UAE VAT profit margin scheme: used goods, antiques and collectibles

The VAT profit margin scheme lets a reseller of second-hand goods, antiques or collectors' items charge VAT on the margin, not on the full selling price. It is optional and applies only to goods that bore VAT earlier and were bought in the ways the rules allow. The invoice must say the scheme was used.

What the scheme does

Normally a VAT-registered seller charges 5% on the full price. With the profit margin scheme, a reseller accounts for VAT only on the difference between the selling price and the purchase price. This avoids taxing twice the value that already carried VAT when the goods were first sold. The scheme comes from the VAT law and its Executive Regulation, and the FTA has published a guide on it. Check the current version of the guide before relying on this summary.

Eligible goods

• Second-hand goods: tangible movable items suitable for further use as they are or after repair.
• Antiques: items 50 years old or more.
• Collectors' items: such as stamps, coins and items of scientific, historical or archaeological interest.

Conditions

1. The goods bore VAT at an earlier supply. The scheme cannot be used on goods bought before VAT began on 1 January 2018.
2. You bought them from an unregistered person, from a taxable person who also applied the scheme, or in a case where the input VAT was not recoverable.
3. You keep evidence that VAT was previously charged.
4. Goods you import generally do not qualify unless the import VAT was not recoverable.

Refurbished goods can still qualify when the work does not change the basic nature or function of the item.

How the VAT is calculated

The margin is the selling price less the purchase price, and it is treated as already including VAT. VAT is the margin multiplied by 5/105. If you sell at or below the purchase price, the taxable value is zero.

Without the scheme, VAT would apply to the full selling price, so the scheme reduces the charge. The numbers are illustrative.

Invoice and records

The tax invoice must show that the profit margin scheme has been applied. Check the FTA guide for how VAT should be shown on the invoice. Keep a stock record for each item showing the purchase date and price, who you bought from, the sale date and price and the evidence of earlier VAT. See tax invoice requirements.

Who should use it

Dealers in used cars, jewellery, watches, art and antiques often use the scheme. It is optional, and it carries a record-keeping cost, so check it suits your volumes. Disposals of assets where input tax was blocked may also come within it. See blocked input VAT and verifying suppliers.

Keeping the stock record

The scheme works only if you can prove, item by item, what you paid and when. A basic stock record should show an item reference, a description, the date and price of purchase, the seller and whether they were registered, the evidence of earlier VAT, the date and price of sale and the VAT calculated. For a dealer with many low-value items, group similar goods if the FTA guide allows it, and check that the grouping method is documented.

Sales at a loss and mixed stock

If you sell an item for less than you paid, the margin is zero and no VAT is due on that sale. Check the FTA guide on whether margins on different items can be netted. Keep in mind that mixed stock, where some items qualify and others do not, needs to be recorded separately. Items bought from registered suppliers who charged VAT and where you recovered it as input tax usually follow the normal rules, not the scheme.

Used cars and other assets

Used car dealers are often the main users. A dealer buying vehicles from private owners, who have no VAT to charge, is the textbook case. A company that sells one of its own vehicles on which input VAT was not recovered may also look at the scheme. Do not assume a vehicle qualifies simply because it is second-hand; check how it was bought and whether VAT was previously borne. See blocked input VAT.

Reporting on the return

Sales under the scheme appear on the VAT return in the way the FTA's instructions specify. Keep a reconciliation from the stock records to the return figures each period, so a review can follow the numbers. Our VAT health check tests that reconciliation.

Is it worth it

1. Estimate how many items you buy from unregistered sellers.
2. Calculate VAT under the normal rules and under the scheme for a typical month.
3. Weigh the saving against the extra record-keeping.
4. Decide, and apply the same approach consistently.

Retailers and dealers

A dealer who buys many small items from the public should have a simple, repeatable intake process: record the seller's identity, the date, a description and the price, and keep a copy of the seller's identification where the rules require it. That intake record is the first evidence that VAT was not charged on the purchase, and it supports the scheme later. It also supports AML checks if the goods are high-value. See what the FATF decision changed.

Mixed stock, mixed treatment

Many dealers sell both new and used items. New goods follow the normal VAT rules. Used goods may follow the scheme. Keep the two in separate stock accounts and separate tax codes in your accounting system so the return can be prepared quickly and the margin figures can be traced. Misclassification between the two is the most common error.

Exports of used goods

An export of used goods can be zero-rated if the export conditions are met, even if the goods were bought under the scheme. Check the interaction before you apply the scheme to goods that you plan to export. See zero-rated exports.

Frequently asked questions