VAT APPLICABILITY ON PROFIT MARGIN SCHEME

VAT APPLICABILITY ON PROFIT MARGIN SCHEME

 

INTRODUCTION TO PROFIT MARGIN SCHEME  :

 

♦ Defined as the difference between the buying and selling price of an item, and is inclusive of taxes

♦ Calculation of VAT is on Profit Margin rather than on total value of Goods

♦ It avoids Double Taxation on second hand Goods

♦ It allows sellers to pay Vat only on the profits made on the Supply

♦ Only those goods, which had been subject to VAT before the supply in question, may be subject to the profit  margin scheme

 

ELIGIBLE GOODS  UNDER PROFIT MARGIN SCHEME  :

 

♦ Second hand goods i.e. Tangible Moveable Property that is suitable for further use as it is or after repair;

♦ Antiques i.e. goods that are over 50 Years old

♦ Collectors’ items i.e. stamps, coins, currency and other pieces of scientific, historical or archaeological  interest

 

CONDITIONS TO APPLY THE PROFIT MARGIN SCHEME  :

 

1) The goods must have been purchased from either :

♦ A person who is not registered for VAT; or

♦ A VAT registered business which already applied the profit margin scheme on the same goods

 

2) The taxable person made a supply of the goods where input tax was not recovered in accordance with Article 53 of Cabinet Decision No. 52 of 2017

 

DIFFERENT CIRCUMSTANCES FOR VAT APPLICABILITTY :

 

A) IF GOODS WERE PURCHASED IN THE YEAR 2017 OR EARLIER AND THE ORIGINAL    PURCHASE WAS NOT SUBJECT TO VAT

 

♦ Goods are not eligible to be sold under the Scheme

♦ VAT to be applied on the sale value

 

B) IF GOODS WERE PURCHASED IN THE YEAR 2018 OR LATER AND NOT CHARGED VAT    AND THE GOODS MAY HAVE BEEN ORIGINALLY PURCHASED PRIOR TO 1.1.2018

 

♦ Goods are not eligible to be sold under the Scheme

♦ VAT to be applied on the sale value unless evidence is available to show the good had been subject to VAT on an earlier supply

 

C) IF GOODS WERE PURCHASED IN THE YEAR 2018 OR LATER AND THE GOODS MAY HAVE BEEN ORIGINALLY PURCHASED AFTER 1.2018

 

♦ Goods are eligible to be sold under the Scheme where you have evidence to show that the good has been subject to VAT on an earlier supply

 

NOTE :

 

 1)  A taxable person will not be allowed to apply the profit margin scheme in cases where they had issued a tax invoice or any other document mentioning an amount of VAT chargeable in respect of the supply

2) Taxable persons are required to keep inventory and similar documents that clarify the situation of every item bought or sold, as well as purchase invoices that outline the details of items bought under the profit margin scheme

3) If these items were bought from an unregistered person, the taxable person is required to issue a self-invoice demonstrating the purchase details

 

EVIDENCE THAT GOODS WERE SUBJECT TO VAT PREVIOUSLY :

 

1.Information relating to the date the good was first manufactured, sold or brought in to use

 

e.g. In the case of a car, the date the car was first registered would indicate its sale would have been subject to VAT if it was registered on a date after 1 January 2018

 

2. Evidence that the supplier paid VAT on their original purchase

 

 e.g. By asking the supplier for a copy of the tax invoice relating to their purchase of the good

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