Margin taxation under §25a UStG is the most important tax instrument for every used car dealer in Germany. It allows you to calculate VAT only on the trade margin – not on the entire selling price. The result: lower end prices for your customers and greater competitiveness for your dealership.
The basic principle is simple: When a dealer purchases a used car from a private individual, that person already paid VAT on the original purchase. On resale, the dealer would normally have to subject the full selling price to VAT – even though the item has already been taxed. Margin taxation solves this problem by levying VAT only on the difference (margin) between the purchase and selling price.
Why margin taxation is indispensable for car dealers
The majority of purchased used vehicles come from private individuals. Without margin taxation, used vehicles at dealerships would be significantly more expensive than in private sales – a massive competitive disadvantage. If you buy a car for €8,000 and sell it for €10,000, VAT is only calculated on the margin of €2,000 – not on the full €10,000. The tax then amounts to only €319.33 instead of €1,596.64 under standard taxation. For a dealership with 200 margin-taxed vehicles per year, the savings can reach six figures.
Legal Basis: §25a UStG in Detail
The legal basis for margin taxation is found in §25a of the German VAT Act (UStG). This section implements EU Directive 2006/112/EC (VAT System Directive), Articles 311 to 325, into German law. This ensures a uniform regulation across all EU member states. In the EU, it is referred to as the “Margin Scheme” – particularly important for cross-border vehicle trading.
- §25a Para. 1 UStG – Defines the prerequisites: Who qualifies as a reseller, which goods are covered, from whom the goods must have been acquired.
- §25a Para. 2 UStG – Determines the taxable amount as the difference between selling price and purchase price (margin).
- §25a Para. 3 UStG – Establishes that the taxable amount is treated as a gross profit from which VAT must be extracted.
- §25a Para. 4 UStG – Prohibits the separate disclosure of VAT on the invoice.
- §25a Para. 5 UStG – Stipulates that input tax deduction for the purchase price is excluded.
- §25a Para. 7 UStG – Contains the opt-out provision: The dealer may waive margin taxation and apply standard taxation instead.
Prerequisites for Margin Taxation
Not every business can use margin taxation under §25a UStG. Certain prerequisites must be met:
- Reseller status – The applicant must be a business that commercially trades in used goods. Car dealers typically fulfill this requirement automatically.
- Used goods – The items must be movable tangible goods that are used. A vehicle is considered new (§1b Para. 3 UStG) if it has been registered for less than 6 months or has been driven less than 6,000 km.
- Purchase from private individuals (non-businesses) – the most common case in the car trade
- Purchase from small businesses under §19 UStG that do not charge VAT
- Purchase from other resellers who have also applied margin taxation
- Purchase from businesses that sold the item as a tax-exempt supply under §4 No. 28 UStG
- Purchase within the EU single market – For imports from third countries (e.g., USA, Switzerland), margin taxation is generally not applicable, as import VAT is incurred and can be deducted as input tax.
Calculating Margin Taxation – Step by Step
The VAT calculation under margin taxation differs fundamentally from standard taxation. The tax is included in the margin and must be extracted.
Determine the Margin
Calculate the difference between selling price and purchase price. Margin = Selling Price − Purchase Price. Example: €10,000 − €8,000 = €2,000 margin. Note: The margin is a gross amount that already includes VAT.
Extract the VAT
Extract the included VAT from the gross margin: VAT = Margin × 19 / 119. Example: €2,000 × 19 / 119 = €319.33. You do not simply multiply by 19% – instead, the tax portion is extracted from the gross amount.
Determine the Net Margin
Subtract the VAT from the gross margin: Net Margin = Margin − VAT. Example: €2,000 − €319.33 = €1,680.67. This is your actual net proceeds from the transaction after deducting tax.
Detailed Calculation Example
| Item | Amount |
|---|---|
| Purchase price (from private individual) | €8,000.00 |
| Selling price (to buyer) | €10,000.00 |
| Margin (difference) | €2,000.00 |
| VAT included therein (2,000 × 19/119) | €319.33 |
| Net margin | €1,680.67 |
Comparison: What Would Standard Taxation Look Like?
| Item | Margin Taxation | Standard Taxation |
|---|---|---|
| Gross selling price | €10,000.00 | €10,000.00 |
| Tax base | €2,000.00 (margin) | €8,403.36 (net total) |
| VAT (19%) | €319.33 | €1,596.64 |
| Input tax deduction on purchase | €0.00 | €0.00* |
| VAT liability | €319.33 | €1,596.64 |
* When purchasing from private individuals, there is no input tax deduction – standard taxation would be doubly disadvantageous here.
