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Margin Scheme Taxation in the Car Trade (Section 25a UStG): A Technical Guide

Julian Alessio Goßen (Bachelor of Taxation) December 28, 2025 16 min read Section 25a Margin Scheme Taxation UStG EU Export GoBD

In brief

Margin scheme taxation under Section 25a of the German VAT Act (UStG) is a special VAT arrangement for resellers of used cars. Only the margin between the purchase and sales prices is taxed, provided the vehicle was purchased without a right to deduct input VAT.

On this page (12 sections)

Margin Scheme Taxation in the Car Trade (Section 25a UStG): A Technical Guide

For used car dealers, the margin scheme is a crucial way to maintain competitive retail prices for vehicles purchased from private owners. At the same time, the arrangement is prone to error. An incorrect purchase classification, an impermissible invoice, or an unclear EU sale can destroy the economic value of the margin.

To first review the most common problems across the entire VAT system, including EU sales, exports, the Movement Reference Number (MRN), and “nearly new” used cars:
→ Common VAT Mistakes in the Used Car Trade

This article explains how the margin scheme works, its requirements, calculations, invoice and documentation obligations, and the frequently underestimated EU dilemma between an intra-Community supply and the margin scheme.

🧰 Tools for quick checks and calculations:

Brief Definition: What Is Margin Scheme Taxation Under Section 25a UStG?

Margin scheme taxation under Section 25a of the German VAT Act (UStG) taxes only the margin, meaning the sales price minus the purchase price, rather than the entire sales price of a used car. It is permitted only when the car was purchased without a right to deduct input VAT, such as a purchase from a private individual, a small business under Section 19 UStG, or a dealer who already applied Section 25a.

📚 Knowledge base:
Used Car Trade Knowledge Base: Overview and Quick Start

Key Facts

  • Principle: VAT applies only to the margin, not to the total price.
  • Purchase: The scheme is available only for a purchase without input VAT, such as a purchase from a private individual, under Section 19 UStG, or already under Section 25a.
  • Invoice: VAT must not be disclosed separately, and the invoice must refer to the special arrangement.
  • EU risk: A VAT-exempt intra-Community supply, known in German as an innergemeinschaftliche Lieferung (igL), may make a vehicle economically ineligible for the margin scheme when the EU buyer later resells it to a consumer.
  • Vehicle trade register / recordkeeping obligation: Under Section 25a, the sales price, purchase price, and taxable amount must be recorded traceably for each item. In the vehicle trade, this amounts in practice to a VIN-based vehicle trade register, known in German as the Kfz-Handelsbuch.
  • Documentation: The purchase, sale, and margin must remain separately traceable for each vehicle identification number (VIN) under GoBD, Germany’s principles for proper electronic recordkeeping.
    For practical GoBD guidance, see What German tax authorities actually audit.

How It Works: How Does Section 25a UStG Differ from Standard VAT Treatment?

Margin scheme taxation prevents goods that already contain a final VAT burden from being taxed in full again.

Example: A dealer purchases a Golf VII from a private individual for €15,000. The price notionally includes VAT from the original purchase. Because the private individual cannot issue an invoice that separately discloses VAT, the dealer has no right to deduct input VAT. If the dealer had to charge 19% VAT on the full price when reselling the car, the vehicle would bear a double burden. Section 25a UStG therefore limits taxation to the value added by the dealer, which is the margin.

Profitability: Why Does the Margin Scheme Benefit Dealers?

Without Section 25a, retail prices for cars purchased from private individuals would regularly need to be much higher to produce the same net margin.

Comparison using a simplified example:
Scenario: purchase for €10,000 from a private individual, with a target gross profit of €1,000.

  • Standard VAT treatment: €11,000 net plus 19% VAT of €2,090 produces a €13,090 gross price
  • Margin scheme: VAT applies only to the €1,000 margin, including a VAT portion of approximately €160, producing a €11,160 gross price

Result: The vehicle remains substantially less expensive for retail customers and is therefore easier to sell.

The EU Dilemma: Why Is Exporting a Section 25a Vehicle Difficult?

