For used car dealers, second-hand traders, antique and collectibles sellers in the UAE: how to charge 5% VAT on your margin instead of the full selling price, which goods actually qualify, and the pre-2018 rule that disqualifies more stock than most dealers realize.

The profit margin scheme lets a VAT-registered reseller in the UAE calculate 5% VAT on the difference between what it paid for a good and what it sold it for, rather than on the full selling price. On a car bought for AED 100,000 and sold for AED 200,000, the VAT is AED 4,761.90 rather than AED 9,523.81, because the margin is treated as VAT-inclusive and divided by 21. The scheme is optional, needs no prior FTA approval, and can be applied supply by supply.

This guide works from Article 43 of Federal Decree-Law No. 8 of 2017 on Value Added Tax, Article 29 of the Executive Regulation, Cabinet Decision No. 52 of 2017 as amended by Cabinet Decision No. 100 of 2024, and the FTA’s Profit Margin Scheme VAT Guide, VATGPM1, published January 2026. If you are not yet registered, start with our guide to the UAE VAT registration thresholds and process.

Why the Scheme Exists

A dealer who buys stock from a private individual pays no VAT on that purchase, because a private seller is not registered and cannot charge it. Without a special rule, the dealer would then charge 5% on the entire resale price, taxing value that was already taxed when the good was first sold new.

The FTA describes the purpose plainly in VATGPM1: the scheme is intended to avoid the cascading of VAT. Cascading arises where a reseller buys from a non-registered seller, buys from a seller who also applied the scheme, or sells goods on which its own input tax recovery was blocked.

That framing controls everything else in the scheme. Where there is no cascading risk, the scheme does not apply, which is why imported goods are generally excluded: the reseller can recover the import VAT under the normal rules instead.

How much VAT is due under the UAE profit margin scheme?

Five percent of the margin, calculated as VAT-inclusive. The FTA formula is the profit margin multiplied by the VAT fraction of 5/105, which the guide simplifies to dividing the margin by 21. A margin of AED 100,000 produces VAT of AED 4,761.90, and a good sold at a loss or at break-even produces no VAT at all.

Which Goods Qualify

Only three categories of eligible goods can enter the scheme, and each one carries the same overriding condition. Article 29(2) of the Executive Regulation limits the scheme to goods that have been subject to tax before the supply.

Category Definition in the Executive Regulation Typical examples
Second-hand goods Tangible moveable property suitable for further use as it is or after repair Used cars, mobile phones, electronic devices, furniture
Antiques Goods that are over 50 years old Art works, period furniture, valuable physical items
Collectors’ items Stamps, coins and currency, and other pieces of scientific, historical or archaeological interest Rare coin and stamp collections, historical artefacts

Non-usable scrap is excluded from the second-hand category. The guide draws the line at usability rather than condition, so a damaged car that can be repaired back to a car is second-hand stock, while material sold for its raw content is not.

Repair is allowed, transformation is not

A good may be repaired before resale, but the repair must not change its basic characteristics. VATGPM1 puts the test as whether the repair only makes the good suitable to be used for the same function as before.

The FTA’s own contrasting examples make the boundary concrete. A dealer that services a used car and repairs its bodywork still has a second-hand good; a company that buys old aircraft equipment, refurbishes it and sells it as furniture does not, because the item now serves a wholly different function and counts as a new good.

The Pre-2018 Trap

This is the condition that disqualifies the most stock and the one dealers most often discover during an audit rather than before a sale. The scheme applies only to goods that were subject to VAT at some point in the preceding supply chain.

VAT started in the UAE on 1 January 2018. Goods acquired before that date, or which have not previously been subject to VAT for any other reason, are not eligible goods, and the FTA states this directly in VATGPM1 by reference to public clarification VATP002.

The practical effect is stark for the used car trade. A car a private individual bought new in 2017 can never enter the scheme, no matter how many times it changes hands afterwards, so a dealer buying it in 2026 must charge 5% on the full selling price.

