Is VAT charged on the sale of a used car?

Article 53 – Non-recoverable Input Tax 29 1. Input Tax shall be non-recoverable if it is incurred by a Person in the following cases: a. Where the Person is not a Government Entity as specified in a Cabinet Decision in accordance with Article 10 and 57 of the Decree-Law, and there is provision of entertainment services to anyone not employed by the Person, including customers, potential customers, officials, or shareholder or other owners or investors. b. Where motor vehicles were purchased, rented or leased for use in the Business and are available for personal use by any Person. c. Where Goods or Services were purchased to be used by employees for no charge to them and for their personal benefit including the provision of entertainment services, except in the following cases: 1) Where it is a legal obligation to provide those Services or Goods to those employees under any applicable labour law in the State or Designated Zone. 2) Where it is a contractual obligation or documented policy to provide those services or goods to those employees in order that they may perform their role and it can be proven to be normal business practice in the course of employing those people. 3) Without prejudice to Clause 1 of this paragraph, where the Taxable Person provides health insurance, including enhanced health insurance, to its employees and their family members (as applicable) up to a husband or one wife, and three children younger than eighteen years. 4) Where the provision of goods or services is a deemed supply under the provisions of the Decree-Law. 2. For the purposes of this Article: a. The phrase “entertainment services” shall mean hospitality of any kind, including the provision of accommodation, food and drinks which are not 29 Article amended as per Cabinet Decision No. 100 of 2024. Cabinet Decision No. 52 of 2017 and its amendments – Unofficial translation 42 provided in a normal course of a meeting, access to shows or events, or trips provided for the purposes of pleasure or entertainment. b. The phrase “motor vehicle” shall mean a road vehicle which is designed or adapted for the conveyance of no more than 10 (ten) people including the driver. A motor vehicle shall exclude a truck, forklift, hoist or other similar vehicle. 3. Provision of catering and accommodation services shall not be treated as entertainment services where it is provided by a transportation service operator, such as an airline, to passengers who have been delayed. 4. A motor vehicle shall not be treated as being available for private use if it is within any of the following categories: a. a taxi licensed by the competent authority within the State; b. a motor vehicle registered as, and used for purposes of an emergency vehicle, including by police, fire, ambulance, or similar emergency service; c. a vehicle which is used in a vehicle rental business where it is rented to a customer.

3. Sale of used/ pre-owned cars The sale of used cars is also subject to VAT at 5%, provided the sale is made by a VAT registered supplier. The implications relating to the date of supply, invoicing obligations and payment of tax as discussed in section 2.1 above apply similarly to the sale of used cars. Further, the implications regarding price displays apply similarly to used cars as well – irrespective of whether the VAT is accounted for on the full sales value of the car or in accordance with the Profit Margin Scheme as discussed below. A key difference between the VAT implications for the sale of new cars and the sale of used cars is the possibility of accounting for VAT using the Profit Margin Scheme which is available to motor vehicle dealers trading in used cars. 3.1. Profit Margin Scheme In accordance with the Profit Margin Scheme6, a VAT registered supplier can account for VAT on the basis of the profit earned on taxable supplies instead of accounting for VAT on the value of such supplies. In other words, under the Profit Margin Scheme, VAT can be accounted for on the difference between what was paid for a good at the time of purchasing it and what was charged to the customer at the time of selling it. Amongst other things, the Profit Margin Scheme can also be used to account for VAT when selling used cars. It is important to note that applying the Profit Margin Scheme is optional. The rationale for the Profit Margin Scheme and the conditions which must be met for applying the scheme are discussed below. 3.1.1. Rationale for the Profit Margin Scheme The Profit Margin Scheme is intended to avoid the cascading of taxes. The cascading effect arises where a motor vehicle trader purchases a used car from a non-registered seller or from a seller who also accounted for VAT by reference to the Profit Margin Scheme and consequently the motor vehicle trader is not able to recover the VAT embedded in the price of the car. The Profit Margin Scheme seeks to avoid this cascading issue by permitting the motor vehicle trader to account for VAT only on the profit earned on the supply. 6 Article 43 of the Decree-Law and Article 29 of the Executive Regulation. Automotive Sector | VAT Guide | VATGAM1 9

Article 29 – Accounting for Tax on the Profit Margin 15 1. The Taxable Person may calculate Tax on any supply of Goods by reference to the profit margin in the following situations: a. Where he made a supply of Goods mentioned in Clause 2 of this Article which were purchased from either: 1) A Person who is not a Registrant. 2) A Taxable Person who calculated the Tax on the supply by reference to the profit margin. b. Where he made a supply of Goods for which Input Tax was not recovered in accordance with Article 53 of this Decision. 2. The Goods to which Clause 1 of this Article refers are Goods which have been subject to Tax before the supply which shall be subject to the profit margin scheme and those Goods are: a. Second-hand Goods, meaning tangible moveable property that is suitable for further use as it is or after repair. b. Antiques, meaning goods that are over 50 (fifty) years old. c. Collectors' items, meaning stamps, coins and currency and other pieces of scientific, historical or archaeological interest. 3. A Taxable Person may not elect to calculate Tax by reference to the profit margin in respect of Goods referred to in paragraph (a) of Clause 1 of this Article if a Tax Invoice or other document is issued for that supply mentioning an amount of Tax chargeable on the supply. 4. The profit margin is the difference between the purchase price of the Goods and the selling price of the Goods, and the profit margin shall be considered to be inclusive of Tax. 5. The “purchase price” stated in Clause 4 of this Article includes, in addition to the purchase price of the Good, any costs or fees incurred to purchase the Good, provided that the Input Tax on such costs or fees, where incurred, is not recoverable pursuant to the provisions of Article 54 of the Decree-Law.16 15 Article amended as per Cabinet Decision No. 100 of 2024. 16 Clause amended as per Cabinet Decision No. 149 of 2026. Cabinet Decision No. 52 of 2017 and its amendments – As published by the Ministry of Finance 21 6. The Taxable Person must keep the following records in respect of supplies made in accordance with this Article: a. A stock book or a similar record showing details of each Good purchased and sold under the profit margin scheme. b. Purchase invoices showing details of the Goods purchased under the profit margin scheme. Where the Goods are purchased from Persons who are not Registrants, the Taxable Person must issue an invoice showing details of the Goods himself, including at least the following information: 1) The name, address and Tax Registration Number of the Taxable Person. 2) The name and address of the Person selling the Good. 3) The date of the purchase. 4) Details of the Goods purchased. 5) The Consideration payable in respect of the Goods. 6) Signature of the Person selling the Good or authorised signatory. 7. Where a Taxable Person has charged Tax in respect of a supply with reference to the profit margin, the Taxable Person shall issue a Tax Invoice that clearly states that the Tax was charged with reference to the profit margin, in addition to all other information required to be stated in a Tax Invoice except the amount of Tax. Title Six – Supplies Subject to the Zero Rate