As a business subject to value-added tax (VAT), you might be entitled to VAT credit when you file your return. What is VAT credit? What are the payment conditions of VAT credit? Is there a minimum refund amount and how is it requested? In this article, you will find the answers to these questions and more about VAT credit.

What's in this article?

• What is VAT credit and how is it calculated?
  
• How can VAT credit be used?
  
• What are the limits for being entitled to a VAT refund?
  
• How is a request for a VAT refund submitted?
  
• How long does a VAT refund take?
  
• How is VAT credit posted in the accounts?
  

What is VAT credit and how is it calculated?

At the end of each accounting period, the business must calculate the VAT to be paid to the state. This is the difference between the VAT charged on the services and products sold, and the deductible VAT paid on fixed assets, expenditure and purchases made as part of running the business.

When the output VAT is less than the deductible VAT, the business can claim VAT credit. However, only the VAT paid on transactions eligible for deduction (those that are necessary for the business) is taken into account for the calculation.

Note that only businesses that are liable for VAT can claim VAT credit.

How can VAT credit be used?

You have two options to choose between for using your VAT credit:

• You can ask for the credit to be offset. In that case, the VAT credit will be carried forward to your future declarations, until it is entirely used up.
  
• You can opt for a refund of all or part of the amount. In this case, you can get back the VAT owed to you and use it in your business. To obtain a refund, you need to send an application to the tax office by completing the form appropriate for your tax regime. The tax authorities will then review your invoices and make sure that your VAT is within certain limits before granting the refund.
  

What are the limits for being entitled to a VAT refund?

If you are under the normal tax assessment regime (i.e. you declare VAT every month or quarter), you are entitled to ask for a refund of your VAT credit if it exceeds €760.

If you are under the simplified tax assessment regime (i.e. you declare VAT annually), you are entitled to ask for a refund of your VAT credit if it exceeds €150. You can also ask for a refund when you pay your biannual instalment, providing your VAT is €760 or more and is the result of a real property purchase.

How is a request for a VAT refund submitted?

You must first declare your VAT before asking for a credit refund. The forms for declaring VAT and asking for a refund are to be completed online, on your business page on the General Directorate of Public Finances website – depending on the taxation regime you have selected (you can learn more about VAT declaration in our article on the subject).

VAT declaration forms

The annual VAT declaration is filed using the form Cerfa no 3517-S-SD. Monthly and quarterly declarations are filed using the form Cerfa no 3310-CA3-SD or Cerfa CA3.

After you have declared your VAT, you can ask for a refund.

Refund request forms

To ask for a VAT credit refund, you will need to complete form n° 3519-SD if you are under the normal tax assessment regime. You will complete the same form if you are under the simplified tax assessment regime and want to make a biannual refund request for €760 or more following the purchase of real property.

Form n° 3517-S-SD is only for businesses under the simplified tax assessment regime asking for VAT credit in an annual declaration.

On the form that applies to you, you must report the VAT credit amount entered in your VAT declaration. You must also provide information that is relevant to the invoices that have resulted in the VAT credit. To help you complete your forms, the Direction générale des Finances publiques offers a detailed video about the whole procedure.

How long does a VAT refund take?

In general, you should receive your VAT credit refund within two weeks to a month. In case of VAT billing errors, the maximum refund time can be as long as six months.

How is VAT credit posted in the accounts?

Entering VAT credit correctly in the accounts is key for the financial management of your business. Once you have asked for the credit, you must debit account 44583, "Requested VAT refunds" and credit account 44567, "VAT tax credit to carry forward".

Alternatively, you could use advanced tools such as Stripe Tax to automate your VAT calculation (VAT to collect and pay). Stripe Tax speeds up the filing of your tax declarations by generating detailed reports, in line with any changes in tax regulations and rates, in a single integration. To start with Stripe or find out more about how Stripe solutions can make it easier for you to comply with regulations, please contact one of our experts.