Do microbusinesses have to charge value-added tax (VAT)? What are the VAT thresholds for auto-entrepreneurs? What is the basic VAT exemption? This article will cover the most common questions about microbusinesses and VAT in France. You’ll also find information on the benefits, drawbacks, and responsibilities of self-employed individuals under the basic VAT exemption, a tax system that frees participating businesses from paying and collecting VAT.

What’s in this article?

• What is VAT?
  
• Does VAT apply to microbusinesses?
  
• What are the thresholds for VAT exemption?
  
• What obligations does VAT exemption entail?
  
• What are the advantages and disadvantages of VAT exemption?
  
• What to do if you exceed the VAT exemption thresholds
  
• How to declare VAT as a self-employed individual
  

What is VAT?

VAT is an indirect consumption tax. The customer pays it when buying from a company liable for VAT.

All VAT-registered businesses act as intermediaries: they must bill the customer for a price that includes all taxes, collect the VAT for the State, and send the collected VAT from their sales to the State through the VAT return.

The different VAT rates in France

The VAT rate applied varies according to the type of sale. There are four VAT rates in France:

• The standard rate of 20%, applied to most goods and services
  
• The intermediate rate of 10%, mainly used for prepared food products and renovating old houses
  
• The reduced rate of 5.5%, applied to unprepared food products, gas and electricity, and renewable energies
  
• The super-reduced (special) rate of 2.1%, reserved for medicines and blood products (covered by social security), butcher’s and delicatessen products, and the press
  

You can find out more about the different VAT rates in France in this article.

Does VAT apply to microbusinesses?

Generally, a microbusiness (a sole proprietorship) doesn’t have to invoice or pay VAT if it qualifies for the basic VAT exemption regime. However, it might have to pay VAT if it exceeds the basic exemption limits or chooses to leave the regime.

What are the thresholds for VAT exemption?

Microbusinesses qualify for the basic VAT exemption if their sales excluding tax (HT, or “hors taxes”) for the previous and current year stay within the limits the tax authorities set. The tax authorities update thresholds every three years; we’ve listed them for 2023 to 2025 below. Thresholds vary depending on the business’s sector of activity.

For example, a business in the liberal professions or offering craft or commercial services (excluding lawyers) must not exceed:

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

A business conducting commercial or accommodation activities must not exceed:

• €91,900 in sales 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 their unregulated activities, the threshold is reduced to:

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

What are the obligations under the basic VAT exemption regime?

Article 293 B of the French General Tax Code (CGI, or “code général des impôts”) requires that all self-employed individuals covered by the basic VAT exemption regime contain the words “VAT not applicable, Art. 293 B of the CGI” (“TVA non applicable, art. 293 B du CGI”) on their invoices. This statement shows that the invoice doesn’t include VAT and tells the customer that VAT won’t be deducted or reclaimed later. Microbusinesses might be subject to tax reassessment if they don’t add this statement. You can find out more in our article on VAT exemption for self-employed individuals and microbusinesses.

What are the advantages and disadvantages of VAT exemption?

For self-employed individuals, VAT exemption reduces accounting tasks: the microbusiness doesn’t need to collect or pay VAT to the tax authorities and is also exempt from reporting it. With no VAT to invoice and pay, they can offer lower prices than their competitors while keeping a favourable profit margin.

However, the basic VAT exemption regime has a significant downside: companies using it cannot deduct VAT on their business expenses. If a self-employed individual needs to make significant purchases or investments, especially when starting a business, VAT exemption can be expensive.

What to do if you exceed the basic VAT exemption thresholds

Microbusinesses must start paying VAT from the first day of the month when they exceed the basic exemption thresholds. The microbusiness must get an intracommunity VAT number from the corporate tax service (SIE, or “service des impôts des entreprises”), charge VAT on its sales, and report its VAT to the tax authorities.

How often a business declares VAT depends on the choice of tax assessment regime: the simplified or normal tax assessment regime. These regimes allow companies to deduct VAT on their business purchases and to benefit from VAT credits.

Note that if a microbusiness doesn’t charge VAT on transactions after exceeding the threshold, it must issue corrected invoices for any sales made during that month.

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How to declare VAT as a self-employed individual

Self-employed individuals under the simplified tax assessment regime must complete their annual VAT declaration using the online cerfa form n°3517-S-SD. Those choosing the normal tax assessment regime must file their monthly and quarterly declarations using cerfa form n°3310-CA3-SD or cerfa CA3. Read the article on VAT filing to find out more.