Special Case: Negative Margin
If a vehicle is sold below the purchase price (negative margin), no VAT is due. However, the negative margin cannot be offset against positive margins from other transactions – each deal is assessed individually (individual margin calculation). An aggregate margin calculation (sum of all transactions in a period) is only possible in exceptional cases under §25a Para. 4 UStG and is generally not applied in the car trade.
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Invoice Requirements for Margin Taxation
Invoices for margin-taxed supplies are subject to special requirements. Errors in invoicing are one of the most common reasons for issues during tax audits.
What MUST Appear on the Invoice
- Name and address of the dealer (supplying business)
- Name and address of the buyer
- Invoice date and sequential invoice number
- Quantity and standard commercial description of the item (e.g., “1 passenger car VW Golf VII, 1.6 TDI, first registered 03/2019, 85,000 km”)
- Vehicle Identification Number (VIN)
- Total amount (gross selling price)
- Reference to margin taxation, e.g.: “Used goods / Special scheme pursuant to §25a UStG. VAT is included in the invoice amount. A separate disclosure of VAT is not permitted.”
- Tax number or VAT ID of the dealer
On a margin-taxed invoice, VAT must never be separately disclosed. There must be no net amount, no VAT amount, and no VAT rate shown on the invoice. If VAT is nevertheless disclosed, the dealer owes this amount pursuant to §14c Para. 1 UStG (incorrect tax disclosure) in addition – and the buyer still has no input tax deduction.
Model wording: “Margin taxation pursuant to §25a UStG – VAT is not separately disclosed.” Alternatively, “Used goods / Special scheme” pursuant to §14a Para. 6 UStG is also sufficient.
Correct bookkeeping of margin taxation in financial accounting is essential for an error-free VAT return…
DATEV Bookkeeping: SKR03 vs. SKR04
Correct bookkeeping of margin taxation in financial accounting is essential for an error-free VAT return. Here are the relevant accounts and journal entries compared:
| Function | SKR03 | SKR04 |
|---|---|---|
| Revenue §25a UStG (margin taxation, 19%) | 8337 | 4337 |
| Goods received (without input tax) | 3200 | 5200 |
| Bank | 1200 | 1800 |
| Cash | 1000 | 1600 |
Journal Entry Example: Purchase (SKR03)
Purchase of a used car from a private individual for €8,000 via bank transfer:
| Debit | Credit | Amount |
|---|---|---|
| 3200 Goods Received | 1200 Bank | €8,000.00 |
Important: No tax code is used, as no input tax is incurred when purchasing from private individuals. The tax code is 0 (without tax).
Journal Entry Example: Sale (SKR03)
Sale of the used car for €10,000:
| Debit | Credit | Amount |
|---|---|---|
| 1200 Bank | 8337 Revenue §25a UStG | €10,000.00 |
Margin Taxation vs. Standard Taxation – The Complete Comparison
When is margin taxation worthwhile, and when is standard taxation the better choice?
Margin Taxation (§25a UStG)
- VAT only on the margin – significantly lower tax burden
- Ideal when purchasing from private individuals and small businesses
- Ideal when selling to private individuals and end consumers
- More competitive end prices for your customers
- Opt-out option: Waiver possible per transaction (§25a Para. 7 UStG)
Disadvantage: No input tax deduction on purchases, no VAT disclosure on the invoice, buyer has no input tax deduction, individual recording obligation per item, negative margins cannot be offset.
Standard Taxation
- Input tax deduction on purchases possible (if VAT is shown)
- VAT disclosure on the invoice – buyer can claim input tax
- Ideal when selling to businesses entitled to input tax deduction
- Advantageous with high repair/reconditioning costs (input tax deduction)
- Standard bookkeeping without individual recording
Disadvantage: VAT on the entire net selling price – higher tax burden. Doubly disadvantageous when purchasing from private individuals, as no input tax deduction is possible.
When Is Standard Taxation Still Better?
In certain cases, standard taxation can be more advantageous: (1) The buyer is a business entitled to input tax deduction and wants to claim input tax. (2) High repair and reconditioning costs with input tax are incurred between purchase and sale. (3) The vehicle was purchased from a standard-taxed business with VAT shown – in this case, the margin taxation option does not apply anyway.
The 5 Most Common Mistakes in Margin Taxation
- Disclosing VAT on the invoice – The most common and most expensive mistake. Under margin taxation, VAT must never be separately disclosed. Consequence: Tax liability under §14c UStG.
- Missing individual records – Every margin-taxed transaction must be individually documented: purchase price, selling price, margin. Without these records, the tax authority can completely deny margin taxation.
