The differential taxation is intended to ensure that sales tax is not charged over and over again for one and the same thing if the goods have already lost value in the meantime. This is the case, for example, when a used smartphone is resold. The regulation of the difference control ensures that sales tax only has to be paid for the difference between the sales and purchase price.
In order to give you an overview of this important topic, we took a closer look at how differential tax works and what needs to be considered in practice.
What is differential taxation?
The differential taxation changes the calculation basis for sales tax when a used, movable good is resold. The procedure is such that the sales tax is not calculated from the total amount of the sales price, but only the difference between the purchase and sales price is used as the basis for calculation. This results in a significantly lower sales tax payment amount.
There are now some concrete examples or different use cases, which we will now go into in more detail.
The first prerequisite for differential taxation that entrepreneurs must consider is that no sales tax may have been incurred when purchasing the goods . That is, the object of purchase was bought by a small business or private individual who are exempt from VAT . A good example would be a used car that a dealer buys from a private person. Resellers are companies who purposefully acquire used items in order to resell them commercially.
Deliveries in Germany or within the EU
The objects concerned must be acquired in Germany or in the community . When purchasing goods from third countries, there are only a few exceptions, for which special applications are made.
Purchase without sales tax
As described above, the goods to be resold must be purchased without sales tax so that differential taxation can be applied later. It does not matter whether the purchase is made by a private individual or by a company that is exempt from sales tax . In theory, the item can also be done by another company that has also applied taxation.
If there is an intra-community acquisition , differential taxation is unfortunately not applicable. The intra-community acquisition would exist, for example, if a company from Austria sells to a company from Germany and places a corresponding note on the invoice with regard to the intra-community acquisition ( reverse charge procedure ).
Place of delivery and tax exemptions
In the case of resale, the place of delivery is to be observed, whereby this is defined in §§ 3 Paragraph 6 and 7 UstG . The differential taxation can also be used if the delivery is made from Germany to the Community area, in which case differential taxation must always be applied in Germany and the reverse charge procedure is thereby suspended. It is therefore clearly not possible to simultaneously note a reverse charge reference on the invoice and at the same time to use the option of differential taxation. All other tax exemptions continue to apply, even if differential taxation is used. However, the standard tax rate then applies.
A reverse charge invoice template is useful when you issue an invoice that does not include sales tax. In this way you can also be sure that all important data is included!
This can be explained more simply using an example: If a company in Germany buys a used item from a private person in Germany and then sells this good to a private person in another EU country, there is no tax exemption for the entrepreneur if the Differential taxation is applied. Rather, the entrepreneur in Germany has to pay the calculated, lower tax.
For the differential taxation to be applicable, it does not necessarily have to be used items. The prerequisite, however, is that the objects in question are movable objects that have lost their value in the meantime . This means that precious metals are also excluded from differential taxation. So it really has to be everyday items, whether it be a car, a smartphone or furniture.
No application of differential taxation
Differential taxation is therefore not applicable in various cases. The first requirement is that the purchase is made without sales tax . So it has to sell to a private person or a VAT-exempt company. An intra-community acquisition cannot be combined with differential taxation. Precious metals and objects that the entrepreneur himself brings into the company, for example if he has inherited these objects, are also excluded.
But enough of the theory, because with such a dry topic, the practical application can best be understood if concrete examples are available.
Apply differential taxation – this is how it works
How can differential taxation be used in practice in order not to pay unnecessary tax amounts? We have prepared some practical examples for you below.