VAT scope in France
Understanding VAT France Scope
The scope of VAT (Value Added Tax) in France covers a wide range of goods and services. VAT is a consumption tax applied to the sale of goods and the provision of services at each stage of the supply chain. Here are some key points regarding the VAT scope in France:
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Taxable Goods and Services: In France, most goods and services are subject to VAT, including but not limited to: Tangible goods: This includes products like electronics, clothing, furniture, vehicles, and non alcoholic canned drinks, which are packaged for postponed consumption. Intangible goods: This includes digital goods, software, e-books, online subscriptions, etc. Services: Various services, such as consulting, professional services, transportation, accommodation, entertainment, passenger transport (subject to a 10% VAT rate), international transport (certain international transport services are zero-rated), camping services (eligible for the 10% reduced VAT rate), etc., are subject to VAT. Foods and beverages intended for immediate consumption, such as those served in restaurants or catering, are subject to specific VAT rates.
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Standard VAT Rate: France has a standard VAT rate, which is the basic rate applied to most goods and services. As of my knowledge cutoff in September 2021, the standard VAT rate in France is 20%. Luxury items such as jewellery, caviar, tobacco, and cocoa based products are taxed at this standard rate.
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Reduced VAT Rates: France also applies reduced VAT rates to certain goods and services, typically at 10% or 5%. Some examples of goods and services that may be eligible for reduced rates include: Food products (excluding certain luxury items), pharmaceutical products, books and newspapers, hotel accommodation, restaurants and catering services, some energy products, some social housing services, some cultural and entertainment services, medical equipment (eligible for the 5.5% reduced VAT rate), and camping services (10%). Certain goods and services provided to disabled persons also benefit from reduced VAT rates.
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Exemptions and Zero-Rated Supplies: Certain goods and services may be exempted from VAT altogether or subject to a 0% VAT rate. Examples include exports of goods to non-EU countries, certain healthcare services, educational services, financial services, and certain international transport services. Although these supplies do not generate VAT revenue, they may have specific reporting requirements.
VAT applies to both services rendered and services sold, and the scope of VAT covers a wide range of transactions subject to VAT. Taxable persons, including any taxable person, whether a business or individual conducting economic activity, are subject to VAT obligations. The taxable amount of each transaction determines the VAT due.
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Introduction to VAT in France
Value Added Tax (VAT), known in France as Taxe sur la Valeur Ajoutée (TVA), is a key indirect tax applied to the consumption of goods and services throughout the country. The French tax authorities are responsible for collecting VAT, making it a major source of revenue for both France and the European Union as a whole.
As an EU member state, France follows the VAT framework established by the European Commission, ensuring consistency with other EU countries. Businesses operating in France must register for French VAT if their annual turnover exceeds specific thresholds set by the tax authorities.
Once registered, businesses are required to charge the appropriate VAT rate on their sales, collect the tax from customers, and remit it to the authorities. The standard VAT rate in France is 20%, but there are also reduced rates of 10% and 5.5%, as well as a super reduced rate of 2.1% for certain qualifying goods and services. Understanding the VAT regime is essential for compliance and for managing the added tax burden on business operations in France.
VAT scope in France
VAT rates and rules in France
The VAT rates applicable in France are determined by the type of goods or services being sold, and businesses must ensure they apply the correct rate when collecting VAT. The standard VAT rate is 20%, which covers most goods and services.
However, reduced rates are available for specific categories: a 10% reduced VAT rate applies to certain food products, non-alcoholic beverages, and some services, while a 5.5% reduced rate is used for essential goods such as most food products, books, and certain energy-efficient equipment.
The super reduced VAT rate of 2.1% is reserved for items like specific medicinal products and some cultural events. French tax authorities require businesses to collect VAT at the appropriate rate and remit it through regular VAT returns. In some cases, businesses may be eligible for a VAT refund on VAT paid for business-related purchases.
The VAT rules in France are harmonized with EU law, ensuring that businesses trading across borders within the European Union follow consistent procedures. Compliance with these rules is crucial for avoiding penalties and ensuring smooth business operations.
VAT registration in France
VAT exemptions and exceptions in France
Not all transactions are subject to VAT in France. There are several VAT exemptions that apply to specific goods and services. For example, exports to non-EU countries, intra-community supplies to other EU member states, and certain financial and medical transactions are VAT exempt.
