Riyadh July 4 2023:

The Zakat, Tax and Customs Authority (ZATCA) made it possible to calculate the VAT on the profit margin of the sale of ‘qualified used cars’, without it being on the total sale value, starting from 1 July 2023.

ZATCA stated that allowing the tax to be calculated on the ‘profit margin’ comes in as an effort to reduce the amount of VAT on ‘qualified used cars’. The Authority further clarified that the ‘profit margin’ method targets car agencies and showrooms registered with ZATCA for VAT purposes, and who can practice car trading activities subject to certain conditions.

ZATCA stresses that the method of calculating VAT on the profit margin is not mandatory (i.e. the tax can be applied on the entire amount due according to the method currently applied.) Further ZATCA confirmed that in order to apply the profit margin method, certain conditions are required to be met. Amongst them, the most prominent conditions are:

• The car must be classified as a ‘qualified used car’ by ZATCA.
• The car must be present, and previously used in the Kingdom.
• The seller must be registered with ZATCA for VAT.

Further, those who are licensed to practice the activity of car trade must also obtain approval from ZATCA in order to be considered qualified to use the profit margin method on qualified used cars.

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