VAT management by fintechs: What strategies when creating?

In the competitive and regulated world of startups, fintech companies stand out for their exposure to fiscal complexities, especially with regard to Value Added Tax (VAT). These businesses, located at the intersection of finance and technology, are subject to specific VAT regimes that can significantly influence their cost structure and development strategy.

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Understanding VAT obligations for Fintechs

One of the first steps for any fintech is to determine its VAT liability. Financial services, especially banking and insurance transactions, often benefit from VAT exemptions. However, it is essential for fintechs to understand precisely which activities are exempt and the conditions of these exemptions to avoid the risks of tax adjustment. An early and thorough audit of activities and their classification can save a growing business a lot of worries.

It may also be considered to file a request for a rescript, documented with the applicable regulations, with the tax authority. The administration's response is opposable: it therefore protects fintech in its development and constitutes an essential document to limit any questioning of the value of the company in the context of a fundraising or sale operation.

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The Importance of Exemption from VAT

Exemption from VAT for certain financial transactions is a significant advantage for fintechs, potentially allowing greater leeway in price structuring and cost management. It also makes it possible to increase the company's margin in the context of transactions with individuals.

However, this exemption should be applied with caution. Inappropriately extending a VAT exemption can lead to significant adjustments and penalties during tax audits. It is therefore crucial for fintechs to analyze each transaction with the help of competent lawyers to ensure tax compliance and optimize deduction and payroll tax regimes.

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Tax optimization and financial transactions

For eligible financial transactions, fintechs can choose to opt for VAT, which would allow them to recover VAT on development (R&D) costs and other expenses. This decision must be taken after a detailed analysis: in fact, the application of VAT may involve a reduction in the company's margin.

Opting for VAT can be particularly beneficial for businesses that focus on innovation and R&D, where initial costs can be high. It is also interesting in case of activity in connection with professional customers established abroad.

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The counterpart of the exemption: the reduction in VAT recovery

The ability to recover VAT on investments related to research and development can play a crucial role in the financial viability of a fintech: it depends directly on the application of the VAT exemption by the company. Non-recoverable costs can significantly increase the fiscal cost of the company and reduce the attractiveness of the economic model presented to investors. Fintechs must therefore plan their VAT recovery strategy from the early stages of development to ensure optimal tax management.

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The counterpart of the exemption: wage tax

In addition to managing VAT, fintechs in France must be aware of payroll tax, which applies when the company does not charge VAT, as an exemption, on more than 90% of its turnover. This tax, which can reach 13.6% of the salaries paid, can have a considerable impact on the profitability of businesses, especially those with a mainly linear cost structure.

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Strategies to minimize fiscal impact

Fintech founders need to consider several strategies to minimize fiscal impact, including optimizing price structures, effectively managing deduction rights