VAT: Everything you need to know about value-added tax in France
Confused about value-added tax in France? We answer the most common questions about VAT—how it works, how it’s calculated, and what the different rates are.
5 min read
What is VAT?
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.
What are the different VAT rates in France?
According to French tax law, there are four different rates of VAT that apply in France:
Base rate: 20%
Intermediate rate: 10%
Reduced rate: 5.5%
Special rate: 2.1%
Examples of VAT exemptions or reduced VAT rates
Even though the VAT base rate is 20%, this can be reduced. Some professionals, like freelancers and otherself-employed people, don’t need to charge or collect VAT as long as their annual income doesn’t exceed a certain amount.The standard 20% VAT rate can also be waived on some products, such as tests and vaccines that help in the fight against COVID-19. Thanks to a new article in the Finance Act 2021, these have a VAT rate of 0%. And since May 2020, face masks and hand sanitizer have had a reduced VAT rate of 5.5%.Even for products less vital for public health, there are some exceptions to the standard 20% base rate for VAT:
The intermediate VAT rate of 10% applies to unprocessed agricultural products (such as wood), certain cultural activities, transport, the restaurant industry, or housing-related work.
A reduced VAT rate of 5.5% applies to food and other basic necessities, such as sanitary products, energy-related housing work, equipment or services for people with disabilities, books, and even gas and electricity.
The special 2.1% rate is applied to press publications, medicines, and TV license fees.
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To find out what VAT rate applies to your business or goods, you can refer to theGeneral Tax Code. Depending on the size of your business, you might also qualify for tax exemptions through one of the different tax systems—full assessment, normal, or simplified.
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.
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.
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.
When should I charge VAT?
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.
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.
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Value-added tax is a tax that is applied in France to most products and services.
The base rate of VAT is 20%, however this can be reduced to 10%, 5.5%, or 2.1% depending on the product or service in question.
Companies that are required to collect VAT should submit their VAT declarations online following the fiscal calendar set out by the tax authority. Submissions are generally made halfway through the month or on a quarterly basis.
A company’s VAT number is provided to it by the tax authority when the company is registered. It will also appear in the company’s VAT declarations.
The answer to this question depends entirely on the type of service or product being sold. The General Tax Code should be consulted to find out the applicable VAT rate.
At N26, we’re all about helping you navigate complex financial topics and simplifying money management. We’ve put together a handy guide to help you better understand the French tax system. Ready?
At N26, we’re all about helping you navigate complex financial topics and simplifying money management. We’ve put together a handy guide to help you better understand the French tax system. Ready?
