In a rapidly growing refurbished market, the VAT on margin remains a little-known but central fiscal mechanism. Designed to prevent double taxation on second-hand products, this regime supports the local circular economy when correctly applied. 

In this article, Recommerce offers an educational perspective on the rules, risks, and best practices surrounding this key system.

What is VAT on margin? 

VAT on margin scheme is a specific tax regime introduced at the European level by Directive 2006/112/EC. It applies to second-hand goods and aims to avoid double taxation on products that have already been taxed when initially placed on the market. VAT on margin is only applied to the margin made by the reseller, i.e., the difference between the purchase price and the resale price.

For example, if a smartphone is bought for €120 and resold refurbished for €200, VAT is only applied to the €80 margin. At the standard rate of 20%, this means an effective VAT of €16, or 8% of the final price.

This mechanism, already used in sectors like real estate, used cars, or specialized retailers, is a key fiscal lever for structuring a sustainable local circular economy, as it:

• Encourages professionals to buyback locally from individuals, thus supporting their purchasing power.

• Promotes traceability of product flows (invoices, product origin, IMEI number, etc.), especially during tax audits.

• Ensures tax fairness while encouraging reuse.

Conditions for Applying VAT on margin

It is essential to remember that Margin on VAT is not applied automatically. Several conditions must be met for it to be applied:

• The product must have been purchased from an individual or from a non-VAT liable entity.

• The product must have been acquired within the European Union.

• The product must be traceable (origin, IMEI number, purchase invoice), especially in the case of a tax audit.

If these conditions are not met, the product must be subject to the regular VAT regime on the full sale price.

Example : 

Eligible for Margin VAT: A smartphone bought from a French individual through a buyback program operated by a telecom operator or company, then refurbished and resold in Germany.

Not eligible for Margin VAT: A phone purchased from a non-EU supplier and resold to an individual within the European Union. 

→ Regular VAT must be applied to the product sale. 

VAT Fraud

While the Margin VAT regime is inherently virtuous, its incorrect application leads to significant deviations. In the context of strong growth in the refurbished market and pressure on prices, some players bypass tax rules, creating unfair competition that harms companies complying with the legal framework.

Examples include:

• Products imported from third-party countries (non-EU) sold under the Margin VAT regime, when they should be subject to regular VAT to pay less tax.

• “Dumping” practices with aggressive low prices that do not reflect the real costs of a local refurbisher complying with regulations.

Severe impact on the market and virtuous local players.

These deviations have a real economic and competitive impact:

• Compliant players are disadvantaged by aggressive offers made possible by non-compliant tax savings.

• End consumers lose trust, facing confusing price discrepancies and sometimes non-compliant products.

• The overall image of the sector can be tarnished.

For instance, VAT fraud results in a loss of over €90 billion annually for EU member states. In the refurbished sector, the EPPO revealed in 2024 VAT fraud of €19 million involving a single actor across six European countries.

Regulating Practices to Secure the Margin VAT Regime

What Buyers, Marketplaces, and Retailers Must Check

To limit risks and ensure compliant purchases, various actors in the value chain have a role to play, especially when offered prices seem very low. Here are the essential checks:

• Verify the origin of the product: The product must come from an individual or a non-VAT liable entity within the EU. A phone imported from the US or China cannot benefit from the Margin VAT regime.

• Ensure the CE mark is present: It is a regulatory requirement but also an indicator of compliance and European origin.

• Initial purchase invoice: This helps trace the first resale point and verify that VAT has not already been applied.

• IMEI or serial number: Essential for uniquely identifying the device and preventing cross-fraud

• Clear indication of the VAT regime applied on the resale invoice: Whether it's Margin VAT or regular VAT, this should be explicitly stated.

Why Traceability is Essential

Given the observed deviations, product traceability is a necessary tool to ensure the correct application of the Margin VAT regime.

More than just a compliance tool, it becomes a concrete response to issues of unfair competition, consumer transparency, and actor reliability.

Traceability provides the necessary elements to:

• Confirm the origin of the product (EU or non-EU),

• Document the steps in the product’s return and refurbishment process,

• Demonstrate that the conditions for Margin VAT eligibility are met.

It also protects buyers and distributors, especially in the case of a tax audit or disputes with consumers.

Best Practices in the Sector

To secure the sector, common standards are beginning to take hold, driven by committed actors. Some of the best practices include:

• Providing complete invoices at each stage of the chain (buyback, refurbishment, resale),

• Structuring product databases around unique identifiers (IMEI, serial number),

• Automating the declaration of tax regimes within information systems,

• Training sales and purchasing teams to recognize eligibility conditions.

Towards a Healthier Market: The Role of Committed Actors

In a market undergoing structuring, companies that comply with tax rules and invest in transparency play a crucial role in professionalizing the sector.

Recommerce fits into this logic as a historic player in refurbishment in France and Europe.

Recommerce: Expertise, Compliance, and Exemplarity

A pioneer of refurbished products in France and Europe, Recommerce rigorously applies the Margin VAT regime, strictly adhering to its legal eligibility conditions. The entire process of buyback, refurbishment, and resale is structured to ensure perfect traceability. Each product is associated with a unique identity (IMEI number, original invoice, VAT status), and flows are documented at every stage.

Recommerce also relies on a refurbishment chain operated with certified partners, meeting the most stringent industry standards (ISO 9001, ISO 14001, ISO 27001, RECQ Label). Through this commitment to compliance and transparency, the company not only protects its customers but also helps elevate industry standards.

A Role as an Educator in the Market

Beyond its own practices, Recommerce is actively engaged in educating and supporting the sector. Given the specific nature of the Margin VAT regime, which is often misunderstood or misapplied, it is essential to share best practices.

To help actors better understand legal obligations in the refurbishment sector, Recommerce Group, in collaboration with CMS Francis Lefebvre, has published its Legal Guide to Refurbishment, available on our website.

When properly applied, Margin VAT is a powerful tool for circularity, local competitiveness, and tax fairness. However, it requires a high level of mastery and transparency, which all actors in the value chain—suppliers, refurbishers, distributors, and resale platforms—must ensure.