The Federal Tax Authority (FTA) has announced that only those goods which have previously been subject to VAT before the supply in question may be subject to the Profit Margin Scheme. As a result, stock on hand of used goods which were acquired prior to the effective date of Federal Decree-Law No. (8) on Value Added Tax (VAT law), or which have not previously been subject to VAT for other reasons, are not eligible to be sold under the profit margin scheme. VAT is therefore due on the full selling price of such goods.
The Authority had clarified the above to address questions from the audience at an awareness session recently organised at the Abu Dhabi Chamber of Commerce and Industry to raise awareness among car dealers about the procedures and tax treatment for this vital sector, as well as the efforts made by the FTA to remove obstacles facing those working in the sector.
The session brought together several car dealers, experts and other stakeholders from the industry, where the FTA team introduced them to the procedures for implementing VAT and the Profit Margin Scheme.
In a press statement issued today, FTA Director-General Khalid Ali Al Bustani asserted that the Federal Tax Authority has been committed, since the tax system went into effect, to raising awareness among all business sectors to abide by their tax obligations, by means of various media and digital channels, as well as direct contact through awareness campaigns across all seven emirates. The Authority also provides various tax awareness instruments through its website, which was designed according to international best practices.
"The Federal Tax Authority is committed to enhancing its partnerships with business sectors and providing assistance for them to fully comply with tax regulations," Al Bustani said. "The Authority maintains constant communication with retailers, producers and service providers to identify their views and ensure a smooth and seamless implementation of the UAE tax system with minimal effects on their business activities."
The FTA Director-General went on to add, "The Ministry of Finance and the Federal Tax Authority sought to proactively organise awareness campaigns, seminars and workshops for businesses months before the tax system went into effect. These campaigns continue to raise awareness and promote tax compliance today, with more than 80 such events organised so far drawing more than 32,000 experts from various business sectors. Furthermore, the FTA published more than 60 guidebooks, 12 e-learning programmes, and 22 infographics, in addition to educational short films targeting all relevant segments."
For his part, Hilal Al Hamli, Deputy General Manager, Abu Dhabi Chamber of Commerce and Industry, asserted that the Chamber helped organise the session in order to raise awareness around the various applications of Value Added Tax (VAT), particularly as it pertains to car dealers.
"These sessions seek to provide a clearer picture for private-sector entities, introduce them to the tax system and underline that the tax rate in the UAE is one of the lowest around the world, mitigating any effects taxes might have on the UAE’s competitiveness both regionally and internationally," Hilal Al Hamli added. "To the contrary, taxes will have many positive effects, facilitating the development of infrastructure and public services, all the while driving progress and sustainable development."
"With these seminars and workshops, the Abu Dhabi Chamber of Commerce and Industry is looking to foster communication, allowing its members from the private sector and business owners to all economic developments. We hope this session raises awareness among car dealers and all stakeholders in the sector about the importance of VAT and tax compliance," Hilal Al Hamli concluded.
The FTA representatives provided a detailed explanation of the procedures and tax legislation related to the sale of new and used vehicles, including a detailed discussion of the Profit Margin Scheme, the conditions to apply it, the goods that qualify to be supplied under it, and the relevant obligations for the Taxable Person.
The FTA’s representatives went on to note that the taxable person will not be allowed to apply the profit margin scheme in such cases where he has issued a tax invoice or any other document mentioning an amount of VAT chargeable in respect of the supply.
They explained that the profit margin is the difference between the purchase price of the Goods and the selling price of the Goods, that the profit margin shall be deemed to be inclusive of Tax and that a VAT registered business may apply the profit margin scheme to eligible goods if the goods must have been 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 i.e. a VAT registered business which already applied the profit margin scheme on the same goods. In addition, the profit margin scheme may also apply if the taxable person made a supply of the goods where input tax was not recovered in accordance with Article 53 of Cabinet Decision No. 52 of 2017.
The FTA experts urged suppliers to be confident that a good has previously been subject to tax in order to apply the profit margin scheme. Such evidence or information of this position could include but is not limited to. Evidence or information of this status could include (but is not limited to): information relating to the date the good was first manufactured, sold or brought in to use e.g. 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 e.g. by asking the supplier for a copy of the tax invoice relating to their purchase of the good.
They also emphasised that 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.