How Much is VAT Tax in France? A Clear Breakdown of Rates

Value Added Tax, commonly known as VAT or “Taxe sur la valeur ajoutée” (TVA) in France, is a consumption tax applied to most goods and services. Unlike direct taxes such as income tax, VAT is an indirect tax, meaning it is collected by businesses at each stage of the supply chain and ultimately borne by the end consumer.

Understanding France’s Standard and Reduced VAT Rates

France employs a multi-tiered VAT system with different rates applying to various goods and services. The standard VAT rate in France is 20%, which applies to most goods and services unless a specific reduced rate or exemption is provided. Examples of items typically subject to the standard 20% rate include most consumer goods, general services like hairdressing, and alcoholic beverages.

France also applies reduced VAT rates of 10% and 5.5%. The 10% reduced rate applies to a range of goods and services related to daily life or cultural activities. This includes certain foodstuffs, such as those intended for immediate consumption in restaurants, cafés, and fast-food outlets. It also covers domestic passenger transport, hotel accommodation, and admission to certain cultural services like museums and amusement parks. Also included are some renovation and repair works on private dwellings, certain agricultural supplies, and services by writers and composers.

The 5.5% reduced VAT rate is applied to more essential goods and services. This rate covers most foodstuffs, particularly those intended for deferred consumption like items sold in supermarkets with expiration dates. It also applies to water supplies, medical equipment for disabled persons, and books. This rate also covers admission to certain cultural events, social housing, some domestic care services, admission to sporting events, and gas and electricity supplies.

Specific VAT Rates and Exemptions

In addition to the standard and main reduced rates, France also implements a “super-reduced rate” and a “zero rate” for very specific categories of goods and services. The super-reduced VAT rate is 2.1%. This rate applies to certain pharmaceutical products, newspapers and periodicals, and admission to particular cultural events.

The zero rate (0%) applies to certain transactions. This rate is primarily for exports of goods from France to non-EU countries, and intra-Community supplies of goods to other EU member states. International transport services also benefit from the zero rate.

Certain goods and services are exempt from VAT. Major categories include certain banking and financial transactions, insurance and reinsurance operations, educational services, and services related to medical and paramedical professions.

The Application and Collection of VAT

VAT is typically included in the final price consumers pay for goods and services. Businesses act as intermediaries, collecting VAT from their customers on behalf of the French tax authorities, known as the Direction Générale des Finances Publiques (DGFiP). This means that while businesses collect the tax, the ultimate financial burden rests with the end consumer.

For businesses, the VAT process involves both “output VAT” and “input VAT.” Output VAT is the tax collected from customers on sales of goods and services. Input VAT is the tax paid by the business on its own purchases of goods and services used in its operations. To determine the amount owed to the DGFiP, businesses deduct their input VAT from their output VAT. The net amount is then remitted to the government through regular VAT returns. This deduction mechanism prevents double taxation throughout the supply chain, ensuring that businesses are only taxed on the value they add.