Differential taxation

What is meant by Differential taxation?

The margin scheme, also known as differential taxation, is a special taxation procedure used within the EU, particularly in the trade of second-hand goods, works of art, antiques, and collectibles. Instead of taxing the entire sale amount, under the margin scheme, only the difference between the selling price and the purchase price of the goods is subject to VAT. This procedure is especially beneficial for dealers in used goods as it reduces the tax burden and enhances competitiveness.

Typical software functions in the area of "margin scheme":

1. Automatic Calculation of the Tax Difference: The software automatically calculates the difference between the purchase and selling price and applies the appropriate VAT to it.
2. Accounting Logic for Margin Scheme: Specialized accounting rules and accounts that comply with the requirements of the margin scheme are integrated into the software.
3. Reporting for Tax Purposes: Generation of detailed reports that document the margin scheme applied for tax audits and internal controls.
4. Integration with Inventory Management Systems: Linking with inventory and purchasing systems to automate and optimize the margin scheme calculation.
5. Tracking of Purchase and Sale Transactions: Detailed recording and tracking of all transactions subject to the margin scheme to ensure compliance.
6. VAT Pre-Declaration: Assistance in correctly reporting the turnover from margin-scheme-related transactions in the VAT pre-declaration.

Examples of "margin scheme":

1. Second-Hand Goods Trade: A dealer buys a used piece of furniture for €100 and sells it for €150. The margin scheme applies to the difference of €50.
2. Art Trade: An art dealer purchases a painting for €5,000 and later sells it for €7,000. VAT is only applied to the difference of €2,000.
3. Antiques Trade: An antiques dealer buys an antique vase for €200 and sells it for €300. The difference of €100 is subject to the margin scheme.
4. Sale of Collectibles: A collector sells a rare coin for €1,000, which he purchased for €700. The margin of €300 is taxed under the margin scheme.
5. Vehicle Trade: A used car dealer buys a car for €10,000 and sells it for €12,000. The margin of €2,000 is taxed under the margin scheme.