spectrum-accounting-vat

VAT – Profit Margin Scheme

Profit Margin Scheme:

It is a scheme whereby a Taxable Person has an option to calculate Tax on the profit margin earned on a supply, instead of the sale value. The Profit Margin Scheme is available only on supply of certain specified goods, not services.

The Authority must be notified if the Profit Margin Scheme is to be used. Using the scheme without notification may mean that a taxable person is subject to penalty. (Art.76 of the VAT Law)

 

Profit margin:

It is the difference between consideration paid on purchase of the Goods and the consideration received on sale of the Goods, and the profit margin shall be deemed to be inclusive of Tax.

Profit margin = Consideration received on sale – consideration received on purchase

(and is taken inclusive of Tax)

If Profit margin is zero or if a loss is made, the value of the supply is zero for VAT purposes .

Example : Yasmin sells antique furniture  which she bought from a member of public for AED 3000. She then sold the dresser for AED 8000 then

Profit margin  =8000-3000 = 5000

Output tax      =5000*1/21=238.10

Input tax         = 0

Operation of the Profit Margin scheme

The Taxable Person may calculate Tax on any supply of Goods by reference to the profit margin in the following situations:

  1. Where he made a supply of Goods mentioned below:
  2. Second-hand Goods, meaning tangible moveable property that is suitable for further use as it is or after repair.
  3. Antiques, meaning goods that are over 50 years old.
  4. Collectors’ items, meaning stamps, coins and currency and other pieces of scientific, historical or archaeological interest
  5. were purchased from either:
  6. A Person who is not a Registrant.
  7. A Taxable Person who calculated the Tax on the supply by reference to the profit margin.

Records to be maintained

The Taxable Person must keep the following records in respect of supplies made by him.

  1. A stock book or a similar record showing details of each Good purchased and sold under the profit margin scheme.
  2. Purchase invoices showing details of the Goods purchased under the profit margin scheme.

Invoice:

Where the Goods are purchased from Persons who are not Registrants, the Taxable Person must issue an invoice showing details of the Goods himself, including at least the following information:

1) The name, address and Tax Registration Number of the Taxable Person.

2) The name and address of the Person selling the Good.

3) The date of the purchase.

4) Details of the Goods purchased.

5) The Consideration payable in respect of the Goods.

6) Signature of the Person selling the Good or authorized signatory.

Where a Taxable Person has charged Tax in respect of a supply with reference to the profit margin, the Taxable Person shall issue a Tax Invoice that clearly states that the Tax was charged with reference to the profit margin, in addition to all other information required to be stated in a Tax Invoice “except the amount of tax.”

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