- Applying margin taxation on purchases from standard-taxed businesses – If a vehicle is purchased with VAT shown on the invoice and input tax is deducted, margin taxation on resale is excluded.
- No reference to §25a UStG on the invoice – The invoice must contain a clear reference to the application of margin taxation. If missing, questions will arise during the tax audit.
- Offsetting negative margins against positive ones – Under individual margin calculation, a negative margin cannot be offset against positive margins from other vehicles. Each transaction is assessed separately.
Cross-Border Transactions: EU and Third Countries
International vehicle trading presents special challenges for margin taxation.
- Purchases from EU private individuals: Margin taxation is applicable. This does not constitute an intra-Community acquisition (§1a UStG) since the seller is not a business.
- Purchases from foreign margin-taxed resellers: No intra-Community acquisition; the German dealer can apply margin taxation on resale.
- Sales to EU private individuals: Margin taxation remains applicable. No tax-exempt intra-Community supply – the supply is taxable domestically.
- Sales to EU businesses: Margin taxation remains applicable. Tax exemption under §4 No. 1b UStG is excluded for §25a transactions (§25a Para. 7 Sentence 2 UStG).
- Imports from third countries (USA, Switzerland, UK since Brexit): Import VAT is incurred and can be deducted as input tax. Margin taxation is therefore excluded – standard taxation applies.
Decision Guide: When to Use Which Taxation Method?
- Vehicle purchased from a private individual or small business → Margin taxation
- Vehicle acquired from a margin-taxed dealer → Margin taxation
- Resale to private individuals or end consumers → Margin taxation
- Buyer is entitled to input tax deduction and needs VAT shown → Standard taxation
- High reconditioning costs with input tax → Consider standard taxation
- Purchase from standard-taxed business with VAT shown → Standard taxation (mandatory)
- New vehicle under §1b Para. 3 UStG → Standard taxation (mandatory)
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How AutoPult Supports You with Margin Taxation
AutoPult was developed specifically for the German vehicle trade and automates the complex requirements of margin taxation:
Automatic Margin Calculation
AutoPult detects whether a vehicle is margin-taxed or standard-taxed and automatically calculates the VAT correctly – for each individual vehicle.
Legally Compliant Invoices
All mandatory details are generated automatically, including the reference to §25a UStG. An accidental disclosure of VAT is systematically prevented.
Complete Individual Records
Each vehicle is recorded with its purchase and selling price. The margin is documented per transaction – exactly as required by the tax authority.
DATEV Export
All journal entries are exported with the correct accounts (e.g., 8337/4337) and tax codes. Your tax advisor receives perfectly prepared data.
Frequently Asked Questions (FAQ)
Margin taxation under §25a UStG is a special provision in German VAT law under which VAT is levied only on the difference (margin) between the purchase price and selling price of a used good. It applies to resellers who acquire used goods from private individuals, small businesses, or other margin-taxed dealers.
VAT is extracted from the gross margin: Margin (selling price minus purchase price) multiplied by 19/119. Example: With a purchase for €8,000 and a sale for €10,000, the margin is €2,000. The VAT included therein is 2,000 × 19/119 = €319.33.
No. Under margin taxation, the separate disclosure of VAT on the invoice is expressly prohibited pursuant to §25a Para. 4 UStG. Only the gross amount may appear on the invoice, supplemented by the reference “Margin taxation pursuant to §25a UStG.” An incorrect VAT disclosure leads to tax liability under §14c UStG.
In SKR03, margin-taxed revenue is posted to account 8337 “Revenue from supplies §25a UStG.” In SKR04, the corresponding account is 4337. Purchases are posted without input tax to account 3200 (SKR03) or 5200 (SKR04) Goods Received.
Yes, pursuant to §25a Para. 7 UStG, the dealer can decide for each individual transaction whether to apply margin taxation or standard taxation. The decision must be made no later than invoicing and is then binding for that transaction.
If a vehicle is sold below the purchase price (negative margin), no VAT is due. However, the negative margin cannot be offset against positive margins from other transactions. Each deal is assessed separately under individual margin calculation. A refund of “negative VAT” does not occur.
No. Margin taxation only applies to used goods. A vehicle is considered a new vehicle under §1b Para. 3 UStG if it has been registered for less than 6 months or has been driven less than 6,000 km. For such vehicles, margin taxation is excluded.
No. Since VAT may not be separately disclosed under margin taxation, the buyer – even if they are a business themselves – has no input tax deduction. This is an important difference from standard taxation and can be a disadvantage when selling to commercial customers.
Have more questions about margin taxation? Contact us or try our free margin taxation calculator to instantly calculate the tax for your next transaction.