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Insights Value Added Tax (VAT) Guidelines: France

Value Added Tax (VAT) Guidelines: France

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published on 23 March 2022

 

 

This country summary is part of the comprehensive Focus on VAT Fellows: International Value Added Tax (VAT) Guidelines »



1. VAT Scope, VAT Rates and VAT Exemptions

Generally, the following supplies would be taxable in France:
 
All forms of supplies of goods and services in general which will be provided by a taxable person acting as such for a consideration made in France are taxable. The import of goods in France from a third country (non-EU Member State) with customs clearance in France, intra-Community acquisition of goods and self-supplies in France are in principle also taxable transactions in France.
 
In order to define whether a supply will actually be classified as a taxable supply, it is necessary to take into consideration the singularities of the particular case. However, although they fall within the scope of VAT, cer­tain transactions may not be subject to French VAT, e.g. intra-Community supply of goods to another EU-country, the export of goods to third countries (territoriality VAT exemption), insurance and reinsurance oper­ations or certain banking and financial transactions (internal VAT exemption).
 
Since 1 January 2014 the main VAT rates in Metropolitan France are the following: A standard VAT rate of 20 percent, an intermediate VAT rate of 10 percent, a reduced VAT rate of 5.5 percent, and a reduced VAT rate of 2.1 percent. 
 
In respect of VAT exemptions, VAT exemptions with input VAT recovery (so-called zero rated supplies) have to be distinguished from VAT exemptions without input VAT deduction (exempt supplies).
 
Zero rated supplies are for example: Exports of goods from France to a third country, Intra-Community supplies from France to another EU Member State, extra-trade related services or international transport under certain conditions. VAT exempt supplies without input VAT deduction are for example: Services related to the practice of medical and paramedical profession, teaching services or rentals of equipped or furnished dwellings for residential use. 
 
If a business sells goods to a taxable person who is registered for VAT in another EU Member State and the sale involves the transportation of those goods from France (either by the supplier or the customer) to the EU Mem­ber State of the customer, the business does not need to charge VAT and may treat the transaction as zero-rated intra-Community supply. The supplier must indicate the customer’s VAT identification number on the invoice and should keep evidence of the goods’ transportation outside of France.
 
If a business sells goods to a customer who is not registered for VAT in another EU Member State and the sale involves the transportation of those goods by the supplier from France to another EU-Member State the sup­plier will have to charge French VAT. However, under the so-called “Distance Selling Scheme”, the supplier’s sales exceed a certain threshold applicable in the concerned EU Member State, or if the supplier waives the application of the threshold, he has to register in the EU Member State and charge local VAT of the EU Member State of arrival.
 
If a business exports goods to a customer (business or private) outside of the EU and the supplier arrange for the goods to be transported, the supplier does not need to charge VAT. The rules applicable to determine the place of supply for services have changed considerably with the implementation of the VAT Package since 1 January 2010. As a general rule, supplies of services provided by a taxable person to another taxable person for business purposes (so-called B2B services) are located at the place of business of the recipient or at the place of the fixed establishment for which the services are rendered. 
 
As a further rule, the place of supply of services provided to recipients who are non-taxable persons or do not receive such services for their business (so-called B2C services), is the place of establishment of the business providing the services. If the services are provided by a fixed establishment of the supplier, the place of the fixed establishment is the place of supply.

 

2. VAT registration and simplifications

If an entrepreneur performs taxable supplies in France, it will be required to notify the French tax authorities of the date of commencement of its taxable activities and will receive a French VAT identification number. Certain entities are not required to submit periodical VAT returns and are not liable for French VAT, for example non-taxable legal entities and small businesses. The registration rules which apply to French entities in principle also apply to non-French entities providing taxable supplies in France. However, the exemption for small enter­prises does not apply if the entity is not established in France.
 
An entrepreneur, established in another EU Member State, who is not registered for VAT in France, but sells and delivers goods to customers in France who are not VAT registered (so-called “distance selling scheme”) is required to register and account for VAT in France if the value of the sales in the EU exceeds a threshold in turnover of EUR 10,000 in the preceding or in the current year.
 
There are some simplification rules in order to avoid a registration for VAT purposes in France:
  • Reverse Charge: For several categories of supplies of goods or services a reverse charge mechanism is applicable in France. Under this mechanism, the purchaser of the supply (not the supplier) is liable for the payment of the due VAT amount. Thus, if the entrepreneur carrying out local supplies of goods or services in France is not established in France, French VAT must generally be declared and paid by the French pur­chaser or recipient of the services or the goods if the recipient is registered for VAT purposes in France.
  • OSS declaration procedure: As of 1 July 2021 in the European Union there is an optional system for the declaration and payment of VAT owed on intra-Community distance selling called One Stop Shop (OSS). Companies opting for this regime will no longer be required to register in each Member State in which they make intra-community distance sales when they exceed the single threshold of EUR 10,000, but will instead be able to pay VAT and file a single VAT return through this One Stop Shop in which all distance sales made in each EU Member State will be reported.
  • Intra-Community triangulation
  • Transfer of stocks: In case of specific import and export transactions through storehouses, a suspensive VAT regime could be granted under specific conditions.
  • Consignment stock: In case of consignment stock in France of an EU business, VAT registration in France is not necessary, if certain conditions are fulfilled, notably goods introduced in France via the consignment stock have to be sold within a maximum 12 months period.
 

