Second-hand goods, antiques and collectors' items are eligible for calculating VAT on the basis of the difference between the buying and selling price of an item
The UAE’s Federal Tax Authority (FTA) announced on Wednesday that it determined three main categories of “eligible goods” for calculating value-added tax [VAT] on the basis of the profit margin scheme: second-hand goods, antiques and collector’s items.
In a statement, the FTA noted that those goods, which had been subject to VAT before the supply in question, may now be subject to the profit margin scheme, which is defined as the difference between buying and selling price of an item, and is inclusive of taxes.
The statement called on registered businesses to carefully verify eligible goods for the profit margin scheme, highlighting that only those goods which have been previously subject to VAT before the supply in question may be subject to the scheme.
As a result, stock on hand of used goods that were acquired prior to the implementation of VAT, or goods that have not previously been subject to VAT or other reasons, are not eligible to be sold under the profit margin scheme, meaning that VAT is due on the full selling price of the goods.
The FTA added that the profit margin scheme is applicable if goods were purchased from either a person who is not registered for VAT or a taxable person who calculated VAT on the supply by reference to the profit margin.
According to the FTA, a taxable person will not be allowed to apply the profit margin scheme in cases where they had issued a tax invoice or document mentioning a chargeable amount of VAT. The FTA added that taxable persons are required to keep inventory or similar documents that clarify the status of every item bought or sold, as well as purchase invoices that outline the details of items bought under the profit margin scheme.
If items were purchased from an unregistered person, the taxable person is required to issue a “self-invoice” outlining the purchase details.
Lastly, the FTA said that if a registered business imposed tax on a certain supply using the profit margin scheme, then the business is required to issue a tax invoice explicitly stating that fact, along with all the other information that is required in an invoice.