VAT on Second-Hand Goods in Cyprus: The Margin Scheme

What is the VAT margin scheme for second-hand goods?

The VAT margin scheme allows eligible dealers in second-hand goods to calculate VAT only on the difference between their purchase price and sale price — their profit margin — rather than on the full sale price. The scheme recognises that second-hand goods have already been subject to VAT when first sold new and that taxing the full sale price again would result in double taxation. By taxing only the margin the scheme creates a fair VAT treatment for dealers while ensuring VAT is collected on the value added by the dealer.

Who can use the margin scheme?

The margin scheme is available to VAT-registered dealers who buy and sell second-hand goods, works of art, antiques and collectibles. The key condition is that the goods must have been purchased without VAT being charged — typically from a private individual, a non-VAT registered seller, or another dealer who also used the margin scheme. If you paid VAT on the purchase and received a VAT invoice you cannot use the margin scheme on those goods — you must use standard VAT accounting, but you can reclaim the input VAT.

Goods that qualify for the margin scheme

• Second-hand motor vehicles purchased from private sellers
• Second-hand furniture and household goods
• Second-hand electronics and electrical equipment
• Second-hand jewellery and watches
• Second-hand clothing and accessories
• Original works of art by living artists or their estates
• Antiques — items over 100 years old
• Collectibles — stamps, coins, medals, postcards
• Second-hand books and printed materials

How to calculate VAT on the margin

The margin is the difference between the sale price and the purchase price. VAT is calculated on the margin using the VAT fraction — multiply the margin by 19/119 for standard rate goods. This gives the VAT inclusive in the sale price. The dealer does not add VAT on top of the sale price — the VAT is included within the sale price. This is why margin scheme invoices do not show a separate VAT amount.

Global accounting method

Instead of calculating the margin on each individual item dealers can use the global accounting method — pooling all margin scheme purchases and sales within a VAT period and calculating the margin on the net position. Total sales value minus total purchase value for the period equals the global margin. This is simpler for dealers with high volumes of low-value items but means you cannot identify per-item margins. If the global calculation produces a negative margin — purchases exceed sales in the period — no VAT is due but you cannot carry the negative margin forward to offset future periods.

Record keeping requirements for the margin scheme

• Stock purchase book — every item, purchase date, seller name and address, purchase price
• Sales record — every item, sale date, sale price
• Margin calculation — per item or global method, applied consistently
• Purchase receipts or invoices — retained for every item
• Separate records for margin scheme stock and any standard VAT stock
• Records retained for 6 years minimum

Margin scheme invoices — what to show

Invoices for margin scheme supplies must not show a VAT amount. They should show the total sale price only. Including a VAT breakdown on a margin scheme invoice is incorrect — it would allow the customer to reclaim VAT they have not actually been charged, which constitutes a false VAT claim. The invoice should ideally note that the goods are sold under the margin scheme, though this is not always mandatory in practice.