3. Declaration requirements and penalty regime

Entrepreneurs liable to French VAT are required to submit VAT returns on a monthly, quarterly or annual basis (depending on the amount of VAT payable). VAT returns must be filed and paid electronically in France. The failure to declare or to pay VAT by electronic means triggers a 0.2 percent fine of the VAT amount due.
 
The obligation to file and pay VAT electronically also apply to foreign companies VAT payments by a foreign bank account is no more accepted in France unless the foreign bank do not accept SEPA direct debit.
 
In France since 1 January 2022, the single declaration called “Déclaration des échanges de biens” (DEB) no longer exists and has been replaced by a summary report of intra-EU supplies and a statistical survey on intra-EU trade of goods. Separate declaration forms must be filed for arrivals and dispatches.
 
With regard to the summary report of intra-EU supplies of goods, the reporting obligation level depends on the amount of the arrivals and dispatches of the previous calendar year (the thresholds are the same as those applicable to the former “DEB”):

​Threshold
​Arrivals
​Dispatches
​Below EUR 460,000
​No declaration
​Simplified declaration
​Beyond EUR 460,000
​Detailes declaration
​Deteiled declaration
 
With regard to the statistical survey on intra-EU trade of goods, only companies that are part of a sample de­fi­ned by the customs authorities will be subject to it. It is a monthly declaration that must be filed electronically.
 
There are no penalties for failing to register for VAT in time. However, late-payment or non-payment of the VAT may result in a late-payment interest and late-payment penalty of 5 percent of the VAT due. Failure to file a VAT return in time may result in a late payment interest and late-filing penalty of 10 percent of the VAT due.
 
Lack of VAT registration in France could in addition result in the qualification of occult activity in France in case of tax audit which would increase the statutes of limitations to 10 years (instead of 3 years). French tax law does not involve any reasonable excuses, but penalties could be avoided exceptionally upon request and depending on the individual circumstances.
 

4. VAT recovery

For an entrepreneur who is registered for VAT purposes in France, it is possible to declare and deduct France input VAT through the French VAT return via the regular tax procedure, if certain conditions are met. For an entrepreneur who is not registered for VAT purposes in France or has its permanent address, registered office, place of management or permanent (fixed) establishment outside France, it is also possible, to recover French input VAT.
 
For entrepreneurs who are established in another EU Member State, the input VAT refund can be perceived by submitting a claim via the electronic portal established by the Member State of their establishment. Entre­preneurs of non-EU countries have to form their claim via the French Tax Authorities (reciprocity is required).
 
For certain items, input VAT cannot be recovered. For example:
  • Exempt supplies (without credit): VAT relating to both taxable and exempt supplies must be apportioned.
  • Non-business (including private) activities: Where input VAT relates to both business and non-business activities, VAT is fully recoverable in some cases. However, VAT will generally be levied on the private and/or non-business use.
  • Business entertainment: VAT on gifts of an amount exceeding EUR 73 (including VAT) per recipient and per year is not recoverable. VAT on meals is fully recoverable, if expenditures are in reasonable limits.
 
VAT deductible for travelling:
  • Air travel: VAT is not deductible.
  • Rail travel: VAT is not deductible.
  • Taxi fares: VAT is not deductible.
  • Car rental: VAT is not deductible.
  • Fuel: Concerning fuel expenses under certain conditions, VAT is not deductible for petrol. VAT is deductible at a rate of 50 percent for liquefied petroleum, 80 percent for diesel and 100 percent for other fuels.
  • Car parking: VAT is not deductible. However, VAT relating to garages or parking slots owned or hired for clients or employees on the work site is deductible.
  • Hotel costs for employees: VAT is not deductible.
  • Client entertaining (services): VAT is on principle deductible, if the service is rendered in the business’ interest.
  • Client meals: VAT is deductible under certain conditions.

 

5. Invoicing

In order to be entitled to deduct French input VAT, there are some formal invoicing requirements to be fulfilled. An electronic submission of invoices is possible for both local (French) and intra-Community transactions. The recipient has to agree previously to this invoicing procedure. Specific conditions must be fulfilled: The authen­ticity of the invoice’s origin, its legibility and the integrity of its content must be guaranteed either by a qualified electronically signature, by an internal control system or by an electronic data interchange procedure (e.g. EDI).
 
Today, invoices issued by VAT taxpayers can currently be sent in paper or electronic form. However, the issuing of electronic invoices will become mandatory. This obligation will come into force gradually between 2024 and 2026. Electronic invoicing will concern all purchases and sales of goods and/or services carried out between companies established in France that are subject to VAT as long as they are domestic transactions, i.e. they concern the national territory. Therefore, this new obligation will have no impact on the taxable persons not established in France.
 
Self-billing is possible, provided the customer agrees it beforehand. If the self-billing procedure is applied, the customer issues an invoice to the supplier instead of the supplier to the customer. The invoice documents have to contain the term “Autofacturation” (“self-billing”).
  

6. Others

In France, VAT grouping is optional from 1 January 2023. Corporate groups may opt for a consolidated payment of the VAT at the level of the group under certain conditions. In that case there is only one taxable person according to French VAT law, the ultimate parent of the group.

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