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01 March 2024

FTA calls on retailers to verify if used cars were subject to VAT


The Federal Tax Authority, FTA, applauded the high tax compliance rate and increased tax awareness among businesses in the UAE in particular the automotive sector, reiterating its commitment to empowering businesses to play an active role in driving growth in the national economy, and to ensuring tax regulations do not adversely affect commercial activity in any economic sector.

The Authority had held an awareness workshop for car dealers to introduce them to the procedures and tax treatment for this key sector, highlighting the FTA’s steps to address the obstacles that face those who work in the sector. More than 100 dealers, experts and stakeholders participated in the workshop, where FTA experts shed light on procedures for implementing Value Added Tax, VAT, and the Profit Margin Scheme. The session was organised by the Federal Tax Authority in collaboration with the Dubai Municipality and Al Aweer Auto Market in Dubai.

In a press statement the Authority issued today, FTA Director-General Khalid Ali Al Bustani asserted that the workshop forms part of the Authority’s plans to raise tax awareness among businesses and keep them posted with all developments affecting operations and tax procedures, as well as to understand their views and address any obstacles that face them to ensure a smooth roll-out of the UAE tax system.

"Tax laws in the UAE have prioritised the establishment of an environment conducive to continued growth and prosperity in commercial activities – a sector of great importance in the Government’s plans to diversify sources of income," Al Bustani added, noting that the UAE is a main regional hub for automotive trading, and that the Authority is committed to enhancing this role by simplifying procedures and providing all necessary support to help dealers comply with tax procedures with no adverse effects on their commercial activities.

The FTA experts presented a detailed explanation of the procedures and legalities surrounding VAT on the sale of new and used vehicles. They also shed light on the Profit Margin Scheme, its terms and conditions, the supplies eligible for it, and the obligations for the Taxable Person.

The Authority’s representatives asserted that according to Federal Decree-Law No. 08 of 2017 on VAT and Cabinet Decision No. 52 of 2017 on the Executive Regulations of said Decree-Law, the Profit Margin Scheme is only applicable to supplies that already incurred VAT prior to the current supply. Therefore, the stock of used goods purchased before Federal Decree-Law No. 08 of 2017 went into effect (or that didn’t incur tax for any reason) do not qualify for the Profit Margin Scheme, and VAT is instead calculated on the items’ full price.

The experts went on to note that the Taxable Person cannot calculate tax as per the Profit Margin Scheme if a Tax Invoice or other equivalent document was issued, or if the amount of incurred tax was mentioned in the invoice.

The profit margin, they explained, is the difference between the purchasing and selling price; it is considered to be inclusive of tax. Businesses registered for VAT can apply the Profit Margin Scheme on eligible goods in the following circumstances: If the goods were purchased from either a person 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 that already applied the Scheme on the same goods; or in case the Taxable Person made a supply of 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. 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 into 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 January 1, 2018; and 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. If the registered business imposed tax on a certain supply using the profit margin scheme, they explained, then said business would be required to issue a tax invoice explicitly stating this fact, along with all other information that is supposed to be included in an invoice, except the tax amount.

Participants in the workshop called for organising similar workshops in the future to strengthen communication and discuss any issues that may arise while implementing the tax system.