VAT Rates in France
French VAT rates
France has opted for the reduced and super-reduced VAT rates on a number of items allowed by the VAT Directive. The French super-reduced rate is the lowest in the EU (source: European Commission):
* France also introduced a super-reduced rate of 2.1% on the following items: certain pharmaceutical products; certain newspapers and periodicals; TV licenses; and admission to certain cultural events."
French VAT deductions Limits
As a general rule, French VAT can be deducted as long as it is incurred for business purposes and all formalities are met. More specifically, the following deduction rules apply:
- Input VAT on hotel accommodation of employees is not deductible. Where these costs are incurred by third parties and the business purpose test is met, 100% deduction is allowed.
- VAT on restaurant meals is deductible as long as the name of the company is stated on the invoice.
- Input VAT on conferences, fairs and exhibitions is normally 100% deductible.
- Taxi, car rental, car repair, train and bus expenses are 0% deductible. Motorway tolls are 100% deductible.
- Entertainment expenses are generally 100% deductible.
- With respect to fuel expenses, VAT on diesel is 80% deductible, but petrol is up to 10% deductible in 2020. VAT deduction allowance on petrol will increase gradually in the next years.
- Expenses on gas-fuel such as kerosene are 100% deductible
- Business gifts are not deductible if the value exceeds EUR 73.
Deducting VAT prior to the beginning of the economic activity is only allowed under certain conditions. The expenses should be connected with the expected business and, more importantly, a compliant invoice must be issued for these costs. You can find here additional information about input VAT deduction, published by the French tax authorities.
French Statute of limitations
Input VAT should be claimed in a VAT return filed no later than the end of the second year following the year during which the deductible VAT was due.
Regarding the obligation to pay VAT, the same general rule applies. The French tax authorities con investigate VAT liabilities up to the end of third year following the year in which VAT became due. There is an extended period of 10 years in case of fraud or "hidden activity".
There is more information available (in French) on the French tax authorities' website.
French tax point rules
The tax point is the time when VAT becomes due. VAT due should be distinguished from VAT payable. VAT is due when the tax point occurs. VAT is payable between the day after the end of the reporting period and the due date to submit and pay the VAT return.
- General rule: for goods, VAT becomes due when the goods are put at the disposal of the customer, while for services, the default tax point rule is by when the payment or prepayment are received (TVA exigible à l'encaissement).
- Prepayments or advanced payments create a tax point on supplies of goods and services. From January 2023, VAT becomes due upon receiving the prepayment or advanced payment, also allowing taxpayers to also deduct the output VAT paid from the first installment. Find here the official information about this topic.
- Intra-Community acquisitions: Tax point occurs when the goods enter France. An invoice must be issued by the 15th day of the following month.
- Intra-Community supplies: Tax point occurs when the goods ship from France. An invoice must be issued by the 15th day of the following month.
- Import: Tax point occurs when the goods are imported according to the relevant import documents.
- Continuous supplies of services: If periodic payments are made for the provision of services, the tax point arises at the end of the period to which the payment relates to. If there are no periodic payments and the service is rendered for more than a calendar year, the tax point occurs at the end of each calendar year.
French use and enjoyment rules
Member states can introduce another exception to the B2B rule according to the place where the services have been used and enjoyed. This exception may be introduced to avoid double taxation (positive use and enjoyment rules) or avoid non-taxation (negative use and enjoyment rules) or both. Check out our article for more information on use and enjoyment rules in the EU.
France has introduced both, the negative use and enjoyment in a number of B2C services and positive use and enjoyment rules on certain B2B services.
The law (article 259 C of the French VAT Code) brings the place of supply to France on services when the customer is non-taxable person established or domiciled in France, the supplier is outside the EU and the service is effectively used and enjoyed in France. The following services are excluded: services linked to immoveable property, cultural services, passenger transport and transport of goods, travel agencies, electronically provided services, intermediary services and short term means of transport. In case the supplier is established in France, the usual B2C rules apply as per the VAT Directive.
Use and enjoyment rules also apply on certain B2B services rendered to a French established customer when the service is used and enjoyed outside the EU. Where applicable, the place of supply is deviated to the country where these services are used. The following services are included: processing services (repair, transform, etc.), transport of goods, vehicle leasing and storage, loading, unloading of goods (usually ancillary to transport services).
Bad debt relief in France
Bad debt is allowed in France. A business can claim VAT back when this amount has not been collected from the customer. The condition is that the supplier has gone through all legal procedures to get the invoice paid. In practice, bad debt relief is possible when all legal actions have been taken and the supplier sends a duplice of the unpaid invoice stating that the original invoice was not paid and therefore, the customer cannot deduct the correspondent input VAT.
Regarding formalities, the business must send the customer a copy of the relevant invoice with the following wording: "facture demeurée impayée pour la somme de €… (net amount) et pour la some de €… (VAT amount) qui ne peut faire l´objet d´une déduction (article 272 Code Général des Impots)"
This VAT will only be deducted by the end of the second year following the year in which the debt became irrecoverable. The corrected amounts are reported in box 21 of the return.
More information (in French) can be found here.
