Choosing your VAT tax regime is one of the first strategic decisions when setting up a business. From the business plan, the entrepreneur must have a clear vision of the various direct and indirect taxes to be paid and of the exchanges with the State at the level of VAT: collection and deduction. Value added tax has a significant impact on the provisional financial study. By knowing the different possible regimes, the future business manager will choose the one best suited to his project, the one that will put the least strain on his cash flow.
VAT registration is a process by which businesses register with tax authorities. This tax is applied to most goods and services provided by businesses and collected by the state.
Registration is of paramount importance for businesses: it allows them to collect VAT on their sales and remit it it to the tax authorities. It also gives them the right to recover what they paid for their business purchases, which can have a significant impact on their cash flow.
Before being able to register for VAT in France, a company must ensure that it meets certain criteria. Generally, these criteria include exceeding an annual turnover threshold or carrying out specific transactions subject to VAT. Businesses should also be able to provide the required documentation to justify their business activity and legal registration.
To be not subject to VAT, a company must generally meet certain annual turnover thresholds. These thresholds vary according to the nature of the business activity. Here are the thresholds applicable for the year 2024:
1. Property sales activities:
• For activities involving the sale of goods, the threshold is 85,800 euros excluding taxes per year.
2. Service delivery activities:
• For the provision of commercial or craft services and liberal professions under BIC (Industrial and Commercial Profits) or BNC (Non-Commercial Profits), the threshold is also 85,800 euros excluding taxes per year.
• For services relating to agricultural profits (sale of agricultural products to farmers or consumers), the threshold is 85,800 euros excluding taxes per year.
• For other services (liberal professions not BIC or BNC), the threshold is 34,400 euros excluding taxes per year.
It is important to note that these thresholds are applicable for a full calendar year. If a company exceeds one of these thresholds during a year, it becomes liable for VAT from the first day of the month in which it was exceeded and must then meet its tax obligations related to VAT.
These thresholds are subject to periodic review by the French tax authorities, so it is recommended that you check the thresholds in force at the time of your activity.
It is of course crucial to know the various possible choices before registering.
Each regime has its own characteristics and fiscal implications, which requires careful analysis before making a choice.
The VAT exemption is a simplified regime intended mainly for small businesses. Under this regime, businesses do not charge VAT to their customers, nor do they recover VAT on their purchases. As a result, they do not have to file a declaration, which greatly simplifies their administrative management. However, this regime also means that they cannot recover VAT on their business purchases, which can affect their profitability. This regime is particularly advantageous for businesses whose turnover is below the exemption thresholds based on VAT.
Simplified real life regime
The simplified real regime is adapted to companies whose turnover exceeds the basic franchise threshold but does not exceed a certain ceiling. Under this regime, businesses charge VAT to their customers and recover VAT on their purchases. They must file periodic VAT returns (usually quarterly) and pay the VAT due based on the actual amounts invoiced and paid. This regime offers a compromise between administrative simplicity and the ability to recover VAT on purchases.
Real normal regime
The normal real regime is applicable to companies whose turnover exceeds the ceiling of the simplified real regime. Under this regime, businesses must also charge VAT to their customers and recover VAT on their purchases. However, the VAT return is more complex, as it requires detailed accounting and monthly declarations. This regime is suitable for medium to large businesses that need accurate management of their VAT.
Mini-real regime
The mini-real regime is a variant of the simplified real regime, but with less stringent accounting and reporting obligations. It is reserved for companies whose turnover does not exceed a certain ceiling, which is lower than under the simplified real regime. This regime offers simplified VAT management while allowing VAT to be recovered on business purchases, making it attractive for small businesses.
While the turnover threshold is one of the criteria to take into account, it is often difficult, especially when creating a company, to be precise. Likewise, the choice may be based on more pragmatic considerations such as the ease of declaration, the impact on the price of the good or service offered, etc.
Reminder: there are different VAT rates in France. The normal rate is 20% of the final price of the product; there is an intermediate rate (10%) for catering and home renovation services for example; and a reduced rate (5.5%) on certain so-called essential goods and services: basic foodstuffs, transport, etc.
Documents to be provided
To complete the VAT registration procedure, businesses must provide several documents. These documents may vary depending on the nature of the business and its activities, but they generally include executive IDs, corporate legal documents, proof of address, and any other specific documentation required by tax authorities.
Note: the legal form of the company does not in any way require a choice in terms of VAT, unlike the taxation of profits.
Given the rules applicable when it comes to exchanges between the various Member States of the European Union, it may be appropriate to have an intra-community VAT number.
In terms of taxation, intra-community VAT is governed by the provisions of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax. It therefore concerns commercial transactions involving transactions between taxable persons established in different EU Member States. This Directive, also called the “VAT Directive”, frames the applicable rules and the methods of application of these rules by each Member State of the EU.
For businesses based in France and subject to VAT, obtaining a VAT number is necessary to trade with other EU taxable persons. This is particularly the case when a French company wishes to make acquisitions from other European service providers or suppliers.
Businesses that provide services to foreign customers must also comply with international VAT rules, which vary depending on the nature of the services provided and the countries involved. Effective tax management of international transactions involves a thorough understanding of applicable VAT rules and adequate planning to minimize tax costs and risks.
Every business manager must therefore be well aware of the ins and outs of the various VAT regimes before making their creation declaration.
The expertise of tax lawyers like those in our firm makes it possible to clarify things and to find the most advantageous solution for your company and your activity, whether it takes place in France or abroad. You will also get clear information or even tailor-made tools to simplify the VAT declaration procedures and always be in good tax compliance.
The life of a society that offers goods and services is a source of opportunities and changes. Customers in other countries, change to become subject to VAT, expected thresholds being exceeded, purchase of another company, etc.: each time, the VAT regime must be a lever for success, a management tool rather than a brake. Trust our two tax lawyers specialized in the arcana of VAT to facilitate your choices and measure the final impact on your turnover.
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