[Global IDT Insights] UAE Issues VAT Guide on Profit Margin Scheme (VATGPM1)

Editorial Team – [2026] 184 taxmann.com 132 (Article)

Global IDT Insights provides a weekly snippet of tax news specifically related to Indirect Taxes from around the globe.

1. UAE Issues VAT Guide on Profit Margin Scheme (VATGPM1)

The United Arab Emirates Federal Tax Authority (UAE FTA) has issued the VAT guide on profit margin scheme (VATGPM1), January 2026 edition. It provides detailed guidance on the rationale, eligibility conditions, calculation methodology, invoicing, record-keeping, and reporting requirements applicable to the profit margin scheme under the VAT Law and VAT Executive Regulation.

The scheme is an optional special arrangement allowing a registrant to account for VAT based on the profit margin instead of the full value of the supply when reselling eligible goods or goods in respect of which input tax recovery was blocked under Article 53 of the VAT Executive Regulation. The guide clarifies that the scheme applies only where goods were previously subject to VAT and sets out documentary and compliance requirements for its application.

Key aspects of this guidance include:

(a) PMS Allows VAT to be Calculated on the Margin Instead of Full Value

The scheme enables a reseller to calculate VAT on the profit margin, defined as the difference between the selling price and the purchase price of the goods, inclusive of VAT. VAT is not imposed on the full value of the supply when the scheme is applied.

The VAT due is calculated by applying the VAT fraction (5/105) to the profit margin. The scheme is intended to prevent cascading of VAT where full input tax recovery is not available.

(b) Scheme Applies Only to Eligible Goods Previously Subject to VAT

The scheme applies to second-hand goods, antiques (goods older than 50 years), and collectors’ items, provided they were previously subject to VAT. Goods acquired prior to 01-01-2018 or otherwise not previously subject to VAT do not qualify as eligible goods for the scheme.

The reseller bears the onus of retaining sufficient documentary evidence proving prior imposition of VAT. In the absence of such evidence, VAT must be accounted for on the full value of the supply.

(c) Eligibility Covers Purchases from Non-registrants and Suppliers Applying the Scheme

The scheme may be applied where eligible goods were acquired from a non-registrant or from a taxable person who accounted for VAT using the scheme. It also applies where goods are sold, and input tax recovery was blocked under Article 53 of the VAT Executive Regulation.

However, the scheme does not apply to imported goods where import VAT is recoverable under normal input tax recovery rules, unless the import VAT was non-recoverable under Article 53.

(d) Application of the Scheme is Optional and Subject to Prior FTA Approval

The scheme is optional and may be exercised individually for each eligible supply. A registrant opting to apply the scheme must notify the FTA through the VAT return and comply with the prescribed record-keeping and invoicing requirements.

A tax invoice issued under the scheme must clearly state that VAT was charged with reference to the profit margin and must not disclose the VAT amount. The scheme cannot be applied if a tax invoice reflects VAT imposed on the full value of the supply.

(e) No VAT is Due Where Goods are Sold at a Loss or No Profit

Where goods are sold at a loss or no profit, no VAT is due under the scheme. Losses incurred on one supply cannot be set off against profits realised on another supply. VAT must be accounted for only on supplies where a positive profit margin is realised.

(f) Specific Reporting Requirements Apply in VAT Return

Resellers applying the scheme must select the relevant checkbox in VAT Return Form 201. The selling price less VAT on the profit margin is reported in Box 1 (Amount column), and the VAT on the profit margin is reported in the VAT Amount column.

The purchase price of goods intended to be sold under the scheme must be reported in Box 9 (Amount column) in the tax period of acquisition, with no VAT reflected in the VAT amount column.

The guide confirms that it is not legally binding and is intended to assist in understanding and applying the VAT Law, Tax Procedures Law, and VAT Executive Regulation in relation to the Scheme.

Source: VAT Guide- Profit Margin Scheme

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