French finance law 2025: Lowering the thresholds for French VAT exemption for small entreprise

I) What is the VAT-based franchise?

Exemption based on VAT is a tax regime specific to micro-entrepreneurs, allowing them to be exempt from collecting VAT, as long as the turnover of their company does not exceed the following thresholds (article 293 B of the CGI):

(*) If the company exceeds the thresholds for the current year, its operations will be subject to VAT from the 1st day of exceeding.

Businesses that benefit from this regime are not liable for VAT, which allows them not to charge this tax to their customers.

II) The reform: the lowering of the VAT threshold, the same threshold for all

Following the decision of the Constitutional Council on 13 February 2025, the Finance Law for 2025 was promulgated on 14 February 2025, establishing a single VAT exemption threshold, lowered and standardized, applicable to all activities:

These new thresholds were to come into force. As of March 1, 2025.

However, faced with a questioning of this reform by professional federations, its application has been suspended until June 1, 2025.

In the meantime, the tax authorities have provided details on this transitional period, in order to support the companies concerned and thus clarify the practical arrangements for implementing this provision.

III) The transition period — Who is affected?

If you meet the following two cumulative conditions, you will be affected by the new VAT thresholds in 2025:

• You still benefit from the franchise on 1 March 2025.‍
  You may have lost the franchise:
  • As of January 1, 2025: if in 2024 your turnover was higher than the old thresholds of the previous year
  • Between January 1 and February 28, 2025: when during this period, you have exceeded the old thresholds of the current year
  • Between January 1 and February 28, 2025 if you have renounced the franchise during this period.

• AND you achieved a national turnover greater than €25,000 in 2024, or failing that, greater than €27,500 in 2025.

What release date should you take into account?

When the company exits the franchise based on VAT no later than May 31, 2025, it will have the obligation to collect VAT and the option to deduct it for transactions taking place as of 1 June 2025.

Concretely, what does this mean?

• Before June 1, 2025:

• As of June 1, 2025:

IV) What are the practical consequences of this change?

1) the impact on your customers

If your clientele consists exclusively of professionals subject to VAT (B2B), this reform will not have a major impact, as they will be able to deduct the tax.

However, if you work with non-recovery professionals, applying VAT could lead to an increase in the final cost for them.

On the other hand, if your customers are mostly private individuals, you will be faced with a strategic choice: pass on VAT to your prices, at the risk of a loss of competitiveness, or absorb this additional cost by reducing your margin, which could affect the profitability of your business.

2) the advantage: the deduction of VAT

However, this reform has a favourable aspect, by opening up the possibility for your company to deduct VAT on its expenses, thus offering a partial mitigation of the financial impact induced by this measure.

V) How to prepare your business?

A. Without delay, we recommend that you make a forecast of your annual turnover, to allow you to compare yourself with the new threshold of 25,000 euros.

B. Next, we recommend that you conduct a study of your activities to determine the rates that may be applicable to your transactions.

Our team is at your disposal to assist you in the analysis of these aspects as well as in the completion of your future procedures.

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Thanks to our expertise, you will benefit from personalized follow-up to ensure the compliance of your tax situation.