A critical situation arises when a dealer sells a margin-scheme vehicle to another dealer in a different EU country. The interests of the German seller and the EU buyer conflict directly.

Under Section 25a(8) UStG, the German dealer may waive the margin scheme and opt for standard VAT treatment. That is legally permissible, but it often creates commercial tension.

For the full intra-Community supply process covering VAT ID, EC Sales List, proof of arrival, and collection cases:
→ Intra-Community Supplies in the Automotive Trade Under Section 6a: VAT, Evidence, and EC Sales List

Option A: Waive Section 25a and Make a VAT-Exempt Intra-Community Supply

The German dealer sells at a “net” price as a VAT-exempt intra-Community supply.

  • Benefit for the German seller: no VAT is due on the sale, so the gross margin is retained in full commercially.
  • Drawback for the EU buyer: the vehicle generally becomes a standard-tax vehicle for the buyer. An intra-Community acquisition occurs in the destination country, and the margin scheme is often no longer available for the later retail sale.

Consequence: When reselling to a consumer, the EU dealer often must apply the country’s VAT rate, such as 20% to 27%, to the entire sales price. This can make the vehicle commercially unattractive in the destination market.

Option B: Apply Section 25a to the Sale

The German dealer applies the margin scheme and does not disclose VAT separately.

  • Drawback for the German seller: VAT is included within the margin, reducing profit compared with Option A.
  • Benefit for the EU buyer: the buyer can often resell the vehicle under the margin scheme in the destination country. The retail price remains more stable.

Strategy note: Professional EU buyers focused on retail sales sometimes reject Option A, the intra-Community supply, or accept it only with a price reduction. Resolve this conflict before signing the contract.

Note: Details may differ by destination country and individual circumstances. Obtain tax advice for a specific case.

Requirements: When May the Margin Scheme Be Applied?

Eligibility for the margin scheme depends on the status of the purchase.

  1. Reseller status: the business trades commercially.
  2. Supply within the EU territory: the vehicle was purchased in Germany or another EU country, not imported from a third country for purposes of this overview.
  3. Purchase without input VAT deduction:
    • purchased from a private individual
    • purchased from a small business under Section 19 UStG
    • purchased from a dealer who already applied Section 25a

Practical guidance: If you are unsure whether Section 25a applies to the specific purchase type, use the
→ Margin Scheme Check

Warning: If the purchase invoice separately discloses VAT, such as for a company car or a returned lease vehicle with disclosed VAT, Section 25a generally does not apply.

Calculation: How Do You Determine VAT for Each Individual Vehicle?

In the car trade, the individual margin is generally calculated for each vehicle. Losses may not be offset against the profits from other vehicles.

Formula:

  1. Gross margin = gross sales price minus gross purchase price
  2. Taxable amount, net = gross margin / 1.19
  3. VAT portion = gross margin minus taxable amount

Important: Repair costs do not increase the purchase price. They are business expenses and do not alter the taxable amount under the margin scheme.

Practical guidance: To account cleanly for both the margin and costs such as detailing, transport, and listings, use the
→ Section 25a Margin Calculator

Obligations: What Do German Tax Authorities Require for Invoices and GoBD?

An invoice error can be expensive, including because of the risks under Section 14c UStG.

Required Information When Applying Section 25a

  • A reference to the special arrangement, such as
    ”Margin scheme taxation under Section 25a UStG” or “Special arrangement for second-hand goods”

Prohibited When Applying Section 25a

  • no separate disclosure of VAT, either as 19% or as an amount
  • no reference to a “VAT-exempt intra-Community supply” if Section 25a is actually applied
    For practical guidance and a checklist, see the intra-Community supply guide.

GoBD Documentation

At minimum, the following must be traceable for every vehicle:

  • purchase, including status and document
  • sale, including the invoice
  • calculation of the margin and margin scheme tax
  • assignment to the VIN

Vehicle Trade Register: Why Section 25a Is Practically Incomplete Without Individual Records

Anyone who applies Section 25a UStG must record the sales price, purchase price, and taxable amount separately for each item. In the vehicle trade, this effectively requires a VIN-based vehicle trade register. The purchase, sale, margin, and tax treatment must be brought together for each vehicle in a form that an auditor can verify.