Additionally, businesses with an annual turnover below a certain threshold may qualify for a VAT exemption, meaning they are not required to charge VAT on their sales. These exemptions are governed by both French law and EU directives, and they come with specific conditions and documentation requirements.
It is important for businesses to carefully review the relevant regulations to determine if their activities qualify for a VAT exemption or exception, as this can impact their VAT registration obligations and the way they file their VAT returns. Staying informed about VAT exemptions helps businesses manage their tax liabilities and avoid unnecessary compliance issues.
Digital and cross-border VAT in France
The rise of the digital economy and cross-border trade has led to new VAT challenges, prompting the French tax authorities to implement specific measures for digital and international transactions.
France has introduced a digital services tax targeting certain digital services provided by non-resident businesses, ensuring that these companies contribute to the French tax system. Additionally, France follows the EU’s VAT rules for cross-border transactions, requiring businesses to charge VAT on sales to customers in other EU member states according to the destination principle.
This means that VAT is charged based on where the customer is located, not where the seller is based. Non-resident businesses providing services in France or selling to French consumers must comply with French VAT rules, including VAT registration and regular VAT returns.
The French tax authorities provide detailed guidelines to help businesses navigate the complexities of digital and cross-border VAT, ensuring compliance with both national and EU regulations.
Local taxes and fees related to VAT
In addition to VAT, businesses operating in France may be subject to various local taxes and fees that are separate from the national VAT regime. Notable examples include the Territorial Economic Contribution (CET), which is a local business tax, and the Property Tax (Taxe foncière), which applies to property owners.
These local taxes are administered by the French tax authorities and can vary depending on the location and nature of the business. While these taxes are not directly linked to VAT, they form part of the broader French tax landscape that businesses must navigate.
It is essential for businesses to understand their obligations regarding these local taxes and fees, as non-compliance can result in penalties or additional scrutiny from the tax authorities. The French administration offers guidance and support to help businesses comply with all relevant tax regulations, including those related to VAT and local taxes.
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French VAT compliance
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VAT registration in France: Businesses meeting the threshold for VAT registration must register with the French tax authorities to obtain a VAT number.
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This enables them to charge, collect, and remit VAT on their taxable supplies.
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- VAT Rates and Invoicing: Businesses must correctly apply the appropriate VAT rates to their goods or services and issue valid VAT invoices to customers. Invoices should contain specific information required by French VAT regulations.
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- VAT returns in France: Businesses are responsible for submitting regular VAT returns to the tax authorities, reporting their VAT liabilities and input tax credits. Returns must be filed within the prescribed deadlines and reflect accurate calculations.
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- French Intrastat Reporting: If a business exceeds the threshold for intra-EU trade, they may be required to submit regular Intrastat returns. Intrastat reports provide statistical information on the movement of goods between EU member states.
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- Reverse Charge Mechanism: Businesses should understand and apply the reverse charge mechanism correctly in specific situations where the recipient is responsible for reporting and paying the VAT instead of the supplier.
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- VAT Compliance Documentation: It is important to maintain proper records and documentation to support VAT transactions, including invoices, VAT certificates, and relevant business documents.
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- Compliance with VAT Rules and Regulations: Businesses should stay updated with any changes or updates to French VAT legislation and ensure compliance with all applicable rules and regulations.
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VAT returns and refund in France
When do you need to submit a VAT return?
Monthly VAT return: When registering for VAT in France, businesses generally need to file a VAT return every month before the deadline.
Quarterly VAT return: Businesses that declared less than €4,000 in VAT the previous year can apply for quarterly VAT declarations.
Deadline to submit the French VAT return
The deadline for submitting VAT returns in France depends on the filing frequency, which can be monthly, quarterly, or annual. Here are the general deadlines for each filing frequency:
Monthly VAT Returns: The deadline for monthly VAT returns in France is typically between the 15th and 24th day of the month following the reporting period.
For example, the VAT return for the month of January would be due between February 15th and February 24th.
Quarterly VAT Returns: If you are filing quarterly VAT returns, the deadlines are as follows:
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Quarter 1 (January to March): Due between April 15th and April 24th.
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Quarter 2 (April to June): Due between July 15th and July 24th.
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Quarter 3 (July to September): Due between October 15th and October 24th.