The evidence burden sits on the reseller

The onus is on the reseller intending to apply the scheme to obtain and retain sufficient supporting evidence that the goods were previously subject to VAT. The FTA’s example of adequate evidence is the tax invoice issued when the non-registrant originally acquired the good.

If the reseller cannot obtain that evidence, the scheme does not apply and VAT is due on the full value of the supply. That turns a documentation gap into a pricing problem: a dealer who assumed a AED 10,000 margin would carry AED 476 of VAT can find the liability is AED 9,524 on a AED 200,000 car instead.

In practice this means asking the private seller for their original purchase invoice at the point of buying the stock, not at the point of selling it. A seller who has moved on has no reason to dig out a document for you, and a decision-point in the buying process is the only place this check is cheap.

The Second Route In: Blocked Input Tax Goods

The scheme has a second entry point that has nothing to do with second-hand status, and it is widely under-used. Where a business bought goods on which its input tax recovery was blocked under Article 53 of the Executive Regulation, it may apply the scheme when it later sells them.

Article 53 blocks recovery in defined cases, the most commercially significant being motor vehicles purchased, rented or leased for use in the business and available for personal use by any person. A motor vehicle for this purpose is a road vehicle designed or adapted to carry no more than 10 people including the driver, excluding trucks, forklifts and hoists.

The guide is explicit that this route is not limited to eligible goods. Any good whose input tax was blocked under Article 53 can go into the scheme on resale, which is what makes it useful to ordinary companies selling a former company car rather than to dealers.

Can a company use the profit margin scheme on its own company car?

Yes, where input tax on the purchase was blocked under Article 53 because the vehicle was available for private use. The FTA example: a company buys a car for AED 500,000 plus AED 25,000 VAT it cannot recover, then sells it a year later for AED 530,000. The purchase price is AED 525,000, the margin is AED 5,000, and the VAT due is AED 238.10.

Goods where only a portion of input tax is irrecoverable because of the apportionment rules in Article 55 are treated differently. Those fall outside the scheme unless the good independently qualifies as an eligible good.

Imports Are Excluded, With One Exception

The scheme does not apply to the sale of eligible goods that the reseller itself imported into the UAE. In those cases the reseller recovers import VAT under the normal input tax rules and accounts for VAT on the full value of the sale, because there is no cascading to relieve.

The exception follows the same logic in reverse. If the import VAT was not recoverable under Article 53, the scheme can be applied on resale, since the reseller genuinely absorbed the tax. Anyone bringing goods into the country should read our guide to UAE customs duty and import tax rates alongside this.

A good imported by someone else can still reach you as eligible stock. The FTA works through a case where a non-registrant imports a computer, pays import VAT and sells it on, and the eventual reseller can apply the scheme provided it holds documentary evidence that the previous seller applied it too.

Calculating the VAT

The margin is the selling price less the purchase price, and it is treated as inclusive of VAT. The purchase price is not just the price of the good: Article 29(5) includes any costs and fees incurred to purchase it, which the guide explains as costs forming part of making the good ready to be used or resold, such as transport and installation.

The selling price is the consideration received. Ancillary supplies directly linked to the sale, such as non-optional accessories fitted to a used car during repairs, are included in it, while a separate supply such as an extended warranty is not and follows the normal VAT rules.

Scenario Purchase price Selling price Margin VAT due (margin / 21)
Used car from a private seller AED 100,000 AED 200,000 AED 100,000 AED 4,761.90
Same car, plus AED 5,000 collection cost AED 105,000 AED 250,000 AED 145,000 AED 6,904.76
Company car with blocked input tax AED 525,000 AED 530,000 AED 5,000 AED 238.10
Car sold at break-even AED 25,000 AED 25,000 Nil Nil
Car sold at a loss AED 20,000 AED 5,000 Negative Nil

Losses cannot be netted against profits. VATGPM1 works a quarter in which a dealer sells four cars for a total of AED 60,000 having paid AED 60,000 for them, so the business made no overall profit, and still owes AED 714.29 because two of the four cars sold at a margin.

Invoicing: The Rule That Reverses Normal Practice

A tax invoice under the scheme must state clearly that VAT was charged with reference to the profit margin, and it must carry all the information a full tax invoice requires except the amount of tax. Showing the VAT amount is not a formatting preference here; it is prohibited.

