What is VAT?

France was one of the first countries to introduce an indirect tax system. Following a major tax reform beginning in 1966, Value Added Tax (VAT) or Taxe sur la Valeur Ajoutée (TVA) was introduced in 1968 in France applicable to all business transactions.

The authority responsible for VAT is the Ministry of Economic Affairs and Finance (Ministère des Finances et des Comptes publics), including the Junior Minister for Budget and Public Accounts (secrétaire d’Etat au Budget).

 

Most services and products sold in France are subject to value-added tax (VAT), an indirect tax paid to the French National Treasury. Depending on the particular goods or services, VAT rates can vary from 2.1% to 20%.

Direct taxes, such as income tax or tax on property, are transferred from taxpayers directly to the state. Indirect taxes like VAT, on the other hand, are collected by companies and then passed on to the tax authorities.

 

Every year, VAT brings in billions of euros to the French state. What’s more, according to the Ministry of the Economy, it accounts for almost half of France’s tax revenue. That’s almost double the amount generated by income tax, which accounts for less than a quarter of the state’s tax revenue in France.

 

VAT rate

Goods sold and services rendered in France are subject to VAT. The standard rate of VAT is 20%. Sales of certain kinds of medicine and delivery personnel are subject to a 10% value-added tax. The 5.5 per cent VAT reduction rate applies to food, gas and electricity subscriptions (in some cases), the sale of books and products and services provided to persons with disabilities. Other specific sales and services are subject to 2.1% VAT (e.g., medicines reimbursed by social insurance). Goods provided outside France to foreign customers and certain specific services are exempt from VAT in principle. While France follows the EU's VAT compliance rules, it is still free to set its own VAT standards (caps). The only constraint is above 15%.

The current exchange rate is

Rate	Type	Which goods or services
20%	Standard	All other taxable goods and services
10%	Reduced	Some foodstuffs; certain non-alcoholic beverages; some pharmaceutical products; domestic passenger transport; intra-community and international road (some exceptions) and inland waterways transport; admission to some cultural services ;admission to amusement parks (with cultural aspect); pay/cable TV; some renovation and repairs of private dwellings; some cleaning in private households; some agricultural supplies; hotel accommodation; restaurants (excluding alcoholic beverages); some domestic waste collection; certain domestic care services; firewood; take away food; bars, cafes and nightclubs (except supply of alcoholic beverages); cut flowers and plants for decorative use; writers and composers etc; some social housing; some works of art, collectors items and antiques
5.5%	Reduced	Some foodstuffs; some non-alcoholic beverages; school canteens; water supplies, medical equipment for disabled persons; books (excluding those with pornographic or violent content); some e-books; admission to certain cultural events; some social housing; some renovation and repair of private dwellings; admission to sports events; some domestic care services; cut flowers and plants for food production; sanitary protection for women
2.1%	Reduced	Some pharmaceutical products; some newspapers and periodicals; public television licence fees; admission to certain cultural events; some livestock intended for use as foodstuff
0%	Zero	Intra-community and international transport (excluding road and inland waterways)

 

French VAT registration

What are the French VAT registration thresholds?

For foreign businesses trading in France that are VAT/GST/Tax registered in their home state, the VAT registration threshold is nil.

For EU VAT-registered companies selling goods over the internet to consumers in France (distance selling), the VAT registration threshold is €35,000 per annum since January 2016.

 

Is a French fiscal representative or agent required?

In accordance with the EU VAT Directives, a local French fiscal representative or agent is not required by a company resident in another EU member state.   However, a fiscal representative, who is jointly liable for the French VAT, is required for non-EU companies.

 

What information is required to get a French VAT number and registration?

The French tax office will require the appropriate forms to be completed and submitted with the following documentation:

1.  VAT certificate to prove the business is registered for VAT elsewhere in the EU, if appropriate.
2.  Articles of Association.
3.  An extract from the company’s national trade register.

 

What is a VAT number?

 All companies that are subject to VAT have a dedicated VAT number, which is provided by the tax authority when the company is registered. The VAT number is a tax identifier and must be included on all the company’s invoices, statements, and tax returns.

 

Tip: The European Union has a dedicated service that you can use to verify a company’s VAT number. This is especially important for freelancers and self-employed people who work with international clients, because special rules apply to how VAT is collected across EU countries.

