The differential taxation under Section 25a of the German Value-Added Tax Act (UStG) is a special VAT provision for the trade in used goods—it is particularly important for car dealers when selling used cars. Instead of taxing the full sales price, value-added tax is levied only on the margin between the purchase price and the sales price. This reduces the tax burden for vehicles purchased without input tax credit—such as those bought from private individuals.
Key Takeaways
- Only the margin (selling price minus purchase price) is taxed, not the full selling price.
- This applies to purchases for which no input tax deduction is allowed, such as those made by private individuals or small business owners.
- Sales tax is calculated as 19/119 of the margin.
- Sales tax must not be listed separately on the invoice.
- Mandatory notice: “ Used Goods/Special Provisions” (Section 14a(6) of the German Value-Added Tax Act (UStG)).
- The calculation methods are the individual difference and the total difference.
What is differential taxation under Section 25a of the German Value-Added Tax Act (UStG)?
The differential taxation system was created to avoid a double VAT burden on the resale of used goods. If a dealer purchases a vehicle from a private individual, he cannot claim an input tax credit for it—the VAT from the original new purchase is already included in the price. If the dealer were to pay tax on the full price upon resale, the same item would be subject to the full VAT rate twice. The special provision in Section 25a of the German Value-Added Tax Act (UStG) resolves this by taxing only the dealer’s margin.
When may the margin method be applied?
The differential taxation method applies when the reseller has purchased the vehicle within the EU without the right to deduct input tax. This is typically the case when the seller:
- is a private individual,
- is a small business owner as defined in §19 of the German Value-Added Tax Act (UStG),
- or even applied the differential taxation method.
If, on the other hand, the vehicle was purchased with VAT shown on the invoice and input tax credit claimed, the standard taxation rules apply.
How to Calculate Margin and Sales Tax
The tax base is the difference between the selling price and the purchase price. The sales tax included in this margin is calculated using the factor 19/119. Here is an example:
- Purchase price: 8,000 €
- Selling price: 10,000 €
- Margin (tax base, including VAT): 2,000 €
- Sales tax included: 2,000 € × 19/119 = 319.33 €
If the margin is zero or negative (sale below cost), no sales tax is due.
Partial Difference and Total Difference
With the individual difference method, the margin is calculated separately for each vehicle—the standard practice in the automotive trade. The total difference method, on the other hand, aggregates all purchases and sales for a given period and is permitted only for items with a purchase price of up to 500 €—so it is generally not relevant for vehicles.
Required Information on the Invoice
Special invoicing requirements apply to sales subject to differential taxation:
- No separate VAT line item —neither the tax rate nor the tax amount may be listed.
- Mandatory notice “Used Goods/Special Provisions” pursuant to Section 14a(6) of the German Value-Added Tax Act (UStG).
- All other mandatory invoice information pursuant to §14 of the German Value-Added Tax Act (UStG).
We provide you with a ready-to-use invoice template for differential taxation.
Differential Taxation vs. Standard Taxation
Under the standard taxation method, the full net sales price is subject to 19% sales tax, which the buyer can claim as an input tax credit. Under the differential taxation method, the tax burden on the retailer is usually lower, but the buyer is not entitled to an input tax credit. For sales to private customers, the differential taxation method is therefore almost always more favorable; for business customers eligible for input tax credits, the standard taxation method may be more attractive.
Settling Differential Taxation with CATAMA
With CATAMA’s automotive invoicing software, you can accurately invoice vehicles subject to differential taxation: The software generates invoices without showing sales tax, including the required notice; documents purchase and sale prices in the vehicle management system in compliance with GoBD standards; and automatically calculates the margin. This allows you to keep track of your taxable difference at all times in the automotive trade.
Frequently Asked Questions About Margin Taxation
What is differential taxation under Section 25a of the German Value-Added Tax Act (UStG)?
Differential taxation is a special VAT rule for resellers of used goods. The tax is not levied on the full sales price, but only on the difference (margin) between the sales price and the purchase price.
When may a car dealer apply the margin tax?
It is permitted if the vehicle was purchased without an input tax credit—for example, from private individuals, small business owners, or other dealers subject to differential taxation within the EU.
How is sales tax calculated under the differential taxation method?
Sales tax is calculated based on the margin (selling price minus purchase price) at a rate of 19/119. For a margin of €2,000, the sales tax amounts to €319.33.
Can sales tax be shown on the invoice?
No. Under the differential taxation method, sales tax may not be shown separately. The invoice must include the note “Used goods/special rule.”
Can the buyer claim input tax from an invoice subject to differential taxation?
No. Since no sales tax is shown, the buyer cannot claim an input tax credit.
Note: This article is intended for general informational purposes only and is not a substitute for individual tax advice. Please consult your tax advisor regarding specific tax questions.