The reason is in Article 29(3). A taxable person may not elect to apply the scheme in respect of eligible goods if a tax invoice or other document was issued for that supply showing an amount of tax chargeable, so disclosing the VAT figure disqualifies the supply from the scheme entirely.

That has a knock-on effect on your buyer. A VAT-registered customer cannot recover input tax it cannot see stated on an invoice, which is why margin-scheme stock is usually priced for consumers rather than for businesses that will want to reclaim. Compare the requirements for an ordinary invoice in our guide to UAE tax invoice requirements.

Records You Must Keep

Article 29(6) sets a record-keeping standard that is heavier than ordinary VAT bookkeeping, and it is the part most small dealers fail. Two records are mandatory for supplies made under the scheme.

  • A stock book or similar record showing details of each good purchased and sold under the scheme.
  • Purchase invoices showing details of the goods purchased under the scheme.

Where goods are bought from a non-registrant, no purchase invoice exists, so the reseller must issue one itself. That self-billed invoice must show the reseller’s name, address and TRN, the name and address of the person selling the good, the date of purchase, details of the goods, the consideration payable, and the signature of the seller or an authorized signatory.

The signature requirement is the operational catch. It has to be collected at the moment the seller hands over the good, because a private individual who has taken payment and left is unlikely to return to sign a document that only benefits the dealer. Build it into the purchase paperwork rather than the accounting run.

Reporting It on the VAT Return

The scheme is optional and needs no prior approval, but Article 43(1) of the VAT Law requires the reseller to notify the FTA that it has opted to charge tax on the margin. That notification happens through the return itself.

  1. Answer the VAT201 checkbox. The return form carries a specific checkbox that must be answered Yes if the scheme is applied in that period, and No if it is not.
  2. Report the purchase in Box 9 in the tax period the goods are acquired. Enter the purchase price in the Amount column, and put nothing in the VAT Amount column.
  3. Report the sale in Box 1 in the tax period the supply is made, split by the emirate most closely connected to the supply.
  4. Enter the selling price less the margin VAT in the Amount column of Box 1, and the VAT on the margin in the VAT Amount column.
  5. Include break-even and loss-making sales in the Amount column too, but leave them out of the VAT Amount column, since no margin was realized.

The FTA’s worked quarter shows how that lands. Four cars bought for AED 60,000 in July and sold for AED 60,000 in October produce a Box 9 entry of AED 60,000 in July, and an October Box 1 entry of AED 59,285.71 in the Amount column with AED 714.29 in the VAT Amount column.

Because purchases and sales land in different tax periods, a dealer that buys heavily in one quarter and sells in the next will see Box 9 and Box 1 move out of step. That is the intended behavior, not an error to correct through voluntary disclosure.

Choosing Whether to Use It

The scheme is elective and the choice can be exercised individually for each supply, which means it is a pricing decision rather than a permanent accounting policy. Three factors usually decide it.

The first is who your buyer is. A consumer buyer cares only about the total price, so the lower VAT under the scheme is a genuine margin advantage, while a VAT-registered business buyer may prefer a normal invoice it can recover the tax on.

The second is your evidence. If you cannot prove the good was previously subject to VAT, the choice is not yours to make and the normal rules apply.

The third is administration. The stock book, the signed self-billed purchase invoices and the per-supply tracking are real costs, and on thin-margin, high-volume stock they can outweigh the VAT saved. Dealers running the numbers for the first time should also check how the sale sits against their bookkeeping and audit obligations under UAE corporate tax.

What the Guide Does Not Settle

VATGPM1 was published in January 2026 as its first version, and the FTA states that it is not a legally binding document and does not provide a definitive answer in every case. Two gaps are worth naming.

The guide does not prescribe a format for the stock book, so dealers are left to design a record that satisfies an auditor without knowing what the auditor expects to see. It also gives no threshold for how much evidence of prior taxation is sufficient beyond citing the original tax invoice as an example, which leaves a judgment call on older stock where the paper trail is partial. Where a single transaction is large, a private clarification request to the FTA is a more defensible route than an internal assumption.

