The general principles of VAT are identical in all the countries of the European Economic Community. On the other hand, when carrying out an economic activity in France, it is important to know the main rules specific to the country.
We will indicate below some concepts of French tax law relating to:
- Taxable and exempt transactions;
- The tax base and the main VAT rates;
- French tax regimes;
- VAT refund;
- Intra-community VAT;
- The information that must appear on invoices only with regard to VAT.
These few concepts may lead you to question yourself, you can then contact us on this subject!
I - TAXABLE AND EXEMPT TRANSACTIONS
Must be subject to this tax transactions:
- Which constitute a supply of goods, a supply of services or an intra-Community acquisition;
- Are carried out by persons liable to VAT;
- Constitute an independent and usual economic activity.
However, certain transactions which fall within the scope of VAT are exempt.
Unless otherwise provided by law (exports for example), the exemption entails the loss of the right to deduct the tax which encumbered the elements of the price of the transaction carried out.
The main cases of exemption are as follows:
- Transactions exempted under domestic regime, this mainly concerns:
- Exemptions tending to avoid double taxation (transactions subject to registration fees, gambling taxes, etc.);
- Exemption from deliveries of used goods by their users;
- Exemptions relating to the exercise of medical and paramedical professions, education and ancillary operations;
- Exemptions from which public utility organizations may benefit;
- Exemptions from services rendered to their members by certain groups;
- The exemption of certain real estate rentals;
- Exemptions from banking activities.
- Intra-community trade;
- Certain operations carried out on importation;
- Exports and operations assimilated to exports.
II - TAX BASE AND THE MAIN VAT RATES
- Tax base
The tax base is made up, for the supply of goods, the provision of services and intra-Community acquisitions, by all the sums, securities, goods or services received or to be received by the supplier or the service provider in return for these transactions, from the part of the buyer or a third party, including subsidies directly linked to the price of these operations.
Must be included in the tax base:
- Taxes and duties with the exception of VAT itself;
- Costs incidental to deliveries or services (commissions, packaging costs, transport, insurance, etc.).
On the other hand, discounts and rebates must be subtracted from the taxable price when they are contractually agreed by the supplier.
- Main rates applied in continental France
- 2.1% for medicines reimbursable by social security, press releases, sale of live animals for slaughter to persons non subject to this tax, 140 first performances of theaters or circuses;
- 5.5% for products of first necessity and operations having a social utility: this includes food, gas and electricity subscriptions, equipment and services for the elderly and the disabled, supply of heat produced by renewable energies, social housing, work to improve the energy quality of housing, deliveries of works of art made by their author books;
- 10% mainly for the following operations: Passenger transport, accommodation, furnished rentals or classified camping, certain renovation and maintenance work on housing, restaurants, non-refundable medicines, entrance fees to cinemas, fairgrounds, museums, zoos, cultural sites, exhibitions, etc.
- The 20% rate applies to products or transactions that are not subject to 5.5 or 10% rate: all products or services that are not regulated by specific VAT rates are affected by this rate.
III - THE FRENCH TAX REGIMES
Companies whose annual turnover does not exceed certain thresholds are entitled to the exemption which exempts them from the payment of this tax. However, these contractors may opt for VAT.
The annual threshold amounts for the years 2020 to 2022 are as follows:
- Sales activities and provision of accommodation: € 85,800 for year N-1 or € 94,300 if turnover N-2 does not exceed € 85,800;
- Service provision activities: € 34,400 in year N-1 or € 36,500 if turnover N-2 does not exceed € 34,400.
The franchise regime has numerous consequences at the level of the company, particularly as regards the non-recovery of VAT on investments. It is therefore extremely important to discuss with an English-speaking accountant who may be able eventually to opt for a VAT tax regime.
- “Régime du réel simplifié”
This scheme applies to companies whose annual turnover ranges from € 85 800 to € 818 000 for sales activities and from € 34 400 to € 247 000 for service activities. These thresholds are valid for the years 2020 to 2022.
