VAT margin scheme:
the regime without a compliant purchase invoice

Article 268 of the French Tax Code allows the VAT margin scheme under two cumulative conditions: (1) the acquisition did not give rise to a right to deduct (a sale by a private individual or a sale exempt without an option by a taxable person); (2) the identity condition between the acquisition and the resale is satisfied (physical characteristics and legal qualification). Without these two conditions, VAT applies on the full price at the 20% rate.

The margin is the difference between the sale price and the acquisition price. Where the sale price is expressed inclusive of tax, VAT is calculated on an inclusive basis on the gross margin: VAT = gross margin / (1 + rate) × rate.

Worked example (20% rate): acquisition price €800,000 excl. tax, resale price €1,050,000 incl. tax; gross margin = 1,050,000 − 800,000 = €250,000; VAT due on an inclusive basis = 250,000 / 1.20 × 0.20 = €41,666.67. The net margin (excl. tax) therefore comes to €208,333.33. The precise rules for taking acquisition costs, works and charges into account are set by BOFiP BOI-TVA-IMM-10-20-10.

This is the condition laid down by the case law of the Conseil d'État for the VAT margin scheme to apply: the asset resold must have the same physical characteristics and the same legal qualification as the asset acquired. CE Promialp (27 March 2020, no. 428234) held that demolition causes a loss of identity. CE 11 October 2022 (no. 464561) clarified that, for building land detached from a built property, identity presupposes a parcel-level distinction from the initial acquisition.

There is no automatic shift to the VAT regime for new buildings: it is the legal identity of the asset, a condition of case-law origin (CE 27 March 2020 Promialp, no. 428234; CE 11 October 2022, no. 464561), that decides the outcome, not the mere scale of the works. The total or partial demolition of a built property that has been acquired, followed by the resale of the resulting building land, causes a loss of identity within the meaning of Promialp; VAT is then no longer due on the margin but on the full price. Conversely, renovation works that alter neither the physical characteristics nor the legal qualification of the asset preserve identity, and the VAT margin scheme remains applicable. Particular case: if the property dealer gives an undertaking to build within the meaning of art. 1594-0 G A of the Tax Code, the operation shifts into the new-building regime after reconstruction, with its own set of rules.

To preserve the VAT margin scheme on building land intended to be detached, the initial acquisition deed must clearly identify the separate parcels: the building land separately from the land supporting the built property. A parcel-level division subsequent to the acquisition is insufficient (CE 11 October 2022, no. 464561). This anticipation is crucial in the preliminary agreement and the deed of sale.

Three lines of defence: (1) contesting the characterisation of the loss of identity (the limited nature of the works, the absence of genuine demolition, a preserved town-planning qualification); (2) interaction with other regimes (undertaking to build if there is reconstruction, art. 257 bis if there is a transfer of a going concern); (3) negotiating the scope of the reassessment (penalties, period concerned). The defence is all the stronger where the initial notarial drafting is rigorous.

Yes, the two regimes are independent. A property dealer may benefit both from the undertaking to resell under art. 1115 of the Tax Code (exemption from registration duties, subject to resale within 5 years) and from the VAT margin scheme under art. 268. The identity condition must nonetheless be preserved for the VAT margin scheme to apply at the time of resale. See our analysis: Undertaking to resell & abuse of law.