What you have to know about VAT in France

Parent Category: ROOT Published: Monday, 11 January 2021 Print
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VAT number in France

 

France is one of the key member states of the European Union and the European Economic Community. Taxes in France are traditionally considered one of the highest in Western Europe.

Therefore, taxes create a significant role in the political and economic arena of France. The state has a two-tier taxation system since taxes in France are levied both at the national and local levels. 

 

The main taxes in France can be divided into three large groups:

  • from income (both legal entities and individuals);
  • consumer (excise taxes, VAT);
  • on the property and capital of the subject (tax on real estate, on vehicles, and others).

 

What is VAT?

 

Value Added Tax (VAT) - is a form of taxation added during the production and distribution of the value of a product or service in France. VAT is an indirect tax. The amount of the tax is included in the price of the good (service). It is paid when the consumer purchases the seller. The seller pays the VAT tax to the state.

Most companies doing business in France, as well as their partners (suppliers, customers, intermediaries) from other countries, face the value-added tax levied in the European Union.

 

VAT regulation in France

 

There is a unified (supranational) regulation of the procedure for establishing and levying this tax. The basic document governing the VAT taxation procedure in France is Directive 2006/112 / EC of November 28, 2006, and called: "The general system of value-added tax".

This Directive defines all the key elements of VAT taxation, except for tax rates that are set by each EU state (within the limits established by the Directive) and some other issues.

 

Taxpayers

 

The VAT in France is one of the main consumption taxes paid to the state budget. The standard rate for value-added tax in France is 20%. The increased rate goes up to 33.3% and applies to alcohol, tobacco, cars, and other luxury goods (such as furs). Reduced rates of 10%, 5.5%, and 2.1% apply to books, necessities, and some prescription drugs.

 

The rate is determined based on the importance and value of the goods. For example, cars, perfumes, and other luxury items are taxed at 22%, books are taxed at 7%, and essentials, food, medicine, and public transport are taxed at 5.5%. The more luxury a Frenchman allows himself, the more taxes he pays to the state treasury.

 

Who is VAT exempt in France?

 

Do not pay VAT for activities:

  • State institutions carrying out educational, medical, cultural activities;
  • Private teachers and doctors;
  • French citizens engaged in spiritual creativity.

 

When carrying out economic, banking, or financial activities, renting an apartment, sports activities, citizens have the right to choose whether to pay them income tax or VAT.

Apart from income tax, the French pay several indirect excise taxes or duties, which are also consumption taxes. Most of it goes to the state budget, but some of the money goes to government agencies and local governments.

 

A person subject to VAT is recognized as "any person who independently carries out in any place any type of economic activity, whatever the goals and results of such activities in France."

In other words, all French commercial companies, partnerships, natural persons - entrepreneurs are considered VAT taxpayers ("taxable persons").

 

VAT taxpayers are not individuals who purchase goods or services for use other than business. 

 

In the VAT number, the first 2 characters are usually the abbreviation of the country in which the number was issued. For example, if the country of issue in France, then the VAT number starts with the letters FR

 

Taxable transactions

 

For VAT purposes, there are 4 types of taxable transactions:

1) supply of goods;

2) intra-Community acquisition of goods;

3) supply of services;

4) importation of goods.

 

The services rendered by taxable persons to each other are called “B2B services” (“business to business”). Services provided by taxable persons to non-taxable persons are referred to as “B2C services” (“business to consumer”). For B2B services and B2C services, there are different rules for determining where they are provided.

 

Documents required to obtain a VAT number in France

To obtain a number, you must provide the following documents and information:

  • Company name;
  • List of activities;
  • Estimated turnover per year;
  • List of countries with which cooperation will be carried out;
  • Data on partner companies.

 

You will also need the constituent documents of your company, documents confirming the legal address and appointment of the director, passport details of the director and a signed application for obtaining a VAT number.

 

To assign a VAT number, the company must conduct business in this country, and the residence of the company does not matter.

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