A Saudi VAT-registered used-car dealer buys a car that was previously owned and driven by a private individual (a non-taxable person) inside Saudi Arabia, and resells it to another customer. Under Article 48 of the Saudi VAT Implementing Regulations' profit margin scheme for eligible used goods, how is VAT generally calculated on this resale, and would the answer differ if the dealer instead imported the same used car from outside Saudi Arabia?
- VAT is charged on the full resale price either way; the profit margin scheme applies equally to cars purchased domestically and to those imported from abroad, so the import scenario changes nothing
- VAT is charged only on the dealer's profit margin, the difference between the resale price and the original purchase price, for the domestically purchased car, but the profit margin scheme does not apply to the imported car, so VAT would instead be due on its full value
- VAT is charged on the full resale price in both scenarios, because the profit margin scheme only applies to goods other than motor vehicles, regardless of where they were purchased
- No VAT is due at all on the domestic resale, because the profit margin scheme fully exempts eligible used goods from VAT rather than merely narrowing the taxable base to the margin
Why B? And why not the others?
Correct answer: B. VAT is charged only on the dealer's profit margin, the difference between the resale price and the original purchase price, for the domestically purchased car, but the profit margin scheme does not apply to the imported car, so VAT would instead be due on its full value
Article 48's profit margin scheme lets a dealer account for VAT only on its profit margin, the gap between the resale price and the original purchase price, when the used good was situated in Saudi Arabia and was purchased from a non-taxable person or another dealer already operating the margin scheme; ZATCA has specified used cars meeting these conditions as eligible, but it has expressly excluded cars imported into the Kingdom even if they were genuinely used abroad, so an imported car falls back to ordinary full-value VAT. The option applying the margin scheme to both scenarios ignores that explicit import exclusion. The option denying the scheme to motor vehicles altogether is wrong because used cars are precisely the category ZATCA has specified as eligible, not one excluded from it. The option claiming a full VAT exemption on the domestic resale is wrong because the scheme only narrows the taxable base to the margin; it does not eliminate the VAT charge entirely.
Source: Saudi VAT Implementing Regulations, Article 48, profit margin scheme for eligible used goods, and ZATCA's eligible-used-cars criteria (zatca.gov.sa)