30 January 2026

FTA issues new VAT Guide on Profit Margin Scheme

Background

On 2 January 2026, the Federal Tax Authority (FTA) published the first edition of its VAT Guide on the Profit Margin Scheme (VATGPM1), providing guidance on the application of the Profit Margin Scheme (PMS).

The PMS is an optional special scheme allowing VAT‑registered resellers of certain goods to calculate VAT only on the profit margin, rather than on the full selling price. The rules apply to the resale of Eligible Goods or Goods for which input VAT recovery was blocked under Article 53 of the Executive Regulation.

The PMS is designed to avoid VAT cascading, particularly in sectors where goods are frequently bought from non‑registrants (e.g., individuals) or where prior VAT was unrecoverable. By limiting VAT to the reseller’s margin, the regime prevents double taxation and supports price competitiveness in second‑hand markets.

Eligible goods

The PMS applies only to Eligible Goods that were previously subject to VAT, specifically:

Second‑hand goods (e.g., used cars, electronics, furniture).
Antiques (goods older than 50 years).
Collectors’ items (e.g., stamps, coins, items of scientific/historical interest).

These must have been subject to VAT in an earlier supply, and the reseller must retain evidence to prove this. Goods acquired prior to 1 January 2018 or never subject to VAT are excluded.

The PMS also applies to goods for which input VAT recovery was blocked (e.g., motor vehicles available for private use).

Eligible transactions

The PMS may be applied when:

The reseller purchases Eligible Goods from a Non‑Registrant or a Taxable Person who applied the PMS, or
The reseller sells goods where input VAT was blocked.

The PMS does not apply where the reseller imports Eligible Goods into the UAE unless the import VAT was irrecoverable.

Optional

The PMS is fully optional and can be applied on a transaction‑by‑transaction basis. No prior FTA approval is required.

However, the reseller must:

Notify the FTA through the VAT return (Form VAT201) by selecting the corresponding checkbox.

Ensure that no VAT amount is disclosed on the tax invoice that was issued for the supply, as doing so makes the PMS unavailable for that sale.

Key takeaway

The newly issued VAT Guide provides the first comprehensive guidance on the PMS since VAT was introduced in the UAE.

The PMS remains optional, but requires correct invoicing, notification, and robust record keeping to apply properly.

VAT applies only to the profit margin generated by the seller, not to the selling price, as is the case under normal VAT rules. This offers significant pricing benefits for secondhand markets and sellers of goods where input VAT recovery is blocked.

Resellers should ensure they retain proof that goods were previously subject to VAT, as otherwise the PMS cannot be applied.

Businesses active in used goods, electronics, vehicle trading, antiques, and collectables should revisit their VAT processes to determine when PMS treatment provides the most benefit.