Do you need to pay VAT on pre-owned items in UAE?

The Federal Tax Authority (FTA) has issued guidelines about application of five per cent VAT on the sale and purchase of used product such as cars and furniture etc. and also about application of VAT on loans and other processing charges for banking services.

Anurag Chaturvedi, managing partner, Chartered House, said as per FTA guidelines, the consumers will have to pay VAT on the purchase of full price if the product was first bought before January 1, 2018. But if the product was bought this year, then the seller can claim VAT only on the profit margin and not on the entire value of the pre-owned product.

Citing an example, Chaturvedi said if a dealer bought a car for Dh50,000 last year and he sells it in 2018, then he will apply VAT on the entire Dh50,000 amount. But if the car dealer bought the vehicle for Dh50,000 this year from a seller who purchased it after paying VAT and when he sells to a buyer for Dh60,000, then he’ll apply VAT only on the Dh10,000 profit margin and not on the full amount of Dh60,000.

This rule will apply to any used products such as household items, furniture, automobiles and electronics etc.
In another important clarification, Chaturvedi said the FTA has clarified that customers will pay VAT on the regulated banking services such as loan and other processing charges as per the recent Central Bank amendment. The apex bank amended its previous notification where the retail banking service fee was not subject to increase as a result of VAT.

In addition, the FTA has clarified that the businesses and individuals are not required to rework their tax invoices if they were issued prior to May 17, 2018 where they used a reliable source for exchange rates instead of the UAE Central Bank exchange rate. And also the same source has been used consistently from January 1 to May 16. But the invoices issued after May 17 has to use the UAE Central Bank exchange rates.

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