The fundamentals of VAT in the UAE

Profit margin scheme in the UAE

What is a profit margin scheme under VAT?

The Federal Tax Authority in the UAE has given the option to a taxable person to pay VAT on the profit margin earned on the taxable supplies, meaning the difference between the purchase price of the goods and the selling price of the goods. This is done instead of calculating VAT on the sales value and is known as Profit Margin Scheme.

The profit margin earned should be treated as inclusive of tax, this means that if the purchase price of the goods is more than the selling price, the value of the supply is zero for VAT purposes. If the profit margin scheme is applied in your business, you are responsible for notifying the FTA of it, otherwise, you’ll be subject to a penalty.

What goods are eligible for the profit margin scheme under the UAE VAT?

Collector’s items: such as coins, currency, stamps, pieces of historical, archeological, and scientific interest. Second-hand goods: Tangible property that is suitable for use or repair. Antiques: Goods that date over 50 years.

When can I apply a profit margin scheme in the UAE?

If you are VAT-registered in the UAE, you may apply profit margin scheme if you purchased your goods from a person who is not VAT registered, or from a taxable person that has already adopted the profit margin scheme in their business and did not already recover the input tax.

What documents do I need to apply for the profit margin scheme under VAT in the UAE?

A Taxable person is required to keep the following records in order to apply for the Profit Margin Scheme in the business:

  • A document that proves the details of all the goods that are purchased and sold under the profit and margin scheme.
  • If you are not VAT registered your recipient will have to issue an invoice for themselves containing the information below:
    • Their name, their address, and their TRN.
    • The date of the purchase.
    • The details describing the goods purchased.
    • The consideration payable for the goods.
    • The supplier’s signature for the sold goods.
    • A copy of the supplier’s tax invoice related to the purchased goods.