ZATCA starts implementing VAT on profit margin of certified used car sales

Logo of Zakat, Tax and Customs Authority (ZATCA)

The Zakat, Tax and Customs Authority (ZATCA) enforced, on July 1, the option to calculate value-added tax (VAT) on the profit margin of the sale of certified used cars, not on the total sale value. 

The authority explained that the new taxation method comes to reduce VAT on certified used cars. 

The profit margin method targets car dealerships and showrooms registered with ZATCA for VAT purposes and that practice car trading activity according to specific conditions. The method of calculating VAT on the profit margin is not mandatory, as the tax can be applied to the full amount due according to the method currently applied, ZATCA indicated. 

Certain conditions should be satisfied to apply VAT based on the profit margins method. Vehicles should be classified as certified used cars and should be previously used inside the Kingdom. Sellers must be registered with ZATCA for VAT purposes, licensed to practice car trading activity and obtain ZATCA’s approval to be eligible to use the profit margin method on certified used cars. 

Accordingly, VAT will be applied to the difference between the purchase and sale prices, which is the realized profit margin, instead of being levied on the total consideration received.