TRW & Co · UAE tax
VAT Profit Margin Scheme in the UAE
The profit margin scheme UAE VAT rules provide lets a registered reseller charge VAT on its margin instead of the full price when selling eligible second-hand goods, antiques, collectors' items or assets whose input VAT was blocked. VAT is one twenty-first of the margin, nothing is due on loss-making sales, and strict evidence, invoicing and reporting conditions apply.
Key pointThe scheme is not only for dealers: any business selling an asset whose input VAT was blocked, such as a company car available for private use, can charge VAT on the margin, often meaning no VAT on a sale below cost.
At a glance
VAT on margin only
VAT is the margin between selling and purchase price divided by 21, because the margin is treated as VAT-inclusive; loss-making sales carry no VAT.
Eligible goods
Second-hand goods, antiques older than 50 years and collectors' items qualify, plus any goods on which the reseller's input VAT was blocked under Article 53.
Prior VAT required
Goods must have borne VAT earlier in the chain, so items acquired before 1 January 2018 or never taxed cannot be sold under the scheme.
Invoice without VAT
The tax invoice must state VAT was charged by reference to the profit margin and must not show the VAT amount, or the scheme is lost for that sale.
Item-by-item, no netting
The scheme is optional per item, needs no FTA approval and is notified on the VAT return; losses on one item cannot offset another.
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Profit margin scheme UAE: the short answer
The profit margin scheme UAE VAT law offers lets a VAT-registered reseller charge VAT on its profit margin, rather than on the full selling price, when it sells eligible second-hand goods, antiques or collectors' items, or goods on which its own input VAT was blocked. The margin is treated as VAT-inclusive, so the VAT due is one twenty-first of the margin. Nothing is due on an item sold at cost or at a loss.
The scheme exists to stop VAT being charged twice on the same goods. When a dealer buys a used car from a private individual, there is no input VAT to recover, but the car already bore VAT when it was first sold new. Taxing the full resale price again would cascade the tax. The scheme is optional, chosen item by item, and does not need prior approval from the Federal Tax Authority.
The conditions are strict, and the FTA published its first full guide on the scheme, VATGPM1, in January 2026. This article, current as of October 2026, explains eligibility, the calculation, invoicing, record keeping and return reporting, with worked examples for used-car and resale businesses. The bookkeeping and VAT return preparation are delivered with our group company A&A Consultancy. TRW & Co, as a law firm, covers the legal side: VAT positions, contracts with sellers and buyers, and disputes with the FTA.
The legal basis
The profit margin scheme UAE resellers use rests on three instruments:
- Federal Decree-Law No. 8 of 2017 on Value Added Tax, as amended, which allows VAT to be calculated on the profit margin for prescribed goods and requires the taxable person to notify the FTA when it does so.
- Article 29 of the VAT Executive Regulation, originally Cabinet Decision No. 52 of 2017 and substantially updated by Cabinet Decision No. 100 of 2024 with effect from 15 November 2024. It defines eligible goods and transactions, the purchase and selling price, the records and the invoice wording. The 2024 update confirmed that the purchase price includes other costs and fees incurred to acquire the goods.
- VAT Guide on the Profit Margin Scheme (VATGPM1), issued by the FTA in January 2026, alongside the earlier public clarification on eligible goods (VATP002). The guide is not legally binding, but it shows how the FTA applies the rules in audits.
The scheme is administered through the standard VAT return on the Federal Tax Authority's EmaraTax platform. For the wider VAT framework, see our UAE VAT guide.
Which goods and transactions qualify for the profit margin scheme UAE rules
Eligible goods
- Second-hand goods: tangible movable property suitable for further use as it is or after repair, such as used cars, mobile phones, electronics and furniture. Non-usable scrap does not qualify. Repair is allowed, but if it changes the basic nature of the item, the result is a new good outside the scheme.
- Antiques: goods older than 50 years. The reseller must keep proof of age.
- Collectors' items: stamps, coins, currency and other pieces of scientific, historical or archaeological interest, with evidence that the item is objectively a collector's item.
