Every business needs to incur operating expenses that are subject to VAT, net of business purchases: this is known as recovering VAT on expenses.
This recourse is governed by the State and subject to a number of conditions.
Here are all the rules and procedures you need to know to benefit your company directly!
VAT recovery is easy to understand
On the one hand, companies are obliged to collect VAT on behalf of the State when they sell goods or services to their customers.
On the other hand, they automatically pay VAT when they incur expenses for their own operations: this is deductible VAT.
The company must have a VAT credit, i.e. the amount of deductible VAT must exceed the amount of VAT collected on sales.
Recovery is therefore by deduction: the company pays the tax authorities the difference between the VAT collected and the deductible VAT.
The right to reclaim VAT arises when the VAT return is drawn up.
You have two options: repayment or retention of the credit (also known as " imputation ").
In the first case, you can request full or partial repayment of the credit when you file your tax return.
In the second case, the tax authorities retain your VAT credit and can pay it back to you the following year, if you so wish.
If your company is experiencing cash-flow difficulties, or if you prefer to invest your cash, it may be worth taking advantage of VAT refunds.
On the contrary, it makes more sense to opt for credit retention, so as to be exempt from paying VAT if you are in debt in future months or years (up to the amount of the accumulated credit).
You can also use it to pay other business taxes collected by the tax network of the Direction Générale des Finances Publiques.
The tax authorities will validate your VAT deduction as long as you can scrupulously justify it.
Any amount to be deducted must be specified on a supporting document, usually an invoice.
It is important to respect the deadlines for claiming it. You can only claim it for the period in which you incurred the expenses concerned.
For an expense corresponding to the purchase of goods, the deduction is made at the time of delivery. For thepurchase of a service, the deduction is made when the invoice is paid to the supplier.
The goods or services purchased must not be used more than 90% for personal purposes, and must be used directly for the company's activities.
Not all expenses subject to VAT recovery are subject to the same conditions: this depends on the deduction coefficient applied.
Certain products, such as :
- expenditure on accommodation and vehicles for people working in a company (except for transport companies and driving schools)
- goods acquired free of charge or for less than their normal value
- services related to goods that are themselves excluded
Since January 1, 2017, a deduction coefficient has applied to gasoline used as fuel for vehicles excluded from the right to deduct.
From January 1, 2018, this will be possible even for vehicles other than those excluded from the right of deduction. The purchase of a company vehicle entitles the purchaser to a full VAT exemption on the vehicle.
Reclaiming VAT is possible by means of an annual, half-yearly, quarterly or monthly refund.
If you prefer an annual repayment, a minimum credit amount of €150 must have been accumulated.
It is important to note that the application for VAT credit reimbursement must be made before the end of January of the following year.
The half-yearly refund applies only to VAT on fixed assets, and must be at least €760.
Quarterly or monthly reimbursements are subject to the same minimum amount and must be claimed with the return following the period concerned.
There is no minimum amount for exporting companies.
The refund is made at the time of the VAT return.
This is done directly with the tax authorities, by completing form n°3519 for companies subject to the normal tax system.
Those who have opted for the simplified system must complete the refund application directly on the VAT return.
In general, the tax authorities refund amounts due within 15 to 20 days.
VAT is not always compulsory for all businesses and activities
Certain special cases are exempt from this tax. Insofar as they are not subject to it, they can neither collect nor recover it.
The following activities are currently fully exempt from VAT:
- sea fishing activities
- foreign trade (imports and intra-Community deliveries)
- the works
- non-profit social or philanthropic organizations
- medical and paramedical activities
- teaching
- rentals of bare buildings and furnished accommodation
- deliveries of new industrial waste and recovered materials
Certain special statuses, such as micro-entrepreneurs, are eligible for VAT exemption.
As a result, new businesses are exempt from VAT.
The benefits of the scheme cease to apply if the maximum sales ceiling is exceeded:
- 82,800 for retail and accommodation activities
- 33,200 € for services and self-employed professionals (BNC and BIC)
- 42,900 for lawyers' regulated activities
Written by our expert Paul Lasbarreres-Candau
November 28, 2017
