Since the beginning of the year, you may have noticed the arrival of a brand new VAT tax system: the VAT group. You're probably wondering how this affects you, and which companies are affected by this change.
If you run a company and are interested in this change, it is essential to note that for it to take effect from January 1, your group's designated representative must formulate this option before October 31.
What is a VAT group?
This optional arrangement, created in the 2021 Finance Act and effective from January this year, for those who applied before October 31, 2022, enables businesses with close financial, economic and organizational links to form a single entity responsible for all VAT formalities (returns, payments, VAT credit claims). The status of individual taxable person is replaced by that of a single taxable person.
Once the group has been formed, its members must remain in the group for at least three calendar years. By mutual agreement, they designate the single taxable person. As a result, all purchases and sales of goods or services made by a member of the group are deemed, for VAT purposes, to have been made by the group itself. In the case of taxable transactions, the single taxable person pays the tax or obtains, where applicable, a refund of VAT credits on his business account. A personal identification number is issued.
Which companies are entitled to form a VAT group?
Previously, VAT groups could only be set up by large companies. The option is now open to all companies based in France and subject to VAT, provided they have close links with each other.
Close links are defined as :
- From a financial point of view, this means holding more than 50% of the capital of another company subject to the law;
- From an economic point of view, this concerns the exercise of an activity of the same nature, complementary, dependent or pursuing the same objective as that carried out for the benefit of the other members;
- From an organizational point of view, this means common management and legal control.
Even though each member of the VAT group no longer has to deal with VAT returns, they still have to meet their own accounting obligations. What's more, each member is jointly and severally liable for payment of the tax, and must assume any late payment interest, surcharges or tax fines, allocated on a proportional basis.
Each company or association can be a member of only one group, and only a unanimous decision by all members can bring the group to an end.
What's the point of opting for such a system?
First of all, the main advantage of choosing this system is that all transactions between members of your group are not subject to VAT. In other words, they are treated as internal transactions, which means fewer formalities and less tax to deal with.
Secondly, VAT payment becomes simpler and more consolidated, considerably reducing the number of transactions you have to declare. This can greatly simplify VAT management for your business.
Finally, VAT groups are particularly advantageous in the banking and insurance sectors. Members of a VAT group in this sector can reduce the proportion of non-deductible VAT.
If you're interested, remember that for this plan to take effect on January 1, 2024, you must apply before October 31, 2023, through your group's designated representative. Don't miss this date if you think it could benefit your company!