VAT on pre-owned goods comes with caveats

Value-added tax (VAT) will be charged on the full selling price of a pre-owned product in certain instances, according to the UAE’s Federal Tax Authority. This will be on those products that had no VAT applied on them in a previous transaction.

The clarification will, in the main, have an impact on pre-owned cars sold in the UAE. The impression was that on such deals, the VAT would apply on the profit margin — that is the price differential between what the model was bought and what it was sold for. (For instance, if the difference is Dh10,000, the 5 per cent would be charged on that.)

FTA clarification

But the FTA clarifies that “only those goods previously subject to VAT before the supply in question may be subject to the profit margin scheme”. “Stock on hand of used goods which were acquired before the effective date of Federal Decree-Law No. 8 on Value Added Tax, or which have not previously been subject to VAT for other reasons, are not eligible to be sold under the profit margin scheme.

“VAT is therefore due on the full selling price of such goods. The Federal Tax Authority is committed to enhancing its partnerships with business sectors and providing assistance for them to fully comply with tax regulations,” said Khalid Ali Al Bustani, FTA director-general.

The FTA has urged suppliers to be confident that a good has previously been subject to tax to apply the profit margin scheme.

Information of this status could include the date the good was first manufactured, sold or brought into use.