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The Profit Margin Scheme is a scheme whereby a Taxable Person has an option to calculate Tax on the profit margin earned on a supply of goods, instead of the sale value. VAT under profit margin scheme can be calculated only when the conditions prescribed in UAE VAT law are fulfilled.
In this article, we will understand the goods eligible under profit margin scheme and the treatment of goods purchased prior to the introduction of the VAT.
Only notified goods can be supplied under profit margin scheme. The following are the goods which are eligible under profit margin scheme.
The above-mentioned goods can be supplied under the profit margin scheme only when they were subject to VAT before the supply. In simple words, these goods should have suffered VAT before supplying it under Profit margin scheme.
Now, you might be wondering what if these notified goods were purchased before 1st January, 2018 when VAT was not implemented?
Let us understand this in detail.
As discussed above, the goods which are eligible to be sold under the profit margin scheme are those which have previously been subject to VAT. As a result, the notified goods which are eligible to be supplied under profit margin scheme but since they were purchased during a period in which they would not have been subject to VAT, are not eligible for the profit margin scheme.
In simple words, the notified goods which are purchased prior to 1st January, 2018 are not eligible to be supplied under the profit margin scheme. On supply of such goods, VAT is due on the full selling price.
In the following table, we have considered two scenarios to understand the eligibility of supplies under the profit margin scheme
|Date of Purchase||VAT Applicability on the original purchase||Eligible under Profit Margin Scheme|
As discussed above, a supplier should know in advance that the goods were previously been subject to VAT in order to apply the profit margin scheme. The following are some of the instances which will evidence that goods were subject to VAT previously.