The profit rate scheme is an important scheme for calculating value-added tax in the UAE. The plan is suitable for certain products, and certain conditions must be met under the premise of meeting the profit rate plan. Let us understand the profit margin scheme in this article.

What is a margin plan?

A profit margin plan is a scheme under which the taxable person can choose to calculate the tax amount based on the profit margin earned on the supply (rather than the value of the sales).

Can profit margin plans be used to provide goods and services?

The profit rate plan only applies to the supply of certain specific goods, not to services.

In the UAE, what products can be provided based on the VAT margin plan?

The commodities that can be provided according to the profit rate plan are:

One kind. Second-hand goods, that is, tangible movable properties, suitable for direct use or use after repair

b. Antiques, that is, commodities over 50 years old

C. Collector’s items, namely stamps, coins and currency

Why propose this plan?

The commodities subject to the profit rate plan are roughly second-hand commodities that have been subject to value-added tax when they are first supplied. These commodities are usually purchased by registered second-hand commodity dealers from unregistered consumers, and therefore no value-added tax is levied. Therefore, second-hand commodity dealers cannot recover the input tax. Therefore, when these goods are sold by second-hand goods dealers, the dealers should not pay VAT on the entire sales value, as this will result in double taxation of the goods. As a result, for this type of supply, regulations have been given to pay VAT only on the profits earned by the supply.

What happens if the goods are purchased from a VAT registered person?

In some cases, registered second-hand commodity dealers will purchase second-hand goods from registrants. In this case, the supplier will levy value-added tax on the supplies. If a second-hand commodity dealer chooses to provide a margin plan for these second-hand commodities, the dealer is not eligible to recover the input tax paid. If the second-hand commodity dealer does not choose the margin plan, the dealer is eligible to recover the input tax paid.

What are the commodity supply conditions under the profit rate plan?

Products provided under the profit rate plan should meet one of the following conditions:

One kind. They should be purchased from any of the following:

People who are not registered under VAT or

Taxable persons who provide goods according to the profit rate plan

Either

b. Input tax should not be recovered when purchasing goods

So, in short, it is important that input tax should not be recovered on goods provided under the profit rate plan.

Is it necessary to notify the free trade zone of the supply of goods based on the profit rate plan?

No, those who supply goods based on the profit rate plan do not need to notify the free trade agreement. For transactions that meet the criteria of the profit margin plan, the person can charge VAT accordingly and report such sales in the regular VAT return.

In our next article, we will learn how to calculate VAT under the profit rate plan, and the comparison between the VAT calculation under normal circumstances and the profit rate plan.