Eligible transactions
The scheme applies in two situations. First, where the reseller bought eligible goods from a person not registered for VAT, or from a registered person who itself applied the scheme on that sale. Second, where the reseller sells goods on which its own input VAT recovery was blocked under Article 53 of the Executive Regulation, such as a company car available for private use. The second route is not limited to second-hand goods and is available to any business, not only dealers.
The prior-VAT condition
The goods must have borne VAT earlier in the chain. Goods acquired before VAT began in the UAE on 1 January 2018, or never previously subject to VAT for another reason, do not qualify. The burden of proof is on the reseller, typically through the original tax invoice issued to the private seller. Without evidence, VAT is due on the full selling price.
What does not qualify
Goods the reseller imports itself are generally excluded, because import VAT can be recovered in the normal way; the exception is where that import VAT was blocked under Article 53. Goods bought from a registered supplier who charged VAT in the normal way do not qualify either, since that VAT is recoverable. Partial recovery restrictions under the apportionment rules do not, on their own, bring goods into the scheme.
| Situation | Scheme available? | Why |
|---|---|---|
| Dealer buys a 2021 car from a private owner with the original tax invoice | Yes | Eligible second-hand goods from a non-registrant, previously subject to VAT |
| Dealer buys a 2016 car from a private owner | No | Acquired before VAT was introduced, so never subject to VAT |
| Phone reseller buys from a registered wholesaler that applied the scheme | Yes | Supplier applied the scheme; keep its invoice as evidence |
| Antique dealer imports pieces from abroad and pays import VAT | No | Import VAT is recoverable under the normal rules |
| Company sells a car used privately by its CEO, input VAT blocked | Yes | Article 53 goods qualify regardless of category |
| Workshop converts old aircraft parts into furniture | No | Basic nature changed; treated as new goods |
How the VAT is calculated
Every profit margin scheme UAE calculation follows two steps.
- Work out the purchase price. The price paid plus costs and fees incurred to acquire the goods and make them ready for sale, such as transport and installation. Where VAT on those costs was recoverable, it is not included.
- Work out the selling price. The consideration received, including payments for ancillary items that are part of the same supply, such as non-optional accessories fitted during repair. Separate supplies, such as an extended warranty, are taxed normally.
- Calculate the margin. Selling price minus purchase price. If the result is zero or negative, no VAT is due on that item.
- Calculate the VAT. Margin multiplied by 5/105, or simply divided by 21.
- Record and report. Enter the item in the stock book, issue a compliant invoice and report the figures in the right boxes of the VAT return.
Worked example: a used-car dealer
Illustrative figures. A dealer buys a car from a private owner for AED 60,000, with the owner's original tax invoice proving VAT was charged when the car was new. It pays an unregistered recovery truck AED 1,050 to bring the car to the showroom. The purchase price is AED 61,050. It sells the car for AED 72,600.
- Margin: AED 72,600 minus AED 61,050 = AED 11,550.
- VAT: AED 11,550 divided by 21 = AED 550.
- Under normal rules, VAT on the full price would have been AED 72,600 divided by 21 = AED 3,457.14.
Worked example: a phone reseller
Illustrative figures. A reseller buys a used phone from an individual for AED 1,200 and sells it for AED 1,410. The margin is AED 210 and the VAT is AED 10. If another phone bought for AED 1,200 sells for AED 1,100, no VAT is due on it, and the AED 100 loss cannot be set against the profit on the first phone.
Worked example: selling a company car
Illustrative figures. A company bought a car for AED 200,000 plus AED 10,000 VAT, which it could not recover because the car was available for private use. Three years later it sells the car for AED 120,000. Under the scheme, the purchase price is AED 210,000 and the sale is at a loss, so no VAT is due. Without the scheme, the company would have charged VAT on the full AED 120,000. This route is often overlooked by businesses outside the motor trade.
Invoicing and record keeping
The invoice
Most profit margin scheme UAE audit findings concern documents rather than arithmetic. When the scheme is applied, the tax invoice must state clearly that VAT has been charged with reference to the profit margin and must contain all the usual details of a tax invoice except the VAT amount. If any invoice or other document for the sale shows VAT, the scheme cannot be applied to that sale. Point-of-sale templates and dealer management systems that print VAT automatically are a frequent cause of failure.
