EU Lawyers and Advisors: How do I bill my foreign clients?

What is the VAT regime for consulting transactions carried out to European customers?

In principle, the VAT regime for transactions carried out by a service provider providing advice is subject to article 259 of the French Tax Code, transposing articles 44 and 45 of the VAT Directive (2006/112/EC).

Transactions carried out to French customers are subject to French VAT regardless of whether the customer is a taxable person (professional customer) or not (individual customer for example).

For transactions carried out to customers established outside France, the regime is becoming more complex but remains generally well understood and applied.

When you invoice a professional customer (understood as subject to VAT), the transaction is taxable instead of the customer: it is therefore taxable in the other Member State. The board must therefore invoice the transaction without VAT and indicate that the transaction benefits from the mechanism of reversal of the taxpayer: reverse charge. The expected term is therefore “reverse charge” or “reverse charge”. The transaction must be included in the European Service Declaration (DES in France) filed for the month in question by indicating the customer's VAT number and the corresponding turnover. In the event of an omission, the council risks a fine of €750 and possibly up to €1,500 in the absence of regularization after a request from the authorities (DGFiP or Customs).

To ensure the quality of the customer, it is necessary to collect his VAT number and check it with the European Commission. The validity of the number allows you to benefit from a simple presumption that the customer is a professional subject to VAT.

For transactions carried out to individual customers established or domiciled in the European Union, the service provider must apply French VAT: the transaction is therefore subject, in principle, to the standard rate of 20%. Unfortunately, there are no loopholes.

As a reminder, in accordance with article 289 of the French Tax Code, it is therefore not necessary to issue an invoice for this operation.

Is the VAT regime applicable to consulting activities the same in the case of services provided to clients established in overseas departments or in the opposite case?

VAT is not applicable in some overseas departments:

• VAT is applicable in Réunion, Martinique and Guadeloupe;
• On the other hand, VAT is not applicable in Mayotte or Guyana.

For transactions between professionals, the VAT of the customer's place of establishment is applied:

• If the service provider is established in mainland France and provides a service to a customer based in Réunion, he will charge VAT at 8.5%. If the customer is in Mayotte, he will not charge VAT;
• In the opposite direction, the service provider established in Martinique must charge the normal rate in case of service to a taxable customer established in mainland France.

For transactions with individuals, the regulations in principle involve applying the VAT rate at the place where the service provider is established. As an exception, the administrative doctrine allows service providers established in mainland France to apply the VAT at the place of the non-taxable customer: that is to say 8.5% or no VAT in the case of Mayotte and Guyana.

A lawyer established in mainland France must therefore apply the rate of 8.5% when working with clients established in Martinique.

Do I have to charge VAT if I provide consultancy services to a client established outside the European Union?

For transactions with professional customers established outside the European Union, the VAT regime is similar to European customers: French VAT should not be charged.

However, two distinctions should be noted:

• Firstly, there is no need to file European service declarations;
• Second, the statement to be indicated on the invoice is not “reverse charge”. As a recommendation, we use the statements “EU VAT not applicable — Article 44 of the Directive 2006/112/EC” instead.

The main challenge in this type of transaction is to have proof that the Company is indeed subject to VAT. Even if the mention on the invoice allows for a simple presumption that the customer is subject to VAT, it is necessary to have elements showing the customer's economic activity: this may be a certificate of VAT liability in the country of establishment, a VAT number in the country of establishment, a VAT number in the country of establishment, an order form or other documents mentioning a commercial address and a registration number in the commercial register. The list is indicative.

With regard to transactions carried out with individuals residing outside the European Union, this is where the biggest mistakes are identified. Indeed, many councils continue to charge French VAT and pay it back, in good faith, to the French State.

However, article 259 B of the French Tax Codespecifies the following elements:

“The place of the following services is deemed not to be located in France when they are supplied to a non-taxable person who is not established or does not have his domicile or his usual residence in a Member State of the European Community:

4° Services of consultants, engineers, design offices in all fields including those of the organization of research and development; services of accountants;”

Thus, as long as the individual customer is not established in the European Union, it is not necessary to apply French VAT. This regime, which may seem interesting, is in fact there to avoid cases of double taxation: this could be the case if the client's country of residence imposes services provided by non-established foreigners.

What happens if a consultant established outside the European Union carries out a transaction for the benefit of a French non-taxable person (private client)?

Under article 259 C of the French Tax Code, if the advisory service is provided by an operator established outside the European Union and the customer is domiciled and they are used/used in France, the transaction is subject to VAT in France. This principle, called “use and enjoyment” in English, because of billing at the place of use, is rarely applied in principle.

This refers to the case where an English consultant, for example, provides advice for a private client residing in France who does not travel. On the other hand, this is not aimed at the French client, who is present for a few months in New York, and who would benefit from a consultation on his impatriation.

In this context, it often happens that service providers established outside the European Union do not necessarily register for VAT in France to pay the VAT in question. This poses problems in terms of full competition between French service providers established outside France.