The FTA’s Profit Margin Scheme (VATGPM1), issued on 5 January 2026, allows businesses to calculate VAT on the profit margin of eligible goods, helping prevent double taxation, with clear rules on transactions, VAT calculation, and record-keeping.
The UAE’s Federal Tax Authority (FTA) issued guidance on the Profit Margin Scheme (VATGPM1) on 5 January 2026.
The scheme, an optional VAT method, is designed to prevent double taxation on certain goods. The guide outlines eligible goods and transactions, explains how to calculate VAT under the scheme, and details the record-keeping and reporting obligations businesses must follow.
Key Points of the Profit Margin Scheme
- Purpose and Application
- The scheme is optional for taxable persons.
- VAT is calculated on the profit margin (the difference between purchase and selling price) rather than the full sale value.
- The main goal is to prevent cascading VAT, which can occur when VAT is paid on purchases from non-registered individuals and cannot be fully recovered.
- Eligible Goods
The scheme applies only to goods that have already been subject to VAT. Eligible categories include:
- Second-Hand Goods: Tangible movable items suitable for further use in their current state or after repair, such as used cars or electronics.
- Antiques: Items more than 50 years old.
- Collector’s Items: Objects of scientific, historical, or archaeological interest, including stamps and coins.
- Eligible Transactions
- Goods must be acquired from either a non-registrant or a taxable person who also applied the scheme.
- The scheme also applies to Article 53 goods, where input tax recovery was initially blocked (e.g., motor vehicles for private use).
- Calculating the Profit Margin and VAT
- Profit Margin = Selling Price – Purchase Price (including acquisition costs and fees).
- VAT Due = Profit Margin × 5/105 (for standard 5% UAE VAT).
- If a good is sold at a loss or zero profit, no VAT is due. Losses cannot offset profits from other sales.
- Record-Keeping and Reporting Requirements
- Resellers must maintain a stock book and keep purchase invoices for all items sold under the scheme.
- Tax invoices must state that VAT is calculated based on the profit margin, without showing the actual VAT amount.
- On the VAT return:
- Select “Yes” for the scheme.
- Report purchase price in Box 9.
- Report profit-based sales in Box 1.
Understanding the Scheme
The Profit Margin Scheme works like a bridge over double taxation. Instead of taxing the full value of a used item each time it is resold, VAT is applied only on the added value (profit) created by the reseller. This ensures fair taxation while avoiding repeated charges on the same item.