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Quarter 4 (October to December): Due between January 15th and January 24th of the following year.
Consequences of Late VAT Return Filing
Failure to file VAT returns on time can result in penalties for foreign non-established businesses operating in France. Late submissions may lead to financial sanctions, interest charges, and potential audits by the tax authorities. Additionally, delayed VAT return filings can impact the business's reputation and create legal implications.
VAT refunds in France
VAT credits can be offset against any VAT liability that the business owes to the tax authorities. If the VAT credits exceed the VAT liability, the excess can be carried forward to future periods or refunded.
The refund application is typically submitted electronically through the dedicated online portal of the French tax authorities.
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French reverse charge
In France, the reverse charge mechanism applies to certain supplies of goods and services where the VAT liability shifts from the supplier to the customer. Under the reverse charge mechanism, the recipient of the goods or services is responsible for reporting and paying the VAT due to the French tax authorities, rather than the supplier.
The reverse charge mechanism applies to various types of transactions in France, including:
Intra-community acquisitions of goods: When a French VAT-registered business purchases goods from another EU country and imports them into France, the recipient is responsible for reporting and paying the VAT due on the transaction.
Services provided by non-established businesses: When a non-established business provides services to a French VAT-registered business, the recipient is responsible for reporting and paying the VAT due on the transaction.
Certain domestic transactions: The reverse charge mechanism may also apply to certain domestic transactions, such as the supply of goods subject to excise duty.
When a supplier established outside of France offers services or sells goods with installation to a VAT-registered entity, the domestic reverse charge mechanism is applied. The VAT registration status of the supplier does not affect the application of this mechanism.
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French consignment and call-off stock
There are two stock regimes in France:
French Consignment Stock: French consignment stock refers to a business arrangement where goods are stored by a supplier in France on behalf of a customer. In this arrangement, the supplier retains ownership of the goods until they are actually sold by the customer. The customer has the right to use or sell the goods from the consignment stock, but the VAT liability is triggered only when the goods are sold to a third party. Until the goods are sold, the supplier does not charge VAT to the customer, as the customer is not considered the owner of the goods.
Call-Off Stock: Call-off stock, also known as stock on call, refers to goods held by a supplier in France specifically for a known and identified customer. In this arrangement, the supplier transfers the goods to a designated location or warehouse in France at the customer's request. The customer has the right to take ownership and possession of the goods from the call-off stock whenever they need them. The transfer of ownership and the VAT liability occur when the customer takes possession of the goods from the stock. At that point, the customer becomes responsible for reporting and paying the VAT on the transaction.
Both consignment stock and call-off stock arrangements have specific VAT compliance requirements that businesses need to adhere to in order to ensure proper reporting and taxation of these transactions within the framework of EU VAT regulations, including the relevant rules and documentation for intra-community movements of goods.
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French intrastat/ EC sales list
French Intrastat is a reporting system used to collect statistical data on the movement of goods between France and other EU member states. The purpose of Intrastat is to provide valuable information for statistical and economic analysis within the EU.
Businesses are required to fill the French Intrastat return if they exceed specific thresholds for intra-EU trade. These thresholds are determined by the total value of goods dispatched (exports) and received (imports) between France and other EU countries within a calendar year. The thresholds may vary from year to year and are set by the French tax authorities.
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Threshold:
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EUR 460,000 applying both to Arrivals and Dispatches flow
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When should French Intrastat be filed?
For monthly filers, the deadline is typically around the 10th working day of the month following the reporting period. For example, if the reporting period is January, the deadline for filing the Intrastat declaration would be around the 10th working day of February
Businesses registered for VAT in France must fill out the EC Sales List if they make supplies of goods or services to VAT-registered customers in other EU member states. The reporting obligation arises when the transaction is considered an intra-community supply, meaning the goods are transported from France to another EU member state or the services are deemed to be provided in another EU country.
When should the French EC sales list be filed?
France does not require a separate EC Sales List (ECSL) to be filed. Instead, France uses the DEB (Déclaration d'Échanges de Biens) system to report intra-EU transactions of goods. The DEB serves a similar purpose as the ECSL in other EU member states.
If you are engaged in intra-EU transactions of goods involving France, you would need to file the DEB instead of the ECSL. The DEB should be submitted on a monthly basis, and the deadline for filing the DEB is generally the 10th working day of the month following the reporting period.
