French VAT (TVA)

The TVA Framework

French Value Added Tax, known as Taxe sur la Valeur Ajoutée (TVA), is governed by the Code général des impôts (CGI, Articles 256 to 302) and the Code général des impôts, annexes for implementing regulations. TVA was introduced in France in 1954 and is the oldest national VAT system in the world; its basic architecture influenced the design of the EU VAT Directive (2006/112/EC). France applies the EU VAT rules, with certain national options and derogations.

The Direction Générale des Finances Publiques (DGFiP) administers and collects TVA. The tax authority publishes extensive guidance, including the Bulletin Officiel des Finances Publiques-Impôts (BOFIP-Impôts), which provides legally binding interpretations of TVA rules.

Standard and Reduced Rates

France applies a standard TVA rate of 20%, the highest standard rate in the EU alongside some other member states. The standard rate applies to most goods and services not qualifying for reduced rates. France also applies several reduced rates: an intermediate rate of 10% applies to catering, transport, waste collection, and certain cultural services; a reduced rate of 5.5% applies to food products, energy supplies, books, and passenger transport; and a super-reduced rate of 2.1% applies to basic necessities including certain foodstuffs, medicines reimbursed by social security, and press publications.

The reduced rates are subject to EU scrutiny under the VAT Directive’s classification of goods and services eligible for reduced rates. The Conseil d’État in Decision No. 442851 (2021) annulled a DGFiP ruling that applied the 5.5% rate to digital books, finding that the reduced rate was available only for physical books under the current EU framework. The decision led to legislative amendments aligning French law with the EU Digital VAT rules.

Territoriality

TVA territoriality determines which transactions fall within French VAT jurisdiction. The basic rule is that supplies of goods are taxed where the goods are located at the time of supply, while supplies of services are taxed where the supplier is established (B2C) or where the customer is established (B2B). For distance selling and e-commerce, special rules apply under the EU VAT e-commerce package (2019/1995, effective 1 July 2021).

France’s overseas departments (DROM — Guadeloupe, Martinique, Guyane, La Réunion, Mayotte) are outside the EU VAT territory for most purposes and apply their own VAT-like taxes. Supplies between metropolitan France and the DROM are treated as exports/imports for VAT purposes, subject to customs formalities.

Deductible VAT

The right to deduct input VAT is a fundamental feature of the French TVA system. A taxable person may deduct VAT charged on goods and services used for the purposes of taxable transactions. The deduction must be claimed in the VAT return for the period in which the input VAT became chargeable, subject to an annual adjustment for capital goods.

French law restricts the right of deduction for certain categories of expenditure: business entertainment and hospitality costs (50% deductible); passenger cars (limited deduction based on the CO₂ emissions threshold); and luxury goods. The Conseil d’État in Decision No. 428716 (2020) held that the restriction on car VAT deduction must be applied proportionately and cannot extend to vehicles used exclusively for business purposes. The ruling required the DGFiP to revise its administrative guidelines on the treatment of mixed-use vehicles.

VAT Grouping

France permits VAT grouping (assujettis uniques) under Articles 256 C and 256 D CGI, transposing Article 11 of the VAT Directive. VAT grouping allows closely related companies (with financial, economic, and organisational links) to be treated as a single taxable person for VAT purposes. The group must include all eligible members, and dissolution of the group requires re-registration of each member individually.

The VAT group makes intra-group supplies non-taxable for VAT purposes, simplifying compliance and eliminating cash-flow costs on intra-group transactions. The Conseil d’État in Decision No. 451032 (2022) confirmed that VAT grouping is optional and that the tax authority cannot require a group to form a VAT group where it elects not to do so.

Reverse Charge

The reverse charge mechanism (autoliquidation) shifts the obligation to account for VAT from the supplier to the customer. In France, the reverse charge applies in specific circumstances: (1) supplies by non-established taxable persons; (2) construction services (including subcontracting); (3) transfers of emission allowances; (4) supplies of mobile phones, computer equipment, and electronic components to taxable resellers; (5) supplies of precious metals and investment gold; and (6) cross-border B2B supplies of services (Article 44 of the VAT Directive).

The application of the reverse charge is mandatory where the conditions are met. The customer must account for both output VAT (on the deemed supply) and input VAT (on the deemed acquisition), resulting in a net zero position where full deduction is available. The Cour de cassation in Com. 14 October 2020, No. 19-14.722 confirmed that failure to apply the mandatory reverse charge may result in joint and several liability for the unpaid VAT between supplier and customer.

E-commerce VAT

The EU VAT e-commerce package (effective 1 July 2021) introduced significant changes for cross-border e-commerce affecting French VAT. The One-Stop Shop (OSS) allows taxable persons to declare and pay VAT on distance sales of goods and B2B services in a single member state. The Import One-Stop Shop (IOSS) covers distance sales of imported goods of low value (up to €150). France has implemented the OSS/IOSS regimes and has designated the DGFiP as the competent authority for OSS registration and compliance.

The Loi de finances pour 2024 introduced additional e-commerce measures, including the mandatory appointment of a fiscal representative for non-established sellers using the IOSS and enhanced data-sharing obligations for online marketplaces under the DAC 7 directive.