Planning to sell your car, but confused about how the newly implemented VAT will impact you? Here’s a simple explanation of what will be taxable under the new VAT regulations, and how used car sellers and buyers will be affected.
No VAT on one-off sale transactions
If you’re planning to sell your car in the near future, VAT will most likely have no impact on you.
Tax experts in the UAE say that if you’re selling your car to another individual, you will not be required to collect VAT. One-off sale transactions of used personal goods, including used cars, used furniture and appliances, and so on, will not be subject to taxation.
However, if you were planning to start a business selling used cars to UAE residents, then that would qualify as an economic activity and a regular revenue generator. And such economic activities fall under the purview of taxation. Therefore, as a used car dealer you would be obligated to register yourself with the Federal Tax Authority and get a Tax Registration Number (TRN). You will then be required to collect VAT from the buyers at the standard rate of 5 percent.
How is the tax calculated by used car dealers?
Under the new VAT regulations, the tax will be calculated on the profit margin, and not the actual sale price of the used car. Here’s an example to help you understand how car dealers will calculate VAT on the sale of used cars.
Let’s say a used car dealer buys a car from an expat called Sarah. Sarah is not registered as a tax collector and sells her car in her individual capacity for AED 100,000 to the used car dealer. The car dealer then goes ahead and repairs the car, which costs him AED 2,000. He adds a profit margin of AED 8,000 and fixes the sale price at AED 110,000. The tax will now be calculated on the car dealer’s profit margin at a rate of 5 percent. So, VAT in this case will be AED 400.
Potential impact on the used car market
The UAE is already home to a thriving used goods market, with the majority of the population made up of expats. Given the constant influx and outflow of expats, the used car market in the country is quite huge too, with second-hand vehicles being a popular choice among residents.
With VAT already implemented on the sale of brand new cars in the UAE, the idea of purchasing a used car is set to become all the more appealing to potential car buyers. Not only are there no taxes applicable on cars bought from individual sellers, the taxes on cars bought from reselling companies are minimal too, since these are only calculated on the profit margin.