Margin Scheme Taxation

The margin scheme is a special VAT arrangement for the resale of second-hand goods, works of art, antiques and collectors' items. In the precious-metals trade it plays an important role above all in the purchase and resale of silver coins, collector coins and non-VAT-exempt scrap-silver items. Instead of charging the full VAT on the gross selling price, tax is charged only on the margin — the difference between the purchase and selling price.

Note: This article provides general information and does not replace individual tax advice. Please consult a qualified tax adviser for specific questions.

The scheme under Maltese and EU VAT law

In Malta VAT is governed by the VAT Act (Chapter 406 of the Laws of Malta), which transposes the EU VAT Directive (2006/112/EC). The margin scheme for second-hand goods, works of art, collectors' items and antiques derives from Articles 311 et seq. of that Directive. A dealer may apply the margin scheme only where the following conditions are met:

1. The dealer is a taxable reseller who acquires goods in the course of business for resale.
2. The item was acquired from a private person, a person not entitled to deduct input VAT, or another margin-scheme dealer — i.e. where no deductible VAT was charged on purchase.
3. It is a movable tangible item (e.g. coins, jewellery, bars traded as second-hand goods — not new goods).
4. The item was acquired within Malta or the EU.

If regular VAT was charged on the purchase (for example, when buying from another VAT-registered dealer with a full tax invoice), the margin scheme is excluded.

The formula: tax only on the margin

Taxable amount = selling price − purchase price (= trading margin)
VAT            = taxable amount × 18 % (Malta standard rate)

Important: the margin is a gross margin — the VAT is already contained within it. The correct extraction is:

VAT portion = trading margin × (18 / 118)
Net margin  = trading margin × (100 / 118)

If the margin is negative (selling price < purchase price), there is no VAT liability — and no right to a refund either.

Comparison: standard VAT vs. margin scheme

Significance for the precious-metals trade

Silver coins and collector coins

Unlike investment gold, silver is subject to the full VAT rate of 18 % in Malta. When buying from private persons (e.g. inherited pieces, old collector coins), a commercial dealer can therefore use the margin scheme: they pay no VAT on the entire resale price, only on their margin. This considerably reduces the effective tax burden and enables more competitive purchase prices.

Effect on the final consumer

Because a dealer applying the margin scheme may not show VAT separately, the buyer in turn cannot deduct input VAT. For private persons this is irrelevant; for businesses (e.g. jewellers acquiring collector coins as trading goods), standard VAT may be more advantageous.

Global margin (simplified) scheme

For items with a low purchase price, the dealer may optionally apply a global margin approach: instead of accounting for each sale individually, the total of all selling prices is offset against the total of all purchase prices for a tax period. This simplification reduces the record-keeping burden in small-scale day-to-day business. If a period yields a negative overall balance, this leads neither to a tax refund nor can it be carried over into other periods.

Distinction: investment gold and investment silver

Investment gold — gold bars of fineness at least 995‰ and gold coins of fineness at least 900‰ that meet the statutory criteria — is fully exempt from VAT in Malta under Directive 2006/112/EC (the EU investment-gold exemption, transposed into the Maltese VAT Act). The margin scheme does not come into play here at all. For the purchase of scrap gold or dental gold by refiners, separate rules may apply (reverse charge for certain supplies).

For investment silver there is no comparable exemption; here the margin scheme is the most important instrument for tax optimisation in the secondary market. Use our Tax Estimator and the silver price to gauge the effective tax burden for your specific plans.

Note on Maltese capital gains

Separately from VAT, Malta levies no capital gains tax on the private disposal of movable assets such as precious metals. Maltese capital gains tax under the Income Tax Act applies only to specific assets — chiefly immovable property, securities and business/partnership interests — and not to bars or coins held privately. There is no German-style speculation or holding period. Business or trading activity is, however, taxable as ordinary income.

Obligations and documentation

Dealers applying the margin scheme must:

• Keep purchase records in full (private persons issue no invoice → a self-billing/purchase voucher is required).
• Show no VAT on the outgoing invoice and include a reference such as "Margin scheme — second-hand goods".
• Keep separate records for margin-scheme and standard-rated supplies.
• Enter the taxable amount (net margin), not the turnover, on the VAT return.

Breaches — such as unauthorised application or missing markings on invoices — can lead to a claim for the full standard VAT.

In brief

The margin scheme is a central tax instrument for commercial precious-metal and coin dealers when buying from private sellers: only the trading margin is taxed, not the full selling price — which makes the secondary market for silver coins and collectors' pieces economically viable. Nothing changes for private sellers; for businesses as buyers, however, the input-VAT deduction is lost.