French finance Law 2025: Extension of the VAT Group to taxable persons that can fully deduct VAT

I. The impact of the tax on wages

The VAT Group was designed to optimize VAT management, offering significant advantages to certain sectors, in particular banking and finance, but was historically of more limited interest to others, such as consulting, industry or agri-food.

Its creation makes it possible to neutralize VAT on internal flows, which constitutes a significant tax advantage. However, this neutralization leads to an increase in payroll tax, thus reducing potential profits for some businesses.

The 2025 finance law introduces a measure to mitigate this impact for waste picker groups, thus offering a more balanced framework.

According to paragraph 1 of article 231 of the French Tax Code (FTC), tax on wages is due by employers who pay remuneration, but only if they are not subject to VAT or have not been subject to VAT on at least 90% of their turnover during the previous year.

This tax is calculated by applying a progressive scale to the remuneration paid, adjusted according to the “liability ratio” to the payroll tax. This ratio corresponds to the proportion of turnover that is not deductible in relation to the total turnover of the company, including dividends. If this ratio is less than 10%, the company is exempt from tax on wages.

However, for companies whose entire turnover is taxable for VAT, they may become liable for the tax if more than 10% of their turnover is neutralized due to integration into a VAT Group. This may result in an additional tax burden for some companies that join the VAT Group.

However, the 2025 finance law provided for a measure to neutralize this effect in a group whose companies recover VAT.

II. An amendment already tabled in 2023 but censored

As part of the Social Security Financing Bill 2024, an amendment proposed to exempt companies integrated into a VAT Group from tax on wages, under certain conditions related to the deduction of VAT and turnover. This measure was aimed at strengthening the attractiveness of the regime.

However, the Constitutional Council censored this amendment, thus cancelling the planned changes. As a result, tax on wages constraints for companies that are members of a VAT Group remained unchanged in 2024 and 2025.

III. The validation of this specific device as early as 2026

Article 36 of the 2025 Finance Law introduces a new article 231 A of the FTC, which provides for an exemption from tax on wages for certain employers who are members of a VAT Group (single taxable person within the meaning of article 256 C of the FTC).

This exemption applies when two cumulative conditions are met:

“Art. 231 A. - Remuneration paid by the employer who is a member of a single taxable person referred to in Article 256C is exempt from the tax on wages referred to in Article 231 when all of the following conditions are met:

1° This employer would not be subject to tax on wages if he were not a member of this single taxable person;

2° For the calendar year preceding that in which the remuneration was paid, the turnover of the transactions carried out by this single taxable person which give rise to the right to deduct pursuant to article 271 is at least equal to 90% of the total amount of his turnover taxable for value added tax.

For the application of the exemption in respect of remuneration paid during the calendar year in which the sole taxable person was established, the condition mentioned in 2° of this article is assessed by reference to the turnover in that calendar year.”

In this context, the system makes it possible to exempt companies that are members of a VAT Group from tax on wages, subject to compliance with the following conditions:

First condition: The absence of VAT liability of the member outside the VAT Group

The first condition states that, if the company was not a member of the VAT Group, it would not be liable for tax on wages. This means that it must not generate more than 10% of turnover not subject to VAT in the previous year, or that it generates, during the current year, at least €1 in turnover that is eligible for deduction.

In other words, a member company should not receive a significant portion of exempt products, such as:

- Dividends,

- Financial products,

- Insurance products,

- Other income not subject to VAT.

In addition, the subsidies received must be taken into account in the coverage report to verify whether this condition is met.

Comparative analysis required: Companies must carry out a simulation to compare their situation with and without belonging to the VAT Group. This evaluation work is already carried out by numerous groups in order to determine compensation between members, in particular when a company bears an additional tax burden while others benefit from VAT savings (see our white paper on this subject).

For example, a company that becomes liable for tax on wages by joining the group may nevertheless allow other members to avoid VAT that is not deductible on internal flows. This is often the case of a holding company, which sees its liability ratio increase but allows its subsidiaries not to bear VAT on management fees. In this configuration, the holding company is subject to fiscal friction, which should be anticipated and compensated if necessary.

Second condition: A VAT deduction coefficient greater than 90% at Group level

The second condition requires that the VAT deduction coefficient of the VAT Group be greater than 90% for the previous year.

As a reminder, this coefficient is calculated by dividing:

- The turnover giving rise to a deduction,

- By the total turnover of the group, excluding internal flows.

Under certain conditions, dividends and certain ancillary financial products are not taken into account in this calculation.

This data is generally easily accessible, since it corresponds to the final deduction coefficient used by members of the group for numerous expenses, including:

- The general expenses of the group,

- Common expenses benefiting several members, in accordance with the derogatory regime in article 206 of Annex II of the FTC.

