VAT: Everything you need to know about value-added tax in France

 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.

 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%

Even though the VAT base rate is 20%, this can be reduced. Some professionals, like freelancers and other self-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 the General 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.

 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. 

 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.

 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.

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.

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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