The majority of French businesses, at one point or another, deal with value-added taxes (VAT). Because of these taxes' ubiquity, it is important to stay up to date on the different VAT rules in place.

Determining your VAT regime and the thresholds that need to be respected can be challenging. In this article, we'll explain how to select your VAT regime, what that means and exemptions to VAT.

What's in this article?

• What are the VAT tax regimes?
  
• What is the basic VAT exemption regime?
  
• Who does the basic VAT exemption regime apply to?
  
• What is the simplified regime?
  
• What is the normal regime?
  
• How to choose between the simplified and normal regimes?
  

What are the VAT tax regimes?

There are three VAT tax regimes in France:

• The basic VAT exemption regime (franchise en base de TVA)
  
• The simplified tax assessment regime (régime réel simplifié)
  
• The normal tax assessment regime (régime réel normal).
  

The regime that a business falls into depends on its sales (excluding taxes) for the previous financial year. You can opt for the higher regimes if you're in a lower one. For example, if you are under the basic VAT exemption regime, you can opt for the simplified regime or the normal regime. Find out more on the French government website.

What is the basic VAT exemption regime?

According to Article 293 B of the General Tax Code (Code général des impôts - CGI), the basic VAT exemption scheme spares businesses from having to declare and pay VAT on sales and services rendered. Businesses that fall in the basic VAT exemption scheme cannot invoice customers for VAT, nor can they deduct it from goods or services acquired for business purposes.

Invoices from businesses under the basic tax exemption regime must include the words "VAT not applicable, art. 293 B of the CGI" ("TVA non applicable, art. 293 B du CGI") to inform customers they are exempt from VAT. If this is not done, the business might be subject to tax reassessment.

Learn more about the legislation concerning nonapplicable VAT.

Who does the basic VAT exemption regime apply to?

Microbusinesses typically qualify for the basic VAT exemption regime because their sales excluding tax (HT) generally stay below the limits set by the tax authorities. However, any business can use this regime if it meets the eligibility conditions (see below).

It's important to note that certain activities are excluded from the basic VAT exemption regime. These include property activities subject to VAT, agricultural operations under the simplified agricultural regime, intracommunity deliveries of new means of transport and operations subject to VAT by choice.

Conditions of eligibility

The basic VAT exemption regime applies to businesses that don't exceed the sales thresholds set by the tax authorities. Eligibility is based on sales excluding VAT for the prior year and current year. Thresholds vary depending on the year in question and the business's sector. The thresholds given below are set for 2023 to 2025.

To qualify for the basic VAT exemption regime, the sales (excluding VAT) of a business engaged in a professional activity or providing skilled trade or commercial services (excluding lawyers) must not exceed:

• €36,800 for the prior year
  
• €39,100 for the current year
  

Businesses engaged in commercial or accommodation activities must not exceed the sales threshold of:

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

Regulated activities by lawyers, authors and performers must not exceed:

• €47,700 for the prior year
  
• €58,600 for the current year
  

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

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

Further information on thresholds for VAT exemption can be found in this article provided by the French government.

What is the simplified regime?

Businesses under the simplified VAT regime must file a VAT return each year along with two semi-annual payments. The annual VAT declaration is filed by completing the online Cerfa form no. 3517-S-SD.

To qualify for the simplified regime, the business's sales (excluding VAT) for the previous financial year must fall between €36,800 and €254,000 for services and professional activities and between €91,900 and €840,000 for commercial and accommodation activities. The amount of VAT collected annually must also be less than €15,000.

Certain operations are excluded from the simplified VAT regime, including property activities subject to VAT, imports subject to VAT and construction work performed by newly established businesses.

What is the normal regime?

Under the normal VAT regime, a monthly VAT return must be filed using form no. 3310-CA3-SD. It applies primarily to businesses whose sales (excluding VAT) for the previous year exceed €254,000 for services and professional activities and €840,000 for retail and accommodation activities. Businesses excluded from the basic exemption regime or those declaring more than €15,000 in VAT per year must also adhere to the normal VAT regime.

Note that all businesses can opt for the normal regime, regardless of their sales.

To simplify your VAT administration, you can use Stripe Tax, an automated tool that speeds up the calculation, completion and filing of your VAT returns. Stripe also provides you with detailed reports on your transactions and income for the year.

How to choose between the simplified and normal regimes?

Understanding the differences between the normal and simplified VAT regimes is important for choosing the tax regime that best fits your needs.

With the simplified regime, your administrative and accounting procedures are significantly streamlined compared with those of the other regimes. You have to pay on account every six months and file a single VAT return every year.

Under the normal regime, you have to file a monthly VAT return and pay the corresponding VAT. By spreading payments throughout the year, you can refine your business's cash flow and receive VAT refunds as credits more regularly. VAT-registered businesses are eligible for a VAT credit when the VAT collected on goods and services sold is less than the VAT paid on business expenses. Learn more about the deductible VAT and VAT credit systems.

If you're looking to simplify your administrative procedures, the simplified tax assessment regime is for you. However, if you're looking to obtain a VAT refund regularly, you should opt for the normal tax assessment regime.