VAT (value-added tax) is a tax paid by the end consumer. It is therefore the professionals who collect this tax, declare it and pay it to the tax authorities. There are several VAT tax regimes, and a number of specific regimes (farmers, travel agents, press, cinema, etc.). The aim of this article is to explain the characteristics of the three main VAT tax systems, to help you choose the right one for your business.
Basic VAT exemption
This scheme consists of a total exemption from VAT on all operations carried out by a company (services, sales of goods or provision of accommodation). It applies only to structures that do not exceed the authorized sales ceilings. For example, during the previous calendar year, your business must not have generated sales in excess of €85,800 for the sale of goods or the provision of accommodation, or €34,400 for the provision of services. In the year you set up your business, you are automatically exempt from VAT.
The downside of this advantage is that you cannot reclaim VAT on your business expenses. That's why you can always waive this exemption and opt for a VAT tax system. This can be an interesting option if you're just starting out and need to make major investments.
However, if you exceed the authorized limits, you can continue to benefit from the basic VAT exemption if you meet the following conditions:
- For the sale of goods or the provision of accommodation: you must not exceed sales of €94,300, and sales for the year before last must not have exceeded €85,800.
- For services: you must not exceed sales of €36,500, and sales for the year before last must not have exceeded €34,400.
Otherwise, you will be subject to VAT on all transactions carried out from the 1st day of the overrun.
Good to know: As long as you are exempt from basic VAT, you are required to indicate the words "TVA non applicable, article 293 B du CGI" on all your invoices.
Simplified VAT system
Eligibility requirements
You can choose this plan if your company meets two conditions:
- Your sales excluding VAT for the previous calendar year must not exceed €818,000 for sales of goods or the provision of accommodation, or €247,000 for the provision of services.
- The amount of VAT due in the previous calendar year did not exceed €15,000.
If you exceed the authorized thresholds, you will continue to benefit from the simplified actual regime, provided your sales do not exceed €901,000 (for sales of goods or the provision of accommodation) or €279,000 (for the provision of services), during the year in which the thresholds are exceeded. If your sales exceed these limits, you will be subject to the normal tax regime from the 1st day of the current financial year.
How the simplified actual system works
You will be required to pay two half-yearly instalments (55% in July and 40% in December), calculated on the amount of VAT due the previous year. These will be adjusted when you file your annual tax return (CA12).
Good to know: if you collected and remitted less than €1,000 in VAT last year, you'll be exempt from making advance payments.
The "mini réel" system
This is an option available to companies that are automatically or optionally subject to the simplified tax system. It allows you to opt to pay VAT under the normal actual tax system, while remaining subject to the simplified tax system for your profits.
This scheme can be interesting if you have a lot of charges and expenses, as it gives you the possibility of reclaiming your VAT credit on a monthly basis, while continuing to benefit from simplified profit formalities.
Standard actual VAT regime
This system is applied to all businesses that do not qualify for either the basic VAT exemption or the simplified actual system.
So, if your sales exceed €247,000 for services or €818,000 for the sale of goods or the provision of accommodation, you'll have to declare the VAT due for the previous month on a monthly basis. This will also be the case if you declare more than €15,000 in VAT annually, even if your sales before tax remain within the limit authorized for your company to be subject to the simplified actual tax regime.
On the other hand, if the amount of VAT you have to pay is less than €4,000 over the year, you can benefit from quarterly reporting.