As a micro-entrepreneur, you benefit from the basic VAT exemption system, which means that you don't have to invoice your customers for VAT, nor can you reclaim it from your expenses. What's more, you are obliged to include the words "TVA non applicable, art.293B du CGI" on your invoices to inform your customers.
However, it's important to know that you may be required to collect VAT in certain situations, even without opting for the actual tax regime. We explain when this might happen, and how to proceed in this particular case.
When do you lose your VAT exemption?
Prior to 2018, all micro-enterprises automatically benefited from VAT exemption. Since then, regulations have changed somewhat, limiting this exemption to micro-entrepreneurs whose sales do not exceed certain thresholds, which vary according to the activity carried out.
In reality, there are 2 thresholds:
- The basic threshold
- The increased threshold
The maximum limit also depends on the type of activity:
- Sales of goods: the basic threshold is set at €91,900 and the higher threshold at €101,000;
- Craft and liberal professions: the basic threshold is €36,800 and the higher threshold €39,100.
Let's take the case of a self-employed craftsman. If he generates annual sales of €28,000, he is exempt from VAT. If he generates sales of €38,000, he is also exempt unless he has exceeded the basic threshold for the second consecutive time. In this case, VAT must be invoiced from January 1 of the following year. Finally, if his sales exceed the higher threshold, he must invoice VAT from the month following the overrun, as well as for the following year.
In summary, there are three situations in which you may lose the benefit of basic VAT exemption:
- Exceeding the basic threshold for two consecutive years,
- Exceeding the increased threshold during the year,
- Switching from the simplified tax system to the simplified actual profit or controlled declaration system.
As soon as your situation no longer qualifies you for VAT exemption, you must inform your tax office.
Billing VAT to your customers
To charge VAT to your customers, you'll need to make a few changes to your invoices. First, remove the words "TVA non applicable, article 293B du CGI" and add your VAT number, which you can obtain by contacting the Service des Impôts des Entreprises (SIE) where your company is located.
Secondly, the presentation of your invoice has changed. It must now include the following 4 elements:
- Sales and services excluding VAT ;
- The VAT rate;
- VAT amount ;
- Amount incl. VAT
The calculation is as follows: EXCL. TAX + VAT = INCL. TAX.
In France, there are 4 VAT rates applicable to amounts exclusive of tax:
- The standard rate of 20%, which applies to most goods and services;
- The intermediate rate of 10%, which applies in particular to unprocessed agricultural products, home improvement work, certain accommodation services, catering and passenger transport;
- The reduced rate of 5.5% applicable to food products, books, gas and electricity subscriptions, cinema tickets...
- The special rate of 2.1% is mainly reserved for drugs.
VAT invoicing formalities
As you know, VAT is an indirect tax that falls entirely on the end consumer. Businesses, on the other hand, act as intermediary collectors of this tax, which they must then pay to the State through regular declarations.
The VAT return must be completed on a monthly or quarterly basis, depending on whether you opt for the normal actual system, or annually if you prefer the simplified actual system.
In this declaration, you will indicate the total amount of VAT you have invoiced to your customers, as well as the total amount of VAT you have paid on your purchases during the period in question. The difference between the VAT collected (that which you have invoiced) and the VAT deductible (that which you have paid) represents the VAT due, which must be repaid to the State.
It may happen that your expenses momentarily exceed your income. In this case, the deductible VAT will be higher than the collected VAT, and you will benefit from a VAT credit. A VAT refund is even possible, provided you apply for one.
It's worth noting that when selling goods or services within the European Union, even if you don't have to pay VAT, it's imperative to have an intra-Community VAT number.