FAQ

What is the VAT profit margin scheme in the UAE?

An optional arrangement under Article 43 of the VAT Law and Article 29 of the Executive Regulation that lets a VAT-registered reseller calculate 5% VAT on the difference between the purchase price and selling price of eligible goods, instead of on the full selling price. The margin is treated as VAT-inclusive, so the tax is the margin divided by 21.

Which goods can be sold under the profit margin scheme?

Second-hand goods, meaning tangible moveable property suitable for further use as is or after repair, antiques over 50 years old, and collectors’ items such as stamps, coins and currency. All three must have been subject to VAT at some point before the supply. Separately, any goods whose input tax was blocked under Article 53, such as a company car available for private use, can also be sold under the scheme.

Can I use the profit margin scheme on a car bought before 2018?

No. The scheme applies only to goods that were previously subject to VAT, and VAT began in the UAE on 1 January 2018. A car acquired by its previous owner before that date has never been subject to UAE VAT, so a dealer reselling it must charge 5% on the full selling price regardless of how many times it has changed hands since.

How is VAT calculated under the profit margin scheme?

Multiply the margin by the VAT fraction of 5/105, which the FTA simplifies to dividing the margin by 21. The purchase price includes costs and fees incurred to acquire the good, such as transport, so a car bought for AED 100,000 with AED 5,000 of collection costs and sold for AED 250,000 has a margin of AED 145,000 and VAT of AED 6,904.76.

Do I need FTA approval to use the profit margin scheme?

No prior approval is required, but Article 43(1) of the VAT Law requires you to notify the FTA that you have opted to use it, which is done by answering Yes to the dedicated checkbox on the VAT201 return for the relevant period. You must also issue compliant invoices and keep the records the Executive Regulation prescribes.

Can I show the VAT amount on a profit margin scheme invoice?

No, and doing so disqualifies the supply. The invoice must state clearly that VAT was charged with reference to the profit margin and must include everything a full tax invoice requires except the amount of tax. Article 29(3) prevents a taxable person from applying the scheme where an invoice or other document showing the tax chargeable has been issued for that supply.

What happens if I sell a car at a loss under the scheme?

No VAT is due on that sale, and the loss cannot be offset against the margin on another good. The FTA works a quarter with four cars where two sold at a profit and two at break-even or a loss: total sales equaled total purchases, yet AED 714.29 of VAT was still payable on the two profitable cars alone.

How do I report profit margin scheme sales on the VAT return?

Report the purchase price in the Amount column of Box 9 in the period the goods are acquired, with nothing in the VAT Amount column. Report the sale in Box 1 for the period of supply, entering the selling price less the margin VAT in the Amount column and the margin VAT in the VAT Amount column, split by the emirate most closely connected to the supply.

Can I apply the profit margin scheme to goods I imported myself?

Generally no. Where you imported the goods, you can recover import VAT under the normal input tax rules and must account for VAT on the full value of the sale, because there is no cascading to relieve. The exception is where the import VAT was not recoverable under Article 53, in which case the scheme can be applied on resale.

What records must a profit margin scheme dealer keep?

A stock book or similar record showing details of each good purchased and sold under the scheme, and purchase invoices for those goods. When buying from a non-registrant you must issue the purchase invoice yourself, showing your name, address and TRN, the seller’s name and address, the purchase date, details of the goods, the consideration, and the seller’s signature or that of an authorized signatory.

Official Sources

This article references information from the following UAE government authorities and legal sources:

This guide is for informational purposes only and is not tax or legal advice. Information is current as of August 2026. Article numbering refers to the unofficial English translations published by the Federal Tax Authority, and Article 29 of the Executive Regulation was amended by Cabinet Decision No. 100 of 2024. VATGPM1 is a first-version guide, is not legally binding, and does not prescribe a format for the stock book or a threshold for evidence of prior taxation, so confirm the treatment with the Federal Tax Authority or a registered tax agent before relying on the scheme for a significant transaction.