IV. Why opt for the VAT group as a recoverer?

A. What is the main advantage?

This measure mainly benefits groups whose members were not subject to tax on wages before the creation of the VAT Group and whose activities entitle them to deduct more than 90% VAT.

The main sectors concerned include in particular:

• Industry,

• Agri-food,

• The wine sector, etc.

Why optint for a VAT Group as a full VAT recovery entity?

The creation of a VAT Group allows some companies to mitigate negative cash flow impacts, especially when they generate significant intragroup flows.

Case of an industrial group

Let's take the example of an industrial group composed of several entities:

• Company A that produces the goods,

• Company B that buys them then the stocks and resells them on demand to other entities in the group,

• Company C that markets and exports the products.

In this type of scheme, companies B and C bear more VAT than they charge, which places them in a situation of permanent VAT credit. They must therefore regularly file VAT refund requests, generating a significant impact on their cash flow, since VAT must be advanced until reimbursement by the DGFiP.

In theory, this impact could already be reduced via a VAT-free purchase if the goods are intended for intra-community deliveries or for export. However, in practice, the flow structure may limit this possibility.

Example:

• Company A produced the goods,

• Company B buys them to resell them within the group,

• Company C acquires them without VAT as long as they are intended to be exported: the company in fact benefits from the duty-free purchasing mechanism.

In this case, only the sale between B and C could benefit from the VAT exemption, but B would still be liable for VAT on its purchases from A.

With the establishment of a VAT Group: Flows between A, B and C would no longer be subject to VAT, thus eliminating intra-group fiscal friction.

In addition, the establishment of a VAT Group generally makes it possible to negotiate a VAT exemption regime at the group level. Thus, A could potentially buy goods free of VAT, even if, prior to the creation of the group, the company had no turnover abroad.

B. Other benefits

The VAT Group also offers several strategic advantages, including:

• Securing the VAT regime for intragroup transactions

By integrating a VAT Group, flows between members become non-taxable, thus eliminating any risk of error in the application of VAT on these transactions.

• Simplification of declarative procedures

The VAT Group makes it possible to centralize reporting obligations, since a single VAT return is filed for all member entities. However, a detailed annex must be provided, specifying the turnover of each company within the group.

V. Who can constitute a VAT group?

In France, a VAT Group can be formed by entities subject to VAT, i.e. those that have the seat of their economic activity or an establishment on French territory.

In addition, to join the VAT Group, members must be linked together. Each link must meet three criteria.

Financial criterion - Equity participation or voting rights

Entities that wish to form a VAT Group must demonstrate a close financial relationship, marked by a stake in the capital or the holding of more than 50% of voting rights. This detention may be indirect.

This means that to be considered a member of the Group, an entity must be financially linked to the other members through direct or indirect control, guaranteeing a certain financial homogeneity within the Group.

Economic Criterion - Economic Cooperation between members

There must be a form of tangible economic collaboration between the members of the VAT Group. This cooperation can be demonstrated by close economic relationships, such as the realization of complementary activities, the interdependence of operations, or the member provides services for the benefit of others.

The criteria are alternative, which means that only one of these aspects is sufficient to meet the economic criterion, offering a certain flexibility in structuring the Group.

Organizational Criteria — Shared Management Structure

Entities should demonstrate that they have a common or shared management structure. This may result in the existence of joint management, centralized administrative services, or the coordination of corporate policies.

The objective is to demonstrate a unity of management within the Group, thus ensuring a coherent organization.

Period

All of these conditions must be met by all members of the single taxable person on 1 January of the year following that in which the option for its creation was expressed. In addition, each member must continue to meet these conditions for the duration of their membership in the sole taxable person.

These criteria make it possible to verify the eligibility of members wishing to join a VAT Group. They aim to ensure that the entities that join the Group share a bond that is strong enough to be considered a single VAT taxable person. By meeting these conditions, members can benefit from VAT exemption on intra-group transactions, thus promoting better fiscal optimization and a simplification of administrative obligations.

VI. Our expertise: Cyplom, your expert in VAT and in the creation of VAT groups

Cyplom is a firm specialized in VAT, with recognized expertise in setting up VAT groups. We have supported numerous players who do not recover VAT — insurers, financial operators, training organizations, companies in the gambling sector, etc. — in structuring their VAT Group.

We are now putting this expertise at the service of VAT recovery operators. With extensive experience in industry, luxury, retail, as well as wine producers and traders, we are a reference partner for the creation and optimization of a VAT Group.

Tailor-made support

✔ Setting up and securing the VAT Group

✔ Support for businesses in the daily management of the regime

✔ Dedicated training for internal teams and accounting firms, to enable them to master the specificities of the VAT Group

Discover our expertise

To deepen your knowledge, download our white paper on the VAT Group and explore our support offer.

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