GCC Profit Margin Scheme

Providing an overview of the conditions of the Profit Margin Scheme for the GCC countries that have implemented VAT.

Rationale

The Profit Margin Scheme (PM Scheme) allows the taxpayer to charge VAT only on the profit margin rather than the value of the whole supply. The PM Scheme is aimed to avoid the cascading effect of VAT, caused by the non-recovery of VAT on the acquisition and subsequent supply of a good by a non-VAT registered party.

First Supplier → Non-VAT registered consumer → Second-hand dealer → Customer

Eligible Goods

UAE and Oman

• Second-hand goods (tangible movable property) suitable for further use as it is or after repair 
• Collector's items
• Antiques that are over 50 years old

Bahrain

• Second-hand goods (tangible movable property) suitable for further use as it is or after repair
• Collector's items

Saudi Arabia

• Eligible used-goods to be specified by the Tax Authority

Conditions for Saudi Arabia, Oman, Bahrain

• Goods should be purchased from:
  • Non-VAT registered person
  • Person who sold the goods under the Profit Margin Scheme
  • Person who could not recover input tax on the goods
• Input tax should not be recovered on the purchase of goods
• Goods must be situated in the state
• Obtain approval from the Tax Authority to use the PM Scheme
• Tax invoice must clearly indicate that VAT was charged using the PM Scheme
• "Self profit margin invoice" when purchasing used goods from a non-taxable person

Conditions for UAE

Same with above conditions except the following which are not mentioned in the UAE VAT Law:

• Obtaining approval from the Tax Authority to use the PM Scheme

How can Crowe help?

• Assess whether goods to be supplied qualify for the PM Scheme
• Help ensure that compliance of required documents to be eligible under the PM Scheme