German VAT accounting

Differential taxation: difference to regular taxation

As an entrepreneur, you purchase durable goods on a commercial basis and resell them to your own customers. Under certain circumstances, so-called resellers can apply the margin scheme and thus benefit from it for tax purposes.

Read here what exactly the margin scheme is and which requirements apply.


Differential taxation simply explained: What does it mean?


The term differential taxation means that resellers have to pay a lower sales tax on certain goods. In this case, the sales tax only applies to the difference between the purchase and sales price. Differential taxation is thus a special form of taxation for certain goods. The differential taxation is regulated in § 25a of the Value Added Tax Act (UStG).


According to this, differential taxation applies to the supply of second-hand goods, such as antiques, collector’s items, or works of art. However, differential taxation also applies to the trade in second-hand goods (used physical objects).


With the differential taxation, one wants to avoid that for the object again the value-added tax in full height becomes due. The full value of the VAT has already been paid when the goods were originally purchased. Therefore, with differential taxation, the sales tax is only applied to the difference between the purchase price and the resale price.

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The conditions of the differential taxation


As mentioned above, there are some requirements that must be met in order for sellers to even apply this type of taxation. These are:

  • The goods must have been purchased in the Community territory, i.e. within the European Union.
  • You, as the buyer, have not paid sales tax on the purchase of the commodity.
  • You yourself as a reseller act commercially or publicly auction the purchased items.


Example of differential taxation


If the above conditions apply, the margin scheme can be applied. The following example explains the application in practice:


Let’s assume you buy a used car from a private individual in another EU country. The seller would like to receive 20,000 euros from you for the car. Since the seller is a private person, no input tax is due for the purchase. After a few weeks, you resell the car in Germany. You find a buyer who pays 25,000 euros for the car. Now differential taxation comes into play. According to § 25a UStG, you only have to pay VAT on the difference between the purchase and sales price. In the concrete case, this is 25.000 Euro – 20.000 Euro = 5.000 Euro


So instead of having to pay tax on the entire amount, only 5,000 euros are taxed. In this case, the sales tax amounts to 950 euros. 

For comparison: If the entire amount had been taxed, you would have had to pay 4,750 euros in sales tax.


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