The secondhand goods market in Germany is thriving, with annual sales now approaching €15 billion and continuing to grow. Unlike private individuals, commercial sellers are required to charge value-added tax (VAT) as part of the sales price. However, when purchasing goods from private individuals, they are not entitled to deduct input tax. This would put commercial sellers at a disadvantage compared to private sellers if they had to remit the full VAT amount. To offset this disadvantage, German VAT law provides for margin taxation under Section 25a of the VAT Act (UStG).

This article will tell you what margin taxation means, when it can be applied, and what goods are eligible. We'll also show you how to calculate VAT on goods taxed according to this scheme, and what you need to bear in mind when invoicing.

What's in this article?

• What does margin taxation mean?
  
• Requirements for margin taxation
  
• What kinds of goods can margin taxation be applied to?
  
• How is VAT calculated when using margin taxation?
  
• What requirements must an invoice meet for margin taxation?
  
• What are the consequences of incorrectly applying margin taxation?
  

What does margin taxation mean?

Margin taxation is a special kind of VAT scheme, according to which tax is applied only to the difference between the sales and purchase price, not the total sales price. This rule allows dealers to pay tax only on the added value they generate from the resale of goods, rather than on the entire sales value. In other words, they pay tax only on the margin.

The margin scheme is predominantly used in the secondhand sector, where VAT has already been paid on items. This approach limits the tax deduction to a dealer's actual profits, and prevents double taxation. Margin taxation in Germany is governed by Section 25a of the UStG.

Requirements for margin taxation

Margin taxation can be applied only once certain requirements are met. Below, we've summarized the most important of these:

Resellers

Conducting business activities is not enough, in itself, to justify application of margin taxation. A freelance photographer who purchases used camera equipment, for example, cannot apply margin taxation. The scheme applies exclusively to resellers, i.e., business owners whose primary business is dealing in secondhand goods. This includes, among others, secondhand sellers who purchase, refurbish, and resell furniture, electronics, or vehicles.

Organizers of public auctions can also apply margin taxation, provided they’re auctioning secondhand items in their own name. This is true regardless of whether they’re conducting the auction on behalf of a third party or for their own benefit.

Movable, physical items

Margin taxation can be applied only to commerce involving movable, physical items. Land and real estate, which are considered immovable property, are not eligible. The scheme is predominantly used for goods on which VAT has already been paid in a previous transaction, such as used items, returns, display goods, or liquidation stock. These goods do not have to be secondhand in the everyday sense; the decisive factor is that the dealer cannot deduct input tax on the purchase and that a margin arises between acquisition and resale.

If multiple items, each of which satisfies the requirements for margin taxation, are combined to create a new item, then margin taxation is not permitted. The same applies if a secondhand item is procured, but only parts of it are resold. However, maintenance or small repairs that do not significantly increase the value of an item do not affect eligibility.

Origin of goods

The origin of goods is another key factor in determining the eligibility of an item. You can apply margin taxation only if the secondhand goods originate from Germany or another EU member state. Goods imported from a country outside the EU, on the other hand, are generally subject to import VAT, which can be deducted as input tax. Margin taxation is generally not permitted in these cases. However, there is an exception for works of art, collector’s items, and antiques, which are eligible for margin taxation, even if imported from non-EU countries.

No input tax deduction upon purchase

To understand when margin taxation applies, you must look at the types of purchases a business makes, because the scheme is only available for items acquired without the right to input tax deduction. This means the items must come from private individuals or businesses that do not charge VAT and are not entitled to input tax deduction. This includes, among others, small-scale entrepreneurs as defined in Section 19 of the UStG.

Personal use excluded

Margin taxation can be applied only if goods are procured for the commercial activities of the business. Goods purchased for private purposes or personal use, on the other hand, are not eligible for margin taxation. This means an item must have been purchased with the intention of reselling it at a later date. The aim of this rule is to prevent businesses from drawing tax benefits from private purchases.

What kinds of goods can margin taxation be applied to?

In principle, margin taxation as defined by Section 25a of the UStG can be applied to a wide range of goods, so long as the requirements described above are met.

Secondhand items

• Furniture that resellers buy, refurbish, and resell
  
• Electronics, such as smartphones, computers, laptops, TVs, and household appliances
  
• Cars, motorcycles, used vehicles, and other means of transport, as well as spare parts and accessories
  
• Bicycles and sports equipment
  
• Tools, machinery, and appliances
  
• Apparel and textiles
  
• Books, used or antique editions
  
• Toys, used or antique items
  

Works of art and antiques

• Paintings
  
• Sculptures
  
• Art objects
  
• Antiques
  
• Antique furniture
  
• Decorative items
  

Businesses dealing in works of art or antiques must report to the tax office which categories of items they are applying margin taxation to. If the purchase price of a work of art cannot be determined or is negligible, the law (Section 25a.3 of the UStG) stipulates that a fixed tax base of 30% of the sales price be applied.