The records
- A stock book or equivalent record showing each item bought and sold under the scheme.
- Purchase invoices for each item.
- For purchases from non-registrants, a self-issued purchase document showing the reseller's name, address and tax registration number, the seller's name and address, the date, a description of the goods, the price paid and the seller's signature.
- Evidence that VAT was previously charged, such as the original tax invoice issued to the private seller.
- For antiques and collectors' items, evidence of age or collector status.
VAT records must generally be kept for at least five years after the end of the tax period. Corporate tax records, which will include the same purchase and sale documents, must be kept for at least seven years. Our guide to bookkeeping requirements in the UAE sets out the retention rules.
Reporting on the VAT return
Reporting is where the profit margin scheme UAE rules meet EmaraTax. The VAT return form contains a question asking whether the profit margin scheme has been applied, which must be answered "yes" in any period in which it was used. This is how the reseller notifies the FTA. Reporting then works as follows:
- Purchases of goods intended for sale under the scheme go in Box 9 in the period of acquisition, in the amount column only, with no VAT.
- Sales go in Box 1 for the emirate of the establishment most closely connected with the sale: the amount column shows the selling price less the VAT on the margin, and the VAT column shows the VAT on the margin.
- Loss-making sales are included in the amount column at their selling price, with no VAT.
In the used-car example, Box 1 would show AED 72,050 in the amount column and AED 550 in the VAT column. Our guide to VAT returns and input VAT recovery covers the rest of the return.
Illustrative scenario
This scenario is illustrative only and uses generic parties.
A pre-owned luxury watch dealer applies the scheme to all sales. It buys watches from private collectors, many through informal introductions, and records purchases on simple receipts. During a VAT audit, the FTA asks for evidence that each watch had previously been subject to VAT. For many pieces bought abroad by the collectors, or bought before 2018, no evidence exists.
The FTA assesses VAT on the full selling price of those watches and imposes penalties. The dealer's invoice template also printed a VAT line on some sales, which on its own disqualified them. The dealer revises its purchase process so that no watch is bought for scheme sale without a self-issued purchase document and proof of prior VAT, separates scheme and non-scheme stock, and corrects its invoice templates. A robust profit margin scheme UAE process would have priced these documentation risks into the purchase decision.
Risks and common mistakes
No evidence that VAT was previously charged
This is the most common failure. The scheme requires the goods to have borne VAT earlier in the chain, and the reseller carries the burden of proof. Private sellers often cannot produce the original invoice, and goods bought before 2018 or abroad may never have borne UAE VAT. Ask for evidence before agreeing the price; where it is missing, price the item on the assumption that VAT will be due on the full selling price.
Showing VAT on the invoice
If an invoice or any other document for the sale shows the VAT amount, the scheme cannot be applied to that sale. Many systems add VAT automatically. Set up a separate invoice template for scheme sales, with the required wording that VAT has been charged with reference to the profit margin, and test it before go-live. Review templates whenever the system is upgraded, including during the move to e-invoicing.
Netting losses against profits
Each item is calculated on its own. A loss on one car cannot reduce the margin on another, even in the same period. Systems that calculate VAT on total monthly margin will underpay. Make sure the stock book and the VAT calculation work item by item, and that loss-making sales still appear in Box 1 at their selling price.
Applying the scheme to imported or ineligible goods
Goods the reseller imports itself are generally outside the scheme because import VAT is recoverable. Goods whose basic nature has changed through refurbishment are new goods. Scrap is not second-hand goods. Classify each item at purchase, record the reason for eligibility and keep scheme and non-scheme stock separate in the inventory system.
Forgetting the Article 53 route
Businesses outside the resale sector often charge full VAT when selling company cars or other assets on which input VAT was blocked. The scheme allows VAT on the margin instead, which can mean no VAT at all where the asset is sold below its VAT-inclusive cost. Review asset disposals for blocked-input assets before invoicing.
What to do next
- Map which of your goods could qualify and how you source them.
- Build purchase procedures that capture prior-VAT evidence and the self-issued purchase document.
- Create a scheme-specific invoice template with the required wording and no VAT line.
