France has three VAT systems in place: the simplified tax assessment regime, the normal tax assessment regime, and the basic VAT exemption regime. The tax regime a company falls under dictates how often it needs to declare and pay taxes – read our article on how to file compliant VAT returns in France.

This article will explore the details of the basic VAT exemption regime: what it is, its associated thresholds, its obligations, and more.

What’s in this article?

• What is the basic VAT exemption regime?
  
• Who can use the basic VAT exemption regime?
  
• How do I use the basic VAT exemption regime?
  
• What transactions are not exempt from VAT?
  
• What are the obligations under the basic VAT exemption regime?
  
• What are the advantages of the basic VAT exemption regime?
  
• What should you do if you exceed the basic VAT exemption thresholds?
  
• How do you leave the basic VAT exemption regime?
  

What is the basic VAT exemption regime?

The basic VAT exemption regime excludes businesses from collecting and paying VAT on sales and services. Businesses using this special regime cannot charge customers VAT or deduct VAT from business-related purchases.

In France, Article 293 B of the French General Tax Code (CGI, or “Code général des impôts”) regulates VAT exemption. You can also read our article on non-applicable VAT in France to learn more.

Who can use the basic VAT exemption regime?

French microbusinesses and sole proprietorships (EI, or “entreprises individuelles”) often benefit from the basic VAT exemption regime because their turnover excluding tax (HT, or “hors taxes”) usually does not exceed the thresholds the French tax authority has set. However, all businesses qualify for this regime if they stay within the thresholds set by French law.

How do I use the basic VAT exemption regime?

Sales (excluding VAT) from the previous and current year determine a business’s eligibility. The tax authorities regularly update thresholds they have set, and these thresholds differ by business sector. In general, the French tax authorities revise these thresholds every three years. You’ll find the thresholds set for 2023 to 2025 below. For more information, read the latest article from the French tax authorities on the revaluation of thresholds.

Basic VAT exemption regime thresholds

To qualify for the basic VAT exemption regime, the turnover (excluding VAT) of a business operating liberal activities or providing craft or commercial services (with the exception of lawyers) must not exceed:

• €36,800 for the prior year (threshold limit)
  
• €39,100 for the current year (higher threshold)
  

Businesses engaged in trading or accommodation activities must not exceed turnover thresholds of:

• €91,900 for the prior year
  
• €101,000 for the current year
  

Regulated income for lawyers, authors, and performers must not exceed:

• €47,600 for the prior year
  
• €58,600 for the current year
  

For non-regulated activities, their threshold is lowered to:

• €19,600 for the prior year
  
• €23,700 for the current year
  

What transactions are not exempt from VAT?

The basic VAT exemption regime does not apply to businesses engaged in:

• Real estate activities subject to VAT, including the production or supply of residential property and the renovation of rental accommodation
  
• Agricultural activities covered by the simplified tax assessment regime
  
• Intracommunity deliveries of new means of transportation
  
• Other activities optionally subject to VAT
  

What are the obligations under the basic VAT exemption regime?

Businesses under the basic VAT exemption must follow specific invoicing rules, which depend on the location and type of commercial transaction.

Transactions within France

Invoices from businesses under the basic VAT exemption regime must include the words “VAT not applicable, art. 293 B of the CGI” (“TVA non applicable, art. 293 B du CGI”). This mandatory statement notifies the customer that VAT is exempt on all sales of goods or services in France. The company may be subject to tax reassessment if this is not done.

Intracommunity trade (European Union)

A business selling goods or services within the EU must not charge VAT to foreign customers.

If a business buys goods from an EU trading partner, it doesn’t pay VAT on the purchase unless its total acquisitions exceed €10,000 for the year.

However, if a business buys services from an EU provider, it cannot deduct VAT on these purchases and must pay the corresponding tax. To be able to deduct VAT, the business must opt out of the basic VAT exemption regime.

Transactions outside of the EU

A business that exports outside of the EU cannot charge VAT to its customers. However, when importing, the company must pay VAT on its purchases and cannot claim deductions. To deduct VAT on imports, a company must opt out of the basic VAT exemption regime.

What are the advantages of the basic VAT exemption regime?

The basic VAT exemption regime provides several benefits for businesses not subject to VAT. They don’t need to file a VAT return or pay VAT to the tax authorities, thereby reducing their accounting tasks while also offering competitive prices.

What should you do if you exceed the basic VAT exemption thresholds?

The business becomes liable for VAT starting from the first day of the month when it exceeds the thresholds. It must then obtain an intracommunity VAT number from the corporate tax office (SIE, or “service des impôts des entreprises”), charge VAT on its sales of goods and services, and declare and pay the VAT owed to the tax authorities.

If the business doesn’t charge VAT on transactions after exceeding the threshold, it must issue rectifying invoices for sales made during that month.

To simplify your tax processes, consider using an advanced tool such as Stripe Tax. Stripe Tax automates your tax calculations, speeds up your VAT return submissions, and provides detailed reports on your annual transactions and income – with no code required.

How do you leave the basic VAT exemption regime?

You can choose to leave the basic VAT exemption regime and switch to either the simplified or normal VAT regime. These regimes allow businesses to deduct VAT on their purchases and benefit from VAT credits. To leave the basic exemption regime, contact the relevant SIE through your online business account and submit your request.