All businesses or professionals conducting regular paid activities in the European Union are subject to value-added tax (VAT). This obligation applies to companies selling products, renting goods, or providing services, and is included in the price and collected by businesses or practitioners before being paid to the State. Some schemes and operations in France do not require the declaration or payment of VAT. This guide explains what being subject to VAT means in France.

What’s in this article?

• Determine if you are subject to VAT
  
• The advantages of being subject to VAT
  
• Subject to VAT vs. liable to pay: Understanding the difference
  
• Being subject to VAT and liable for payment
  
• Being subject to VAT but not liable for payment
  
• Not being subject to VAT
  

Determine if you are subject to VAT

Businesses and self-employed professionals registered for VAT must collect it on their sales, include it in their invoices, and remit it to the tax authorities following current legal and regulatory procedures.

VAT liability is separate from a company’s general tax regime. All companies, regardless of whether they are subject to corporate or income tax, might be liable for VAT when they conduct activities that fall under the relevant jurisdiction. There are various exceptions and special regimes, including the basic VAT exemption option.

This obligation extends beyond individual operations or single enterprises. In 2023, France introduced the single-taxable person regime. This regime is available to groups of related entities that conduct closely related functions. It permits appointing one representative to handle VAT declarations for the entire group of companies.

It’s important to note that the VAT system is continually changing. Businesses need to stay updated on the latest legislative and regulatory changes.

The advantages of being subject to VAT

Determining if a company is subject to VAT is key to understanding its rights and obligations and taking advantage of tax benefits.

• VAT deduction: Professionals can deduct VAT from their taxes for business-related purchases of goods or services.
  
• VAT reclamation: Generally, companies subject to it can recover the VAT they have paid on purchases from other businesses.
  
• Professional image: VAT registration can enhance a company’s professional and credible image. This reflects their adherence to tax laws and overall organizational structure. Additionally, VAT-registered companies can show their prices without tax (HT), improving the transparency of their business transactions.
  

Subject to VAT vs. liable to pay: Understanding the difference

It’s imperative to differentiate between being subject to VAT and being liable to pay it. Generally, a business that needs to collect VAT is responsible for paying it, except when transactions are exempt. On the other hand, a liable person must pay it to the State.

This distinction is key for understanding the right to deduct VAT, which exclusively applies to taxable transactions.

Being subject to VAT and liable for payment

When starting a new business, selecting the tax and VAT regime that best suits your activities is key. VAT liability typically applies to commercial or industrial undertakings, whether you choose the normal or simplified tax regime. A business or individual becomes responsible for VAT if their sales exceed specific thresholds.

A business selling goods, for example, becomes liable if its sales exceed €91,900. An entrepreneur providing services such as copywriting or translation becomes obligated for VAT once their earnings exceed €36,800.

Sales thresholds are susceptible to change each year, so it’s important to stay updated with the latest revisions from the authorities.

Stripe Tax allows bound and liable businesses with the option to declare and pay VAT online. In addition to automatically calculating and collecting VAT on sales, Stripe Tax can also generate reports on collected taxes to verify and facilitate refunds.

Being subject to VAT but not liable for payment

If a business or professional does not meet these thresholds, it is not accountable for VAT. In this case, the basic exemption regime applies.

Companies under the basic exemption regime are examples of taxpayers not liable for VAT. This tax regime enables small entities to operate without collecting or deducting VAT on their transactions, and is typically for companies whose transactions stay below specific thresholds, which differ by industry and are regularly reevaluated.

In France, microbusinesses and sole proprietorships frequently—but not always—take advantage of the basic tax exemption. Once they exceed the threshold established by the State, they become responsible for tax.

Not being subject to VAT

Employees under a contract of employment and those without regular commercial activities are typically not subject to VAT.

However, exemptions and special regimes can apply to certain businesses or undertakings.

Economic activities not liable for VAT

Certain economic activities are exempt from VAT under certain conditions:

This list is neither exhaustive nor definitive. For instance, a cultural association might be exempt from VAT on its primary functions but could be accountable for it on the sale of derivative products. If the association exceeds the tax-free threshold, it becomes liable for VAT.