Importantly, these special records do not necessarily need to be maintained in an isolated “extra file.” It is sufficient if the information can be derived cleanly from the accounting records and the Section 25a records can be separated from the other records.

A violation of these recordkeeping obligations does not automatically eliminate eligibility for the margin scheme. In practice, however, it substantially increases the risk of questions, estimates, and problems during a tax audit.
→ Deep dive: Vehicle Trade Register in the Car Trade: Requirements, Content, Structure, and Audit Mistakes

Practical solution: Systems that connect purchase type, invoice logic, and documentation consistently reduce manual errors. For example, when a purchase is marked “Section 25a,” Autaxo automatically prevents separate VAT disclosure and keeps the margin logic traceable within the transaction.

Internal links:

  • Section 25a feature: /en/features/margin-scheme-taxation/
  • Tool, Margin Scheme Check: /en/tools/margin-scheme-check/
  • Tool, Section 25a Margin Calculator: /en/tools/margin-calculator/
  • Accounting / DATEV: /en/features/accounting-datev/
  • Downloads / templates: /en/downloads/
  • E-invoicing / archive, including XML retention: E-Invoicing from 2025 Guide

FAQ About Margin Scheme Taxation

Can input VAT be deducted for vehicles taxed under the margin scheme?
No. Without separately disclosed VAT on the purchase, there is no basis for an input VAT deduction.

What happens if the margin is negative?
If the sales price is lower than the purchase price, the taxable amount is €0. No VAT is due, and no negative tax is refunded.

May accessories such as winter tires be taxed under the margin scheme?
If accessories are sold together with the vehicle as a single supply, they may share its tax treatment. A separate sale is often subject to standard VAT treatment. The result depends on the individual case.

Is a vehicle trade register mandatory under Section 25a?
Anyone applying Section 25a has special recordkeeping obligations for each item. In the vehicle trade, these audit-ready individual records are often called a Kfz-Handelsbuch, or vehicle trade register. The decisive point is that the sales price, purchase price, and taxable amount are recorded traceably for each vehicle and can be separated from the other records.
For a detailed explanation, see the Vehicle Trade Register in the Car Trade.

Why do some dealers reject a “net invoice” for an intra-Community supply?
Because the vehicle may lose eligibility for the margin scheme when it is resold to a consumer in the destination market. This is the EU dilemma.
For a detailed explanation, see Intra-Community Supplies Under Section 6a.

Checklist: An Audit-Ready Sale

  • ☐ Check the purchase: was it definitely from a private individual, small business, or Section 25a dealer? Review the documents and purchase agreement.
    → Quick test: Margin Scheme Check
  • ☐ Validate the margin: sales price minus purchase price, VAT portion, and the effect of detailing, transport, and listing costs.
    → Section 25a Margin Calculator
  • ☐ Maintain system data: confirm that the “Section 25a” attribute is set correctly.
  • ☐ Vehicle trade register / individual record: maintain the sales price, purchase price, and taxable amount traceably for each VIN.
    → Deep dive: Vehicle Trade Register in the Car Trade
  • ☐ EU strategy: agree in advance on an intra-Community supply at a net price versus a gross margin-scheme sale, and adjust the price if necessary.
  • ☐ Invoice: do not disclose VAT separately, and include the Section 25a note.
  • ☐ File: archive the purchase document and margin calculation under the VIN in accordance with GoBD. See the GoBD audit focus.

German laws and standards:

EU context:

  • EU VAT Directive 2006/112/EC: the EU VAT system directive, including the general system of taxation and special arrangements for used goods and intra-Community supplies.

Practical note: The assessment of a particular case, especially an EU transaction or the wording of a contract and invoice, depends on the circumstances, including business-to-business versus business-to-consumer status, the supply chain, evidence, and destination country.

Note: This article provides general information and does not replace tax advice for an individual case.

Put it into practice with Autaxo

§25a tax logic in the DMS Automated case checks, margin calculations, and the vehicle trade register Pricing and free trial Autaxo ONE: €49/month, cancel monthly
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