06 Jun Margin Scheme
In the Netherlands, the Dutch tax authorities apply the margin scheme for the trade in second-hand goods, art pieces and collector items. Despite the fact that this VAT ruling has been around for years, the margin scheme might not always be clear to trading companies. As a result, they either charge too much VAT or apply an incorrect VAT hereby risking a fine from the tax authority. In this article, we would like to assist you in gaining a better understanding of the margin scheme basics.
In general, VAT is calculated on the sales price. However, this leads to double taxation for the companies purchasing from private individuals. In order to address this situation, the Dutch tax authorities introduced a special tax ruling for second-hand goods, art pieces and collector items. By means of the margin scheme, VAT is charged on the difference between the selling price and the purchase price. Margin VAT goods are secondhand goods (such as used cars, computers, phones etc.), art pieces and collector items.
There are two accounting methods applicable the companies trading in margin goods, the margin per item method “individuele methode” and the conjoin method “globalisatiemethode”.
The margin per item method
Companies applying margin per item method have to calculate the margin per good and recognize this in their accounting. The company calculates the margin related VAT over sum of all the positive margins and submits this in its VAT filing. The negative margins should not be included in the calculation.
The conjoin method
The conjoin method allows for profits to be offset with against losses hereby lowering the VAT payable over the profitable sales. The VAT will be calculated over the sum of the positive and negative margins in a tax period.
Example: A company sells two products at VAT rate of 21%
Type of Good: Good A Good B
Purchase price: EUR 500 EUR 800
Sales price: EUR 800 EUR 625
Margin: EUR 300 EUR175 minus
The profit margin using the margin per item method EUR 300
The company has to pay (EUR 300 / 1,21 * 0,21) EUR 52,07 to the tax authorities.
The profit margin using the conjoin method EUR 125
The company has to pay (EUR 300 – EUR 175) / 1,21 * 0,21) EUR 21,70 to the tax authorities.
For the companies operating under the margin scheme, four additional reporting requirements exists:
▪ The company has to separately record the margin VAT goods from the normal VAT goods.
▪ The company has to separately record the goods with different VAT rates.
▪ The sales invoices have to meet all the general requirements except the company is not allowed to mention VAT on the sales invoice. However, the company should mention one of the following on the sales invoice:
o special scheme: second-hand goods
o special scheme: art pieces
o special scheme: collector items
▪ The company has to create a purchase statement for purchases above EUR 500.
The margin scheme is applicable for almost every company, if its normal business activity is dealing in margin goods. However, for some industries the implementation of the margin scheme might be a little different. Furthermore, margin scheme is for example not applicable for trading unworked precious objects and intra-Community sales of close to new cars.
If you need more detailed information about the margin scheme, please feel free to contact us.