Collector's items

• Stamps
  
• Coins
  
• Jewelry
  

While unprocessed precious stones and precious metals are explicitly not eligible for margin taxation, this does not apply to jewelry made from processed precious stones or metals.

How is VAT calculated when using margin taxation?

The key to calculating VAT is to first work out the total value of the goods sold. If total revenue during the tax period is below €750, then the business can apply total margin taxation, where the margin is added up across all goods to produce a single total margin. If revenue exceeds €750, then the margin must be calculated for each item individually (see Section 25a.4 of the UStG).

In both cases, the calculation follows the same principle: The purchase price is subtracted from the sales price. The difference represents the added value. With individual margin taxation, this calculation is performed separately for each item; with total margin taxation, it’s performed collectively for all items. The result of this calculation forms the tax base for applying VAT.

Generally speaking, the standard VAT rate of 19% is applied to the difference. This applies even to goods that normally fall under the reduced tax rate of 7%, such as collector's items or works of art.

Stripe Tax automatically applies the correct VAT rate for standard transactions. For more specialized cases, such as margin taxation under Section 25a of the German VAT Act, Stripe provides the underlying transaction data that your accounting system can use to complete the required calculation. With a single integration, you can streamline tax collection and access all reports needed for your compliance workflows.

Example 1: Total margin taxation

A secondhand dealer purchases various items of furniture from private individuals over the course of a year. His total purchase costs add up to €700, and he generates €1,100 in revenue from the sale of these items. Since his total revenue is below the €750 threshold, the dealer can apply total margin taxation.

Calculating the margin:

Purchase price of items: €700
Sales price of items: €1,100

Margin (Added Value): €1,100 – €700 = €400

Calculating VAT:

A VAT rate of 19% is applied to the margin of €400:

€400 x 19% = €76

The dealer must therefore pay €76 in VAT on the added value of €400.

Example 2: Individual margin taxation

A reseller purchases a used laptop from a small business for €800, plus a used computer for €1,200. He resells the laptop for €1,500 and the computer for €2,500. Since his total revenue exceeds the €750 threshold, he must calculate the margin for each device individually.

Calculating the margin:

Laptop purchase price: €800
Laptop sales price: €1,500

Margin (Added Value): €1,500 – €800 = €700

Computer purchase price: €1,200
Computer sales price: €2,500

Margin (Added Value): €2,500 – €1,200 = €1,300

Calculating VAT:

A VAT rate of 19% is applied to both €700 and €1,300.

VAT for the laptop: €700 x 19% = €133

VAT for the computer: €1,300 x 19% = €247

The reseller must pay €133 in VAT for the laptop and €247 in VAT for the computer. The total VAT for both sales is €380.

What requirements must an invoice meet for margin taxation?

There are certain invoicing requirements that apply when using margin taxation.

Firstly, the invoice cannot list VAT as a separate item. In practice, this means that VAT is not shown separately on the invoice, which prevents the buyer from claiming input tax. This is particularly relevant for invoices issued to businesses which, in principle, are entitled to deduct input tax.

Secondly, the invoice must state explicitly that margin taxation has been applied. Standard wordings for invoices include:

• “The invoice total includes VAT, which is not indicated separately. The item is subject to margin taxation according to Section 25a of the UStG.”
  
• “Secondhand items / Special regulation”
  
• “Works of art / Special regulation”
  
• “Collector's items and antiques / Special regulation”
  

These statements are important, as they indicate to the buyer that margin taxation is being applied to the sale, meaning the buyer cannot claim input tax.

The invoice also has to indicate the sales price of the product and the tax base used to calculate margin taxation. In the case of works of art, the margin achieved must also be specified, unless total margin taxation has been applied.

What are the consequences of incorrectly applying margin taxation?

Applying margin taxation incorrectly can lead to substantial back payments and fines. For example, if you calculate VAT incorrectly or fail to charge it at all, the tax office can demand the difference. In some cases, the authorities might recalculate the tax retroactively and charge interest. Plus, if there are any irregularities in your margin taxation or incorrect invoices are issued, you increase your risk of being subject to a tax or business audit.