 

How does VAT work?

Companies collect VAT when they sell products or services, and the amount is later paid to the French tax authorities.

VAT can be charged at different stages. This could be when the product or service is paid for, on delivery, or on the 15th of the month.   Real estate sales are a special case and VAT can be charged on the date that the authenticated deed is signed.

The filing frequency of VAT returns is monthly for businesses with an annual turnover above €818,000 (for goods) or €247,000 ( for services).   In case the turnover is below these thresholds, the filing frequency can be yearly.

Furthermore, if the annual VAT due is less than €4,000 per year, the filing frequency might be quarterly.

 

How do I claim back VAT?

Any VAT that you collect must be declared to the tax authorities.   Companies that are subject to VAT can take advantage of the VAT deduction system by submitting a request along with their VAT declaration.   If you made business purchases that had VAT applied, you can deduct it from your own VAT payment.   Sometimes, the deduction might even exceed the amount that you owe.   In that case, it’s possible to get a VAT rebate or to put the amount towards a future payment.

 

Who pays VAT?

 Value-added tax is paid by the end consumer—the person who purchases a product in a store or pays for a service—to the company, store, or service provider. The company then pays the VAT to the French National Treasury. Again, the VAT rate depends on the specific product or service, and different rates will apply to various products, even if you purchase them all at the same time.

 

How is VAT calculated?

 VAT is added onto the net cost of a product or service, according to the applicable rate.

 

To calculate VAT, use the following formulas:

Price excluding VAT plus the applicable VAT rate

Price including VAT minus the applicable VAT rate

 These formulas will allow you to figure out the VAT for a product or service, either before or after the VAT has been added.

 

How often are French VAT returns required?

The thresholds for VAT reporting periods in France are as follows:

 

1.Monthly VAT returns – all VAT-registered entities will start with monthly filing unless they fall under the rules of a special scheme

2.Quarterly VAT returns – Going forward if the annual VAT liability is under €4,000 then filing periods may be reduced

3.No VAT return – for certain industries and activities, reporting can be on an activity-only basis

However, in practise the tax authorities will apply their judgement. For example, most conference organisers will be on a no-activity basis. The provision of services has lower VAT return thresholds.

 

What French VAT can be deducted?

Companies registered in France, and charging French VAT, may offset the VAT output on sales with the VAT suffered on French supplies. This includes VAT charged on the import of goods. Examples of VAT deductions include:

1.Accommodation and travel for clients (employee expenses non-deductible)

2.Business gifts below €60

3.Advertising

4.Import VAT

5.VAT on the purchase of goods for resale

6.VAT on capital expenditure

 

How are French VAT credits recovered?

If there is a surplus of VAT inputs over outputs (more VAT incurred than charged), then a French VAT credit arises. This is generally rolled over to the following month for offset against any output VAT due. It is possible to apply for a French VAT credit by completing submitting a form with supporting invoices.

 

French VAT Compliance

Once registered for French VAT, you will have to start following the local rules in a number of aspects. This includes:

1.Issuing invoices with the disclosure details outlined in the French VAT Act.

2.Electronic invoices with proper signature, authenticity and agreement by the recipient.

3.Maintenance of accounts and records, which must be held for at least 10 years.

4.Correct invoicing of customers for goods or services in accordance with the French time of supply VAT rules.

5.Processing of credit notes and other corrections.

6.Use of approved foreign currency rates.

 

French invoice requirements

Invoices must contain at least the following basic information:

1.Date of issuance

2.A unique, sequential number

3.VAT number of the supplier

4.Full address of the supplier and customer

5.Full description of the goods or services provided

6.Details of quantities of goods, if applicable

7.Unit prices, if applicable

8.A date of the supply if different from the invoice date

9.The net, taxable value of the supply

10.The VAT rate(s) applied, and the amount of VAT broken out by rate

11.The gross, total amount of the invoice

 

 

It is possible for suppliers to issue one collective invoice for a number of supplies if the following conditions are met:

1.Several supplies to the same client are made during the same month;

2.The supplier issues a sequentially numbered document for each supply showing the name and address of the customer, the date of the supply, the quantity and the nature of the goods or services supplied; and

3.Both the supplier and the customer keep one copy of this document in their books