?
CDA offers Tax Consultancy Services and Implementation and Tax Reclaim Services at a very reasonable charge. Having a huge number of clients, CDA is acclaimed as a leading platform that has been dealing with VAT services in UAE of start-ups and established businesses across the Emirates.
CDA also provides Accounting & Bookkeeping Services, Accounts Outsourcing Services, Internal Auditing Services and a lot more other services related to the business in the UAE. If you are looking for any services related to VAT in UAE, feel free to contact CDA. Our vat consultants will be always there for your assistance.