Understanding Accounting for Tax on the Profit Margin 

In the realm of Value Added Tax (VAT) in the UAE, the Executive Regulation of the Federal Decree-Law No. 8 of 2017 is pivotal in guiding Taxable Persons on their obligations and rights. A significant addition to this framework is Cabinet Decision No. 100 of 2024, specifically Article 29, which outlines the accounting for tax on the profit margin. This article provides a comprehensive mechanism for determining tax liabilities when dealing with certain categories of goods, which is particularly relevant for businesses involved in the sale of second-hand items, antiques, and collectibles. 

When Can Tax Be Calculated on the Profit Margin? 

Situations for Applying the Profit Margin Scheme

According to Article 29, a Taxable Person is permitted to calculate tax based on the profit margin under specific conditions: 

• Purchases from Non-Registrants: If the goods were acquired from a person who is not a VAT registrant, the seller can apply the profit margin scheme. 

• Input Tax Not Recovered: This is applicable for goods for which the Input Tax was not reclaimed, aligning with Article 53 of the Decision. 

Eligible Goods

The types of goods that fall under the profit margin scheme are explicitly defined as: 

• Second-hand Goods: Tangible moveable properties that can be reused as-is or after repair. 

• Antiques: Goods aged over 50 years. 

• Collectors’ Items: This includes items such as stamps, coins, and other scientifically or historically significant artifacts. 

Important Restrictions and Definitions 

Restrictions on Applying the Profit Margin Scheme

• A Taxable Person cannot opt to use the profit margin scheme if a Tax Invoice or other documentation specifying a tax amount is issued for the supply. This restriction ensures clarity and consistency in tax reporting. 

Understanding the Profit Margin

• The profit margin, which is crucial for determining tax obligations under this scheme, is defined as the difference between the purchase price and the selling price of the goods. Notably, this margin is considered inclusive of tax, making it essential for Taxable Persons to account for all relevant costs. 

Determining the Purchase Price

• The purchase price encompasses not just the price of the goods but also any additional costs incurred in acquiring them. This broad definition helps ensure that the tax calculation reflects the true economic cost of the goods. 

Record-Keeping Obligations 

Documentation Requirements

To ensure compliance with the profit margin scheme, Taxable Persons must maintain meticulous records, including: 

1. Stock Books: Detailed records of goods purchased and sold under the profit margin scheme. 
2. Purchase Invoices: These invoices should capture essential details, including: 

• • The Taxable Person’s name, address, and Tax Registration Number. 

• • The seller’s name and address. 

• • The purchase date and details of the goods. 

• • The consideration paid for the goods. 

• • The signature of the seller or an authorized representative. 

Issuing Tax Invoices 

Tax Invoice Requirements

• If a Taxable Person charges tax based on the profit margin, the Tax Invoice must clearly indicate this method of calculation. It is also required to include all standard information typically found on a Tax Invoice, except for the explicit amount of tax charged. This requirement underscores the need for transparency and accuracy in tax documentation. 

Conclusion 

The introduction of Article 29 under Cabinet Decision No. 100 of 2024 represents a significant step in refining the application of VAT in the UAE, particularly for businesses dealing with specific types of goods. By allowing Taxable Persons to calculate tax based on the profit margin under specified conditions, the regulation aims to facilitate fair taxation while ensuring compliance through rigorous record-keeping. 

Summary

Article 29 of Cabinet Decision No. 100 of 2024 allows Taxable Persons in the UAE to calculate VAT based on the profit margin for specific goods, including second-hand items, antiques, and collectibles. This is applicable under two conditions: when goods are purchased from non-registrants or when the Input Tax on the goods has not been recovered. The profit margin is defined as the difference between the purchase price and the selling price, inclusive of tax. 

Disclaimer:   

The Content offer general guidance and should not be considered legal, financial, or tax advice. Consult qualified professionals for personalized guidance. While efforts have been made to ensure accuracy, no guarantee is provided for completeness or applicability to individual situations. Users are responsible for their interpretation and actions based on this information, at their own risk.   

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