Profit Margin Scheme

Here you would know the basics and essentials on the workings of VAT in Bahrain. This is a must read and educative knowledgebase for those new to applying VAT within an Organization.
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Profit Margin Scheme

Mon Oct 15, 2018 4:47 pm

What is the profit margin scheme?
The profit margin scheme is a method of VAT calculation for certain goods. Under this scheme, you can calculate VAT based on the profit margin rather than the total value of the sale. This scheme was introduced to avoid double taxation on second-hand goods. The products eligible for the profit margin scheme are mostly second-hand goods, on which tax has already been paid. When a buyer or dealer purchases from an unregistered person, they don’t pay tax, so there is no input tax to recover. Therefore, while selling these second-hand goods, the dealer shouldn’t have to pay tax for the full sale price. This is where the profit margin scheme is beneficial, as it allows sellers to pay VAT only on the profits made on the supply.

For example, if a second-hand car dealer sells a pre-owned car to a customer, then the dealer calculates VAT based on the profit margin and not on the sale value.

Is the profit margin scheme applicable to all products and services?
VAT can be calculated under the profit margin scheme for the following goods: * Second-hand goods * Antiques (goods over 50 years old) * Collector’s items (coins, stamps, etc)

What are the eligibility conditions for the profit margin scheme?
The following conditions must be fulfilled for a supply to be eligible under this scheme:

  • The goods must be purchased from a person who is not registered for VAT. But if you do purchase it from a VAT registered person, he or she should be selling it under this scheme.
  • The supplies made under this scheme are not eligible for input tax claim
Do I need to notify the NTA regarding supplies under the profit margin scheme?
If you are a VAT-registered person making supplies under the profit margin scheme, you need not report it to the NTA. You will have to report the sales and the corresponding VAT applied on the sales while filing your VAT return.

As a registered dealer, do I need to pay taxes for purchasing second-hand items from an unregistered supplier?
No, you do not need to pay taxes in this case. However, if you purchase from a registered supplier, then the supplier will need to pay tax on this supply. This supplier cannot claim input tax credit if they have opted for the profit margin scheme.

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