The companies covered by this scheme must pay two installments during the year, a first installment in July representing 55% of the VAT due for the previous year before deduction of VAT on fixed assets, and a second in December representing 40%. The taxpayer is exempted from an advance payment if the amount of VAT due for the preceding financial year is less than € 1000.
At the time of the filing of the annual accounts, the total amount of VAT due for the whole year is calculated precisely and the amount of the two installments paid is deducted from the amount due.
- “Régime du réel normal”
Companies whose turnover in the previous year exceeds € 818 000 for sales activities or € 247 000 for service providers are compulsorily subject to this regime. In this case the taxpayer must declare and pay monthly VAT.
IV - VAT REFUND
When the amount of VAT to be deducted is greater than the amount of VAT collected, the business receives a VAT credit. The company then has a tax claim on the Treasury.
There are therefore two options available to the company:
- Carry forward the VAT credit to the following tax periods;
- Request reimbursement of all or part of the VAT credit on condition that certain thresholds are respected.
VAT credit refund modes
- Companies under the real normal regime and which make a monthly or quarterly VAT return can request a refund of their VAT credit if it exceeds € 760.
Those whose amount of VAT payable during the year is less than € 15,000 and who prepare their VAT return annually have the option of requesting reimbursement of their VAT credit for a minimum amount of € 150.
- Companies subject to the real simplified regime can make an annual VAT return in May, then pay their VAT deposit every six months (in July and December). In this case, they can request a refund of VAT if it reaches the minimum threshold of € 150.
It is possible to request the reimbursement of the VAT credit at the time of payment of one of the two half-yearly VAT installments provided that the reimbursement request is at least equal to € 760 and that the refundable VAT comes from the acquisition of goods constituting fixed assets.
The reimbursement request formalities
Companies under the actual normal tax regime must have their intra-community VAT number, donwload and complete the special form n°3519-SD and attach it to the VAT return n°3310.
Companies under the real simplified tax regime must request the refund of VAT credit when filing the annual VAT return on form 3517-SD.
V - INTRA-COMMUNITY VAT
- Intracommunity deliveries
These are deliveries of movable goods shipped or transported from France to another member state of the E.E.C. These deliveries are exempt under four conditions:
- Delivery is made against payment;
- The seller is subject to VAT in France;
- The goods are shipped outside France to a member state of the E.E.C.;
- The purchaser is subject to VAT.
- Intra-Community acquisitions
This is the acquisition of a movable property shipped or carried by the vendor or the purchaser or by a third party on their behalf, from a member state of the E.E.C. to the acquirer in France. Under these conditions VAT is paid by the purchaser which must declare the amount on its VAT return (CA3 form) and immediately recover the same amount of VAT on the same declaration except of course if the VAT on the property acquired is not recoverable.
- General principle for the taxation of services
Only the general principle is explained in this article, but it should be made clear that there are many exceptions.
The services provided in France to taxable persons for VAT in France (Business to Business) is taxable in France. The beneficiary of the service, established in France, must proceed with the self-liquidation of VAT. The method for self-liquidation is identical to that described for intra-community acquisitions.
- Services provided to a non-taxable persons
VAT is taxable in France only if the provider is established in France or has an establishment or its domicile in France (except distance selling).
For more detailed information you can consult our articles on our website entitled:
VI - THE INFORMATION THAT MUST APPEAR ON INVOICES ONLY WITH REGARD TO VAT
Here is the main information that must appear on the invoices. It is specified that this list includes the most common mentions but it is not exhaustive.
- Name and address of client;
- Date of invoice;
- VAT identification number of the seller or service provider as well as the customer for intra-Community supplies or services;
- Bill number;
- Detailed information for each delivered good or service rendered (quantity, denomination, unit price);
- Discounts or rebates;
- Date on which the delivery of goods or the provision of services are made when it differs from that of the invoice (or the date of payment of a deposit);
- Total amount excluding taxes and amount of tax payable by tax rate;
- In case of exemption, the references of the legal text which provides for this exemption;
- The words "auto-liquidation" when the purchaser or customer is liable for VAT.
We have simply put forward general principles of VAT, there are many peculiarities.
Do not hesitate to contact one of our English speaking accountants to get more detailed information!