Understanding Fintechs' French VAT Obligations

In this video, we discuss a crucial topic for Fintechs: VAT management. Understanding tax obligations, especially when it comes to VAT, is essential to avoid the pitfalls of misapplication and to optimize business profitability. We will see in detail what to anticipate, how to elect for VAT when it is advantageous, and the strategies to adopt to minimize fiscal impacts such as payroll taxes. This video will provide you with practical tips for effectively structuring your Fintech and ensuring tax compliance.

Understanding VAT Obligations for Fintechs

One of the essential first steps for any fintech is to determine if it is liable for VAT.

Financial services, especially banking and insurance transactions, often benefit from VAT exemptions. However, it is crucial to understand exactly which activities are exempt and under what conditions in order to avoid risks of fiscal reassessment. Careful auditing of activities and their classification can prevent these risks and help the business to better structure itself.

It is also possible to file a Ruling request with the tax authorities. This document, once validated, is enforceable, and protects fintech in its tax decisions, particularly during a fundraising or sale. Having such a guarantee of compliance is a major asset in order to avoid surprises and stabilize the company's valuation.

The Importance of VAT Exemption

The VAT exemption on certain financial transactions is a significant advantage for fintechs. This allows them to structure their prices more competitively and improve their margins, especially in transactions with individuals. However, it is important to apply this exemption appropriately, as an abusive extension may result in tax adjustments And penalties significant in case of control. The administration in fact requires VAT calculated below the price: this can degrade the financial health of the company.

In order to avoid this, it is essential to analyze each operation carefully. Ensure that the exemption is applicable or, on the contrary, that a VAT option can be considered, makes it possible to guarantee the compliance of the tax regime and to optimize deduction regimes and the management of payroll tax.

Optimization and Financial Operations

For certain financial transactions, fintechs have the option of choose to elect for VAT, which allows them to recover VAT on development costs, especially research and development (R&D), as well as on other expenses. This option can be particularly advantageous for innovative fintechs, including initial costs may be high. It is also relevant for those who work with professional clients, in particular internationally.

However, it is important to assess this decision well, as applying VAT can also reduce the net margin of the company. Thus, a thorough analysis should be done to determine whether the VAT option is more beneficial in the long run.

The counterpart of the exemption: Reduction in VAT recovery

One of the major disadvantages of the VAT exemption is the reduction in deduction rights. Indeed, in the absence of VAT on exempt transactions, fintech loses the possibility of recovering VAT on its investments, such as those in R&D. These non-recoverable costs can increase the company's expenses, thus reducing its profitability. This is why it is essential to anticipate these impacts from the first stages of business development and to plan an adapted VAT recovery strategy.

The counterpart of the exemption: the Wage Tax

In addition to managing VAT, fintechs need to be aware of the payroll tax, which applies when more than 90% of turnover is not subject to VAT. This tax, which can reach 13.6% of salaries paid represents an additional cost that can significantly affect profitability, especially for fintechs with a strong salary structure.

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Chez Cyplom Avocats, we support fintechs in the analysis and structuring of their tax transactions. We help them make the right choices, in particular to maximize VAT recovery and limit the impact of payroll tax, while remaining in compliance with current tax regulations (link).