VAT Profit Margin Scheme

What is Profit Margin Scheme?

The Profit Margin Scheme allows that, in certain cases, Registrant may calculate and charge VAT on the Profit Margin earned rather than the full value.

Are there any Conditions to avail Profit Margin Scheme?

Yes, there is only one condition to charge VAT under this Scheme which is:

The Goods are purchased from a Non-VAT registered supplier OR purchased from a registered supplier who accounted for Tax on the supply by reference to Profit Margin.

What type of Goods falls under Profit Margin scheme?

The following type of Goods:

  1. Second Hand / Used Goods; i.e. tangible movable goods like Cars and Households.
  2. Antiques; i.e. Goods which are over 50 years old.
  3. Collector’s Items; i.e. Stamps, Coins and currency and other pieces of scientific, historical or archaeological interest.

Why is the Profit Margin Scheme needed? (Illustrative Explanation)

Many businesses trade in second-hand goods. They purchase those goods from a non VAT registered individual and will also sell them to a non VAT registered individual.

Assuming a person is a VAT registered second hand household items dealer who wants to buy an item of the household for AED 5,000 from a non VAT registered private individual and then sell it on for AED 5,250 to another non VAT registered private individual.

There would be no VAT to recover on the purchase and so the cost would be AED 5,250. However on the sale, in the absence of profit margin scheme, the AED 5,250 charged would actually be AED 5,000 + AED 250 (5%) VAT.

The AED 250 VAT charged by the person would have to be paid over to FTA and so although the buyer had paid AED 5,250 for the item (he isn’t VAT registered and so can’t recover the VAT you’ve charged him) you will only have received AED 5,000 and so made no profit.

How does the Profit Margin Scheme help?

Continuing the same illustration as above, if the person qualified for and applied the margin scheme to this transaction than the VAT payable would only be the difference between the amount you bought the item for and the amount you sold it for.

Therefore the person would buy at AED 5,000 and sell at 5,250 but the VAT-able sale declared to FTA would be:

AED 250 would need to be paid over to HMRC leaving you with a profit of AED 237.50

Is there any Specific Record to be kept by Registered Person under this scheme?

Under this Scheme Tax Registered Person is required to keep records of the following:

  1. Stock Book
  2. Purchase Invoice (If not obtained the Tax registered Person must issue himself).
  3. Sales Tax Invoice

Read More VAT Refund Scheme for Business Visitors in UAE

Business Visitor

Beside implementing VAT on different sectors in UAE the Federal Tax Authority (FTA) of United Arab Emirates has implemented a VAT scheme for such Business visitors which has no Place of Establishment or Fixed Establishment in UAE and is not a Taxable Person. For this purpose, FTA has implemented a VAT Refund Scheme for business visitors in UAE that will help them to claim the refund of VAT on expenses incurred by them in VAT implementing State. Further, FTA has also specified some conditions on repayment of tax which includes non-entitlement for claiming tax, days limitation and amount thresholds. FTA has also specified procedures in this regard which will facilitate Business Visitors to claim the refund. The first application can be made after the end of 2018.

Tourist Visitors

UAE Federal Tax Authority has not only facilitated Business visitors but is also considering to implement a refund scheme for Tourist visitors which will help Tourist visitor to claim the refund of VAT on expenses incurred by them in UAE. In this regard, the authority may specify some conditions or may specify a list of goods that shall not be subject to Tax Refunds for Tourist Scheme.


KEY DEFINITIONS:

GCC States

All countries that are full members of The Cooperation Council for the Arab States of the Gulf pursuant to its Charter. The GCC States includes The United Arab Emirates, Bahrain, Saudi Arabia, Oman, Qatar and Kuwait, and in 2009, Yemen joined the Organization, which is headquartered at Doha, Qatar.

Implementing State

The GCC States that are implementing a Tax law pursuant to an issued legislation.

Taxable Person

Any Person registered or obligated to register for Tax Purposes

Foreign Entity

A “Foreign Entity” is any Person that carries on a Business as defined in this Decision and is registered as an establishment with a competent authority in the jurisdiction in which he is established.

Place of Establishment

The place where a Business is legally established in a country pursuant to its decision of establishment, in which significant management decisions are taken or central management functions are conducted.

Fixed Establishment

Any fixed place of business, other than the Place of Establishment, in which the Person conducts his business regularly or permanently and where sufficient human and technology resources exist to enable the Person to supply or acquire Goods or Services, including the Person’s branches.

Overseas Tourist

Overseas Tourist means any natural Person who is not resident in any of the Implementing States and who is not a crew member on a flight or aircraft leaving an Implementing State.


FAQS:

What is VAT?

Value Added Tax (VAT) is an indirect tax and is generally referred to as a type of general consumption tax. Usually it is imposed on most of the goods and services that are bought and sold or provided and received respectively.

Will business/tourist visitor pay VAT?

Yes, business/tourists are a significant source of revenue for the UAE and will pay VAT at the point of sale.

What is the rate of VAT?

FTA has set the VAT rate deliberately low i.e 5% so that VAT is a limited burden on all consumers.

Will business/tourist visitor be able to reclaim VAT?

Yes, business/tourist visitors can reclaim VAT. For this purpose, FTA has introduced VAT Refund Scheme for business/tourist visitors. However, FTA has specified some conditions in this regard.

What is VAT Refund Scheme for Business Visitors?

 VAT Refund Scheme is a refund of VAT paid on expenses incurred by Foreign Businesses not having a Permanent Establishment in the UAE or any other implementing state and is not a Taxable Person. This may include Branch Offices, Representative Office, Liasioning office and marketing office etc.

What is the minimum limit of Claim and Period for Claiming Refund?

What is the Procedure for Claiming Refund?

  1. Send a soft copy (signed version in PDF format) to specialrefunds@tax.gov.ae
  2. Accepted file types are PDF, JPG, PNG, and JPEG.
  3. The total file size limit is 5 MB.
  4. You will obtain an immediate email notification upon successful submission of the Refund Form.

Who is not entitled to claim Refund?

What are the Conditions applicable to Tax Refunds for Tourists Scheme?

The following conditions shall apply to the Tax Refunds for Tourists Scheme:

  1. The Goods which are subject to the Tax Refunds for Tourists Scheme must be supplied to an overseas tourist who is in UAE during the purchase of the Goods from the supplier.
  2. At the Date of Supply, the overseas tourist intends to depart from UAE within 90 days from that date, accompanied by the Goods.
  3. The relevant Goods are exported by the overseas tourist to a place outside the UAE within 3 months from the Date of Supply.

ILLUSTRATIVE EXAMPLE:

VAT paid by business/tourist visitor on incurring expenses and its refund thereof:

                                                                                                                        Amount (AED)

Value of goods Purchased or Services received (exclusive of VAT)                     1,000

VAT @ 5%                                                                                                                           50

Value of goods Purchased or Services received (inclusive of VAT)                     1,050

VAT Submitted to revenue authority                                                                            50

Refund available with the business/tourist Visitor                                             50

 

 “Annexure – A”

The claim form shall contain such particulars as may be required by the Authority including:

  1. Name and address of the foreign entity.
  2. Nature of activities of the foreign entity.
  3. Details of the registration of the foreign entity with the competent authority in the country where it is established.
  4. Description of reasons for incurring expenses in the State.
  5. Description of activities undertaken in the State.
  6. Details of expenses incurred in the State during the period of the claim.

Read More About: VAT ON HEALTH CARE SERVICES IN UAE


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