VAT On Automotive Sector: Major Obligations For Car Dealers, Service Centres
Supplies made by businesses in the automotive sector are generally subject to VAT in the UAE. Qualified means of transportation such as buses are designed and used for public transportation of 10 or more passengers and are zero-rated. However, the sale of new used cars, sale of car parts and services rendered by service centres come under the standard rate of 5%.
The Federal Tax Authority (FTA) has recently released a Basic Tax Information Bulletin that offers detailed insights on the VAT obligations for new car dealers, used car dealers servicing & parts suppliers. The bulletin discloses tax obligations including VAT registration in the UAE, tax invoices, recovery of input taxes etc. with a special focus on car dealers, service centres and automotive parts suppliers. Read ahead for more details:
Should Automotive Businesses Register for VAT in the UAE?
Automotive businesses should perform VAT registration in the UAE if the value of their taxable supplies and imports in the last 12 months exceeded, or is likely to exceed in the next 30 days, the mandatory registration threshold of AED 375,000. Note that, the taxable supplies also cover zero-rated supplies. Any business can opt for voluntary VAT registration in the UAE if the value of their taxable supplies and imports or taxable expenses exceed the voluntary registration threshold of AED 187,500. Automotive businesses can consult with VAT consultants in Dubai to assess their tax obligations and initiate further actions.
Are All Supplies Chargeable under VAT?
Supplies made by businesses in the automotive sector are generally subject to VAT, including but not limited to:
- Sales of new and used cars
- Sales of car parts
- Service centres’ services, warranties, and related insurance products
Should Automotive Businesses Issue Tax Invoices?
Yes. Businesses must issue tax invoices for all standard-rated supplies, as per the FTA bulletin. The bulletin goes on to state that the businesses can issue simplified tax invoices where the supply is made to an unregistered recipient, or the consideration for the supply made to a registered recipient is AED 10,000 or less.
However, if the VAT is charged with reference to the profit margin scheme, the tax invoice should clearly state that VAT was charged with reference to the profit margin scheme. And it must include all other information required on a tax invoice except the amount of VAT. Hiring the best tax agents in Dubai will enable the taxpayers to have more clarity on this.
Are the Automotive businesses Allowed to recover input tax?
Car dealers and other automotive businesses that make taxable supplies are permitted to completely recover input VAT. However, there are certain exceptions for the blocked items including certain entertainment services and purchased, leased or rented motor vehicles that are available for personal use.
Profit Margin Scheme on VAT on Used Car Sales
The taxable entities can apply the profit margin scheme on the supply of goods that have previously been subject to UAE VAT on the purchase. The goods which can be supplied under the Profit Margin Scheme are:
Second-hand goods, i.e. tangible moveable property which is fit for further use as it is, or after repair
Antiques, i.e. goods which are more than 50 years old
Collectors’ items, i.e. stamps, coins and currency
Applicability of VAT on Gifts and Giveaways
When car dealers give away gifts to consumers for free, it would be considered as a deemed supply unless the following things happen:
- The relevant input tax was not recovered on the related goods
- The value of supply to each recipient does not exceed AED 500 in a 12-month period; or
- The output tax due for all deemed supplies per person made in the 12-month period is less than AED 2,000
Applicability Of VAT On Repair Services & Parts Provided Under Warranty
In cases where repair services & parts are provided under warranty, VAT is applicable in the first instance on the following situations:
- Sale of vehicles that include a warranty;
- Warranty packages purchased separately by the customer
- Any subsequent supply of repair services and parts under warranty claims is not subject to VAT separately as long as no other amount is paid
A Special VAT Situation Concerning Service Centre
Service centres sometimes reclaim costs of supplies made under warranty from a manufacturer based outside the UAE. In such cases, the repair and maintenance services are physically provided in the UAE in relation to motor vehicles. The FTA clarifies that such services will be subject to VAT at the standard rate, even if the costs are charged to an entity based outside the UAE.
We Take Care of Your VAT Requirements in the UAE
The FTA’s newly released Tax Information Bulletin has proven to be a useful guideline for the automotive sector, especially for car dealers, parts suppliers and service centres. The bulletin has addressed specific issues related to the sector including VAT registration in the UAE. Now, the taxable business owners can proceed to fulfil their tax obligations with the help of the best VAT consultants in Dubai such as Jitendra Chartered Accountants (JCA).
What makes JCA stand out from other tax agents in Dubai, UAE is the quality of service and years of experience. We are one of the most experienced VAT consultancy firms in Dubai, serving businesses for more than 20 years. Our highly qualified tax agents in the UAE will ensure that the businesses are complying with the VAT law and thereby helping them avoid administrative penalties.