The VAT on the margin generally concerns resellers who cannot recover this tax on the purchase price of the resold good (example: second-hand goods). It consists, for the company, of collecting VAT only on the margin it makes on its buy-resale transaction. The rate to apply is the same as that for sales of similar goods in new condition.
I – Scope
Transactions automatically submitted
To be automatically subject to the margin regime, the operation must meet the following specificities:
- The sale is made by a person having the status of taxable reseller;
- The property is acquired from a non-liable person such as an individual or an exempt professional, or from a person who is not authorized to charge VAT.
Taxable resellers are professionals who buy or allocate to the company’s stocks or import goods for resale. The goods concerned must be second-hand goods, works of art or antiques or collectibles. In addition, these resellers must carry out the transaction as part of an economic activity.
These are most often garage owners who sell vehicles, second-hand dealers, antique dealers, auctioneers or art galleries.
Real estate dealers
The VAT on margin of real estate dealers does not always apply.
Two situations should be distinguished:
- When a property dealer can opt for VAT on margin when buying real estate that is more than five years old, does some minor renovation, and then resells it;
- On the other hand, if it carries out heavy renovation work, then resells it, the resale is then subject to VAT on the total price.
For operations involving residential premises (in the case of light renovation only), it is always preferable not to opt for VAT as the VAT would have to be paid to the Treasury and the buyer could not recover it. This will therefore increase the cost price.
When the building bought and resold within 5 years, the sale is still subject to VAT on the total price.
The margin VAT regime applies to transactions carried out by travel agencies acting as an intermediary between the supplier and the traveler, regardless of the quality of the buyer of the trip, whether an individual or a company. This regime is therefore not applicable to direct operators such as hoteliers and transporters.
Travel agencies are subject to VAT on the margin in the country where they are established. Travel agencies whose headquarters of their economic activity are located outside the European Union are therefore not concerned.
The service is exempt from VAT when the trip is made outside the European Union. The margin of the travel agency, although established in the EU, is in this case exempt from VAT.
Sales of building land for which the option to VAT has been exercised which are made by taxable persons are subject to VAT on the total price of the transfer in application of the provisions of Article 266 of the CGI.
However, the VAT regime on the margin applies when the properties sold do not have the right to deduct VAT when they are acquired. This is particularly the case in practice when the professional taxable person real estate the building land with an individual.
Transactions never subject to VAT on margin
The VAT regime on margin excludes the following transactions:
- When the goods have been collected free of charge;
- The goods have been acquired from a taxable person who invoiced VAT;
- The goods have been imported;
- The goods were the subject of an intra-community acquisition.
II – Rules for calculation and operation of VAT on margin
It is a question here of calculating the VAT only on the realized margin.
Let’s take the example of a good bought € 500 and sold € 1,000 excluding VAT, the applicable VAT rate being 20%, VAT will be € 100 (1000 – 500 x 20%) and price VAT included € 1,100.
Now let’s take the same example and do the calculation in reverse (starting from the sale price including VAT): for a sale of € 1,100 knowing that the purchase price is € 500.
€ 1,100 sale price – € 500 purchase price = € 600 margin VAT included
€ 600 / 1.2: € 500 margin without VAT
€ 500 X 20% = € 100 Vat on margin
In the case of a real estate dealer, the purchase price used for the calculation of the VAT base (therefore the margin) includes the costs of the act of purchase of the property. On the other hand, no costs can be added to the purchase price of movable property to calculate the margin used as the basis for VAT.
Operation of VAT on margin
The margin is in principle calculated after each transaction, this method is called the “PIECEMEAL MARGIN”.
In the absence of documents justifying the purchase price, VAT must be applied to the entire sale price. However, for works of art, it is possible to retain a fixed margin of 30%.
In the event of the acquisition of a heterogeneous batch of parts, the trader can set the margin at 50% of the sale price.
Transactions carried out at a loss do not entail any payment of VAT, but this deficit cannot be offset with a profit made on another transaction. Also, to avoid this, the trader can opt for the calculation of the overall margin.
This method consists of calculating the OVERALL MARGIN (sales price including VAT – purchase price including VAT) over a period and adjusting it annually according to changes in stocks. If the purchases exceed the sales, the surplus is carried over to the next declaration.
III – Accounting and invoicing
The main accounting rules
When a company uses the “piecemeal” margin VAT system, it must keep a cost accounting in order to identify each good (or each category of goods if it uses the global margin method).
In addition, if the company carries out taxable transactions at several different VAT rates, they must organize their accounts to be able to distinguish them.
It is compulsory to write the following information on the invoices:
Application of the margin system “article 297 A of the CGI and community directive 2006/112 / EC”.
The issued invoice must not show the amount of VAT, customers cannot deduct this VAT.
Depending on the operation carried out, the invoice must be indicated:
- “Special regime – Second-hand goods”,
- Or “Special regime – Object of art”,
- Or “Special regime – Collectibles or antiques“,
- Or “Special regime – Travel agency“.
With regard to real estate dealers, the mention of the adopted VAT regime must appear in the deed of sale of the property.
This article gives a brief overview of the problems that the VAT on margin regime can pose to a company. It can lead you to ask yourself a lot of questions that have not been answered in this text.
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