VAT Guide Specifying Major Obligations for Car Dealers and Service Centres
All the goods and services provided by the business firms engaged in the automotive sector are subject to the standard rate of VAT. FTA has lately issued a bulletin which specified all the tax obligations which were to be fulfilled by the firms in the automotive sector who engage in the sale of used cars, new cars, spare parts of the cars, services concerned with it, etc. The bulletin specifies all the obligations relating to VAT registration, tax invoice, input tax returns, returns filing, etc. This blog provides a gist of the contents and the obligation of the bulletin.
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VAT registration for Automotive business in UAE
Like other business firms in UAE, it is mandatory for an automotive business also to get registered with VAT in UAE if the conditions for the registration are met by the firms i.e. if the value of the total taxable supplies and imports of the last 12 months cross or is likely to cross the threshold of AED375000 in the following 30 days. The firm can also apply for voluntary registration if the supplies and import value cross the threshold of AED187500. The taxable supplies may also include the zero-rated supplies.
Supplies made by the Automotive business which are subject to VAT
Supplies that are subject to VAT provided by the automotive business mainly include the sale of used cars, sale of new cars, servicing facilities, and sale of spare parts and other concerned supplies.
Issue of Tax Invoice by firms in the Automotive sector
As per the obligations specified in the Bulletin, the firms engaged in the automotive business must issue a detailed tax invoice for the supplies subject to the standard VAT rate offered by them. According to the bulletin, the firms can issue a simplified tax invoice in the case where the recipient is unregistered or the consideration made to the recipient in exchange for the supply is or less than AED10000. The tax invoice issued must specify that the VAT was charged as per the profit margin scheme if the tax was charged in such a manner as per the profit margin scheme, it must also include all other mandatory information as per the rules of the VAT.
Read more: What are the common errors made by the firms while filing VAT returns in UAE?
Application of profit margin scheme on VAT on the sale of used cars
The taxable individuals who are engaged in the business of the automotive sector can apply a profit margin scheme on the sales of used cars as this scheme is applicable on the sale of goods on which VAT has been previously charged. The following goods can be supplied under the profit margin scheme:
- Second-hand goods including tangible property which are movable, and can be used further with or without any repair.
- Antiques (Goods that are more than 50 years old)
Collector's items such as coins, stamps, etc.
Recovery of input tax by the automotive business
Like all other taxable entities, the business firms engaged in the automotive sector can also claim for the recovery of input tax.. There are some exceptions in which the entities cannot claim the input tax return such as entertainment services, purchasing, leasing, and renting of motor vehicles for private use.
VAT application on the gifts and giveaways provided by the dealers
It would be considered as a deemed supply when the entities provide gifts and giveaways for free to the employees, but in the below cases, it may not be considered as so:
- When the input tax is not recovered on the concerning goods
- When the supply made to each recipient doesn't exceed AED 500 during 12 months
- When the output due on the deemed supplies made per person is less than AED 2000 for 12 months
VAT on repairing services and the spare parts under warranty
When the entities provide repair services and parts under warranty the VAT is applicable under the following circumstances:
- Selling of vehicle which under warranty
- When customers separately purchased warranty packages
- When any subsequent supply for repair services and parts are made under warranty claims on which VAT cannot be charged unless any further amount is paid.
Application of VAT under special circumstances for service centers
As per the clarification put forward by the FTA, the VAT will be charged at a standard rate where the service providers reclaim the cost of supplies made under warranty from the manufacturer who is situated outside UAE, and here the services are provided physically in UAE relating to motor vehicles.
Read more: VAT refund for business visitors in UAE
CDA's role in fulfilling VAT requirements of its clients
CDA being one of the leading auditing and accounting firms in Dubai also provides the best tax consultancy services along with VAT registration services and many more. CDA with its experienced team always focuses on providing professionalized services to clientele most effectively and efficiently. It assists the clients to stay complying with the rules and regulations of the authority and avoiding any fines and penalties. To explore more about CDA and its services do contact us.