What is a Composition Dealer?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 12 August 2019
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While many people are familiar with the concept of dealers in the business world, there are actually a number of different types, including the composition dealer. Essentially, this individual is involved in the creation of a portfolio that may involve a number of different assets, from stocks and bonds to mutual funds, as well as other types of investments. While the financial portfolio may be quite diverse, the dealer may opt for the use of what is commonly referred to as a composition scheme as the way of paying applicable taxes on the investments within his or her portfolio.

Composition dealers tend to invest in a number of different schemes at any given time. These may involve futures trading, stocks, bonds, and just about any type of financial transaction that is likely to result in an increase of financial worth. Along with making money, the dealer also has the responsibility of paying into the tax structure of the country of origin. Just as most types of dealers, this individual is often registered in that country, allowing the dealer to operate legally. He or she also has the opportunity to take advantage of a fixed tax payment, based on a percentage of total sales generated during a given period, rather than paying value added taxes (VAT).


Different countries will have specific criteria that this type of dealer must meet and adhere to in order to maintain his or her status. Generally, there is a sliding scale of cleared profit that the dealer must generate in order to keep the status and the percentage based tax payment. In many cases, he or she is also not eligible to file for input tax credit while receiving the tax rate extended for a composition scheme. In other countries, the composition dealer will have the option of going with a VAT or using the calculation based on the composition scheme process. In almost all cases, it is necessary for the individual to register with the central government in order to be recognized and have the privilege of operating within that country.

Composition dealers, in some instances, may also participate in the buying and selling of consumer goods. Depending on the tax laws in the country of origin, the ability to employ the composition scheme method for paying applicable taxes may or may not be an option. If the scheme is not recognized in that country, then the dealer may have to seek another status for legal recognition, and also set up to pay taxes under a VAT approach.


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