Starting from July 1, 2023, the application of the profit margin scheme began, allowing the taxable person licensed to engage in the trade of used cars to apply the profit margin scheme to qualified cars after obtaining approval from the Authority. This means that tax is applied only on the profit margin instead of the entire amount.
The profit margin is defined as the difference between the purchase price and the selling price. There are conditions to apply the profit margin scheme, which must be met:
The car must be classified as a “Qualified Used Car” by the Authority.
The used car must be registered in the Kingdom.
The taxpayer must be licensed to engage in the trade of cars, according to a commercial register or a similar license.
The person licensed to engage in the trade of cars must obtain approval from the Authority to use the profit margin scheme for used cars.
The taxpayer should not have incurred input tax according to the standard method on the consideration paid when purchasing the qualified used car.
The requirements for tax invoices and record-keeping must be fulfilled according to the provisions of Articles 48 and 53 of the Executive Regulations of the VAT Law.
Conditions for classifying the car as a “Qualified Used Car” include:
The car must have been driven on the road for personal or business purposes.
The car should be suitable for reuse as is, or after some improvements, provided that such improvements do not change the fundamental nature of the car.
For further details, you can refer to the guidance manual issued by the Zakat, Tax, and Customs Authority through the provided link.