What Is VAT in France and How Does It Work?

Value Added Tax (VAT), known in France as Taxe sur la Valeur Ajoutée (TVA), is an indirect consumption tax applied to most goods and services. This tax forms a significant component of government revenue in France, similar to its role across the European Union. VAT is ultimately borne by the final consumer, though it is collected by businesses throughout the supply chain.

Understanding French VAT: The Basics

French VAT is levied on the sale of most goods and services within the country. Businesses act as intermediaries, collecting this tax at each stage of the supply chain, from manufacturers to retailers. The burden of the tax falls on the final consumer who purchases the goods or services.

Businesses manage VAT through a system of input and output VAT. Output VAT is the tax a business charges on its sales to customers, while input VAT is the tax a business pays on its purchases. Businesses remit the difference between collected output VAT and paid input VAT to the French tax authorities. This mechanism ensures VAT is neutral for businesses, as they pass the tax along rather than incurring it as a cost, provided they can fully recover their input VAT. The system aims to tax the “value added” at each stage of production and distribution.

French VAT Rates

France applies several VAT rates, determined by French law. The standard rate, known as taux normal, is 20% and applies to the majority of goods and services not covered by other specific rates.

Reduced rates apply to certain categories of goods and services. A 10% reduced rate applies to items such as hotels, restaurants, passenger transport, and certain non-reimbursed medicines. Another reduced rate, set at 5.5%, covers many food products, essential necessities, books, cinema tickets, and subscriptions for gas and electricity.

France also features a super-reduced rate of 2.1%. This rate primarily applies to medicines reimbursable by the social security system, certain press publications, and specific cultural events. French law also includes zero-rated supplies, where no VAT is charged, but businesses can still reclaim input VAT related to these supplies, such as for intra-community and international transport.

How French VAT Applies to Transactions

French VAT rules dictate how the tax is applied across various transaction types, ensuring clarity for both domestic and international trade. For domestic sales of goods and services within France, VAT is generally applied at the appropriate rate and collected by the seller from the customer.

When goods are imported into France from outside the European Union, import VAT is assessed at customs. Since January 1, 2022, a mandatory reverse charge mechanism applies to all businesses importing goods from non-EU countries, meaning importers self-account for the VAT on their French VAT return rather than paying it at the border.

Intra-community acquisitions involve goods purchased from another EU member state and shipped to France. VAT is due in France, and the French purchaser self-accounts for this VAT through a reverse charge mechanism on their French VAT return. This means the foreign seller issues an invoice without VAT, and the French business declares and pays the VAT in France, often simultaneously deducting it. For exports of goods and services from France to destinations outside the EU, these transactions are zero-rated, meaning no French VAT is charged on the sale, but the exporter can still recover input VAT related to these exports.

Exemptions from French VAT

Certain categories of goods, services, or activities are exempt from French VAT. An exemption means that no VAT is charged on the supply, and businesses providing these exempt supplies cannot recover the input VAT they paid on purchases related to those supplies. This differs from zero-rated supplies, where no VAT is charged to the customer, but the business can still recover input VAT.

Common examples of VAT-exempt transactions in France include certain medical and healthcare services, educational services, and specific financial and insurance services. Real estate transactions also have specific exemptions. These exemptions aim to reduce the tax burden on essential services or those where applying VAT would be administratively complex or lead to double taxation. Businesses engaged in exempt activities must still include the turnover from these supplies in their overall VAT declarations, even though no VAT is collected or remitted on them.