Profit Margin Scheme – Eligible Goods Under this Scheme and Conditions

Tally Solutions | Updated on: December 30, 2021

The Profit Margin Scheme is a scheme whereby a Taxable Person has an option to calculate Tax on the profit margin earned on the 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.

To know more on the profit margin scheme conditions and the VAT calculation, please read our article Profit Margin Scheme under VAT in UAE and How to calculate VAT under Profit Margin Scheme.

In this article, we will understand the goods eligible under the profit margin scheme and the treatment of goods purchased prior to the introduction of the VAT.

Goods under the Profit Margin Scheme

Only notified goods can be supplied under the profit margin scheme. The following are the goods which are eligible under the profit margin scheme.

• Second-hand goods, meaning tangible moveable property that is suitable for further use as it is or after repair.
• Antiques i.e. goods that are over 50 years old.
• Collectors’ items i.e. stamps, coins, currency and other pieces of scientific, historical or archaeological interest.

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 the 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.

Treatment of goods purchased prior to the introduction of VAT under the Profit margin scheme

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 the 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

Evidence that goods were subject to tax previously

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.

• Information relating to the date the good was first manufactured, sold or brought in to use. For example, in the case of a car, the date the car was first registered would indicate its sale would have been subject to VAT if it was registered on a date after 1 January 2018
• Evidence that the supplier paid VAT on their original purchase. For example, you may ask the supplier for a copy of the tax invoice relating to their purchase of the goods.