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The Federal Tax Authority (FTA) has reaffirmed on Monday that the profit margin scheme - which allows a taxable person to calculate value added tax on eligible supplies on the basis of the profit margin earned instead of the original selling price - cannot be used in cases where VAT was not earlier charged.
Such instances include if the goods were purchased by the taxable person prior to the implementation of VAT, or if stock in hand was also acquired prior to January 1 2018, the FTA clarified.
In other words, those goods that have previously been subject to VAT before the supply in question may be subject to the profit margin scheme, FTA said in a statement.
In the case of used cars, this means that profit margin scheme applies only to those cars already subjected to VAT. Therefore VAT is due on the full selling price of such goods.
Eligible goods, which fall under the profit margin scheme, include second-hand goods (tangible moveable property which is suitable for further use as it is, or after repair); antiques (goods which are over 50 years old or more), and collectors' items such as stamps, coins and currency. The FTA had clarified the above to address questions from the audience at an awareness session recently organised at the Abu Dhabi Chamber of Commerce and Industry to raise awareness among car dealers about the procedures and tax treatment for this vital sector, as well as the efforts made by the FTA to remove obstacles facing those working in the sector.
FTA director-general Khalid Ali Al Bustani asserted that the authority has been committed, since the tax system went into effect, to raising awareness among all business sectors to abide by their tax obligations, by means of various media and digital channels, as well as direct contact through awareness campaigns across all seven emirates.
Hilal Al Hamli, deputy general manager of the Abu Dhabi Chamber of Commerce and Industry, asserted that the Chamber helped organise the session in order to raise awareness around the various applications of VAT, particularly as it pertains to car dealers.The FTA representatives provided a detailed explanation of the procedures and tax legislation related to the sale of new and used vehicles. According to the scheme, the taxable person will not be allowed to apply the profit margin scheme in such cases where he has issued a tax invoice or any other document mentioning an amount of VAT chargeable in respect of the supply.
The FTA officials explained that the profit margin is the difference between the purchase price of the goods and the selling price of the goods. They urged suppliers to ensure that a good has previously been subject to tax in order to apply the profit margin scheme.
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