FTA VAT Public Clarification on the profit margin scheme – eligible goods
The United Arab Emirates (UAE) Federal Tax Authority (FTA) has published its first Public Clarifications on the profit margin scheme.
This clarification highlights the FTA’s approach to clarifying complex matters will be to issue short and helpful clarifications of this nature. Businesses should ensure they take action to consider whether the FTA’s interpretation aligns with the current treatment adopted by the business.
It should however also be noted that the clarifications, while having general application and providing assistance on how to apply the law, will rarely deal with all possible types of transactions and how they should be addressed. Essentially, this means that businesses still own the responsibility for ensuring that their transactions are VAT compliant, and the guidance given by these clarifications should be considered in the context of the transactions that are under question.
VAT Public Clarification VATP002 details which goods are considered to be eligible for application of the profit margin scheme.
The profit margin scheme allows VAT to be accounted for by second-hand goods dealers on the profit made on the supply only, rather than the whole value, provided specific criteria are met.
VATP002 confirms that only those goods which have been previously subject to VAT qualify under the profit margin scheme. This is especially relevant for goods which were originally supplied prior to 1 January 2018.
Businesses which frequently use the profit margin scheme, such as car dealers, should ensure they have sufficient and accurate records in place to identify those goods supplied under the profit margin scheme and those goods on which they must account for VAT on the full selling price. It is obviously best if the identification of these supplies to differentiate treatment is set up in the IT system such that it cannot be changed or overridden.
It is also important that previous transactions are reviewed to identify whether there is a risk VAT has been under-accounted for and whether a voluntary disclosure may be required.