Do you buy used goods for resale? Are you looking to sell a building lot? If so, your business operations might benefit from margin value-added tax (VAT). Find out more about how margin VAT works (including its application criteria, exclusions and calculation formulas) and the rules for billing and declaring margin VAT that you need to bear in mind.

What's in this article?

• What is margin VAT?
  
• Who can benefit from margin VAT?
  
• How is margin VAT different to conventional VAT?
  
• How is margin VAT calculated?
  
• How is margin VAT declared?
  
• How is an invoice with margin VAT created?
  

What is margin VAT?

Margin VAT is a special VAT regime that has been in force since 2007 and is applicable to taxable resellers in the member states of the European Union. This tax regime aims to prevent repeat payments of VAT while selling an item purchased earlier.

Who can benefit from margin VAT?

To benefit from margin VAT, the transaction must fulfil certain criteria. First, the party selling the item must be a taxable reseller, such as a trader buying and selling used goods, used cars, works of art or collectibles, or antiques. Also, the item absolutely cannot be repaired, renovated or modified (i.e. no work must have gone into it). Last, the item must be purchased from a party that is not liable for VAT (either a private individual or a microenterprise exempted from the application of VAT) to allow the taxable reseller to benefit from the special regime.

The regime also applies to private individuals and businesses carrying out property transactions, such as the sale of existing buildings or building lots or some transactions under travel agencies and tour operators.

Exclusions

Some transactions are completely excluded from the field of application of margin VAT:

• Resale of goods purchased from a party that has charged VAT on the delivery
  
• Resale of goods obtained free of charge or imported goods
  
• Resale of goods purchased under an intracommunity exchange liable for VAT
  

How is margin VAT different to conventional VAT?

Unlike conventional VAT, margin VAT is calculated on the basis of the profit margin of the reseller and not on the basis of its annual sales. In other words, margin VAT applies only to the difference between the purchase price and the resale price including all taxes.

How is margin VAT calculated?

Margin VAT is calculated from the resale price including tax, the purchase price including tax and the applicable VAT rate. The different VAT rates applicable include:

• Super-reduced rate: 2.1%
  
• Reduced rate: 5.5%
  
• Intermediate rate: 10%
  
• Normal rate: 20%
  

There are two different methods for calculating and accounting for margin VAT: VAT may be calculated on a case-by-case basis or overall. The calculation method depends on the data available to you at the time of the resale.

Case-by-case calculation

For a case-by-case calculation, you calculate the margin for each individual transaction.

Formula for case-by-case margin VAT:

[(Resale Price Inclusive - Purchase Price Inclusive) x VAT Rate] ÷ (1 + VAT Rate)

For example, a coat originally purchased for €500 inclusive and resold for €1,000 inclusive is subject to VAT at the normal rate of 20%. Based on the formula, the margin VAT is equal to €83.33, as shown below:

[(€1,000 - €500) x 20%] ÷ (1 + 20%)
(500 x 0.20) ÷ 1.2 = €83.33

Overall calculation

For its part, the overall calculation involves calculating the net margin for an overall amount during a definite period of time: a year, three months or a month, depending on the selected taxation regime. This calculation method is used by taxable resellers when the exact purchase price of each item sold is not known. Also, the overall calculation makes it possible to make up for less favourable values (such as losses).

Formula for overall margin VAT:

[(Total Resales Inclusive - Total Purchase Prices Inclusive) x VAT Rate] ÷ (1 + VAT Rate)

As an example: a reseller buys a coat for €500 inclusive and sells it on for €1,000 inclusive and then buys a pair of boots for €100 and sells them on for €225 inclusive. Using the 20% VAT rate for each sale, the overall margin VAT to pay is €104.17, as shown below:

[[(€1,000 + €225) - (€500 + €100)] x 20%] ÷ (1 + 20%)
[(€1,225 - €600) x 0.2] ÷ 1.2
(€625 x 0.2) ÷ 1.2 = €104.17

How is margin VAT declared?

As a taxable reseller, you must declare the VAT collected on the profit margin of your sales. Take care to keep accurate cost accounts to be able to substantiate your margin to a tax auditor. Note that the application of margin VAT does not entitle you to any deduction when you declare VAT.

The declaration frequency is determined by your taxation regime and the amount of VAT you collect annually:

• Once a year (simplified assessment regime)
  
• Every quarter if your annual VAT is less than €4,000 (normal assessment regime)
  
• Every month if your annual VAT exceeds €4,000 (normal assessment regime)
  

You can read more about the details of each regime in our article on VAT declaration.

The annual VAT declaration is filed online using the form Cerfa no. 3517-S-SD. You will need to pay two instalments to the state on the basis of the previous financial year. Monthly and quarterly declarations are filed using the form Cerfa no. 3310-CA3-SD or Cerfa CA3.

Note: if the overall value of your resales is smaller than that of your purchases, you can wait for the next period to declare your VAT.

How is an invoice with margin VAT created?

Resales benefiting from margin VAT must be billed at their inclusive price, without indicating VAT. However, the calculation method (case-by-case or overall) and the application of the margin regime must be stated in the invoice: "Article 297 A du Code général des impôts (CGI) et directive communautaire 2006/112/CE" ("Article 297 A of the General Tax Code (CGI) and Council Directive 2006/112/EC").

You should also indicate the item resold and the type of sale. For example: "private seller regime – used goods", "private seller regime – works of art", or "private seller regime – collectibles".

Other than that, the information required on an invoice with margin VAT is the same as that on an invoice with conventional VAT. You can view our articles on the mandatory information in invoices and the billing rules for self-employed individuals to learn how to make a compliant invoice.

You can also view a model invoice supplied by the French authorities or even simplify your billing system entirely using an advanced solution such as Stripe Invoicing – which will optimise invoice creation and automate your accounts without you having to write a single line of code. To find out how Stripe can help you manage all your invoicing tasks, please contact one of our experts.