The VAT Profit Margin Scheme is an optional special arrangement for reselling Eligible Goods and goods where Input Tax recovery was blocked under Article 53 of the VAT Executive Regulation. It enables Resellers to calculate VAT based on the Profit Margin instead of the full value of the Goods, preventing cascading of VAT on value addition.
Key Takeaways
- VAT applies only to profit margins, not full selling prices, avoiding double taxation
- Eligible goods: second-hand items, antiques over 50 years old, and collector’s items
- Specific record-keeping and invoicing rules must be followed for compliance
Eligible Goods and Application Criteria
Three specific categories of goods qualify for this scheme. Second-Hand Goods include tangible property suitable for use or repair. Antiques are defined as goods older than 50 years. Collector’s items encompass coins, currency, stamps, and pieces of historical, archaeological, or scientific interest.
Taxpayers may apply the scheme when purchasing from persons who are not VAT-registered, or from taxable persons who have already adopted the profit margin scheme in their business and did not recover the input tax. VAT is charged at the applicable rate on this margin, provided the margin is positive. Where the margin is zero or negative, no VAT is due. Understanding these eligibility criteria is essential, and VAT services can help businesses determine their qualification status.
Record-Keeping Requirements
To apply the Scheme, Resellers must maintain a stock book or similar record showing details of each Good purchased and sold under the Scheme, plus purchase invoices showing complete Goods details.
Invoices for Non-Registrant Purchases
When purchasing Goods from Non-Registrants, the Reseller must issue a self-invoice including: the Reseller’s name, address and Tax Registration Number (TRN); the seller’s name and address; the purchase date; details of the Goods purchased; the Consideration payable; and the signature of the Person selling the Good or authorized signatory.
The reseller must retain documentary evidence that VAT was previously imposed, such as the original tax invoice issued to the non-registrant.
Tax Invoice and Reporting Requirements
Under the Profit Margin Scheme, suppliers must not show VAT amounts separately on Tax Invoices. However, invoices must clearly state that VAT has been charged under the Profit Margin Scheme and include all other mandatory particulars of a full Tax Invoice.
VAT Return Form 201 contains a specific checkbox marked “Yes” when applying the Scheme or “No” when not applying it. Resellers must report in Box 1 the selling price (net of VAT on profit margin) in the Amount column and VAT charged on the profit margin in the VAT Amount column. In Box 9, report the purchase price in the Amount column for goods acquired in that Tax Period, with nothing in the VAT Amount column. VAT return filing procedures ensure proper compliance.
Conclusion
The VAT Profit Margin Scheme prevents tax cascading on eligible goods by taxing only profit margins. Maintaining proper stock books, issuing correct invoices for non-registrant purchases with all required details, and accurately reporting in Form 201 ensures compliance.Need expert guidance on the Profit Margin Scheme? Contact TSAC for professional VAT consultancy services in UAE.
Written By: CA Musewir ACA VAT Specialist