- Keep an item-level stock book and calculate VAT per item.
- Answer the scheme question on every VAT return and report Box 1 and Box 9 correctly.
- Run a VAT health check on past periods and consider a voluntary disclosure where errors are found.
Treat proof of prior VAT as part of the purchase price. A used item without it costs the reseller roughly one twenty-first of the full selling price in extra VAT, so the evidence has real value and should be negotiated for, or priced in, before the item is bought.
The bookkeeping and VAT return preparation are delivered with our group company A&A Consultancy. TRW & Co advises on VAT positions, purchase and sale terms, and FTA audits, reconsiderations and tax disputes, working alongside locally licensed advocates where court representation is needed. To discuss your profit margin scheme UAE questions, contact TRW & Co at info@trw.co or +971 58 942 1012.
Frequently asked questions
01Is the profit margin scheme mandatory in the UAE?
No. The scheme is optional and can be chosen item by item for eligible supplies. No prior approval from the Federal Tax Authority is needed, but a reseller that uses it must notify the FTA by answering the scheme question on its VAT return, issue invoices with the required wording and no VAT amount, and keep the prescribed records. Where the scheme is not applied, VAT is charged on the full selling price under the normal rules.
02How is VAT calculated under the profit margin scheme?
Subtract the purchase price, including costs and fees incurred to acquire the goods, from the selling price to get the margin. Because the margin is treated as VAT-inclusive, divide it by 21 (the 5/105 fraction) to find the VAT. For example, a car bought for AED 61,050 including transport and sold for AED 72,600 has a margin of AED 11,550 and VAT of AED 550. If the margin is zero or negative, no VAT is due.
03Can I use the scheme for goods bought before 2018?
No. The scheme applies only to goods that have previously been subject to VAT, and UAE VAT began on 1 January 2018. Goods acquired by the seller before then, or never subject to VAT for another reason, are not eligible, and VAT is due on the full selling price. The reseller must hold evidence of prior VAT, usually the original tax invoice issued to the private seller, to apply the scheme.
04What happens if I sell an item at a loss under the scheme?
No VAT is due on that item, because there is no margin. The selling price is still reported in the amount column of Box 1 of the VAT return, with nothing in the VAT column. Losses cannot be set off against profits on other items, even in the same tax period, so each item must be calculated separately in the stock book and the VAT computation.
05Can a non-dealer business use the profit margin scheme?
Yes, in one important case. Any taxable person selling goods on which its own input VAT recovery was blocked under Article 53 of the VAT Executive Regulation, such as a motor vehicle available for private use, may apply the scheme on resale. The purchase price then includes the VAT that could not be recovered, so a car sold below its VAT-inclusive cost may carry no VAT at all.
06How do I show the scheme on my invoice?
The tax invoice must clearly state that VAT has been charged with reference to the profit margin and include all the usual details of a tax invoice except the VAT amount. If the invoice, or any other document for that supply, shows the VAT amount, the scheme cannot be applied. Use a dedicated template for scheme sales and check it whenever your billing or e-invoicing system changes.
07Who prepares our VAT returns under the scheme?
The bookkeeping, stock book maintenance and VAT return preparation are delivered with our group company A&A Consultancy. TRW & Co is a law firm and advises on whether the scheme applies, purchase and sale documentation, FTA audits, reconsideration requests and tax disputes. We are not a registered tax agent and coordinate with registered tax agents where a filing or representation before the FTA requires one.
Sources and official materials
- Federal Tax Authority: VAT Guide on the Profit Margin Scheme (VATGPM1), January 2026 — Eligibility, calculation, invoicing, records and reporting
- Federal Tax Authority: VAT guides and references — Guides and public clarifications including VATP002
- Federal Tax Authority: Legislation — VAT Decree-Law and Executive Regulation
- Federal Tax Authority — EmaraTax returns and taxpayer services
- UAE Government portal: Value Added Tax — Overview of UAE VAT rules
General information only, current as at 27 October 2026. It is not legal advice and does not create a lawyer–client relationship. UAE law differs between the onshore jurisdiction, the DIFC, ADGM and the free zones, and changes frequently; check current official sources and take advice on the facts of your matter.
