Distance sales VAT threshold reduced at €35,000 in France
As from 1 January 2016, the new VAT registration threshold for foreign online retailers selling their products in France is set at €35,000 tax excluded. The former threshold in force until the end of the year 2015 was €100,000.
Let us remind that the threshold for VAT registration in France is applicable only to distance sales scheme. Wholesale companies and other businesses engaged in B2B transactions have to be registered for VAT in France from the 1st euro of turnover. In other words, there is no VAT registration threshold applicable for those companies, except in some specific transactions such as Intra-Community acquisitions.
There are also few e-commerce scenarios in which a foreign company doing distance sales in France will be required to be registered for French VAT, although the legal registration threshold is neither reached nor exceeded.
1. Who is concerned by the new VAT registration threshold ?
The new threshold is applicable to foreign companies doing “distance sales” in France from another EU Member State. No matter if the seller is incorporated in the EU or outside the EU. However, it is important to keep in mind that a commercial transaction has to fulfil the following conditions in order to be qualified as a “distance sale”:
- Orders are placed by various means of teleshopping not involving personal visits
- The delivery of the packages is done by or on behalf of the seller
- The customers in France are private individuals
- The items are dispatched from another EU Member State directly to customers in France
2. How to know if the threshold has been exceeded ?
We have to recognize that the existence of a threshold for VAT registration in France provides a real benefit to small overseas companies. Indeed, companies having a turnover under the legal threshold are relief from an extra administrative burden (and related costs) in regard with a VAT registration in France.
It is therefore necessary to understand accurately how to calculate the threshold in order to prevent small businesses from an unnecessary VAT registration in France.
Please check all the following points to determine if the new threshold of €35,000 is exceeded in your case or not:
- The threshold of €35,000 is applicable only to sales done as from 1 January 2016.
- The amount of €35,000 corresponds to your total turnover in France (including shipping costs) during a calendar year.
During the year 2015, a UK e-retailer sold in France for a total turnover of €89,000 including shipping costs. This turnover was under the former threshold of €100,000, but above the new registration threshold (€35,000 applicable from 2016).
The UK company is not liable for a VAT registration in France on the basis of the sales of the previous year. This company will have to watch out the turnover of 2016 until the new threshold of €35,000 is exceeded.
As the requirement to be registered for VAT arises during the month of crossing the threshold, a company aware of the fact that the threshold will be exceeded during the year can anticipate and opt for a voluntary registration.
3. What is a voluntary VAT registration ?
A foreign e-retailer can decide to be registered for French VAT before reaching the legal threshold of turnover for distance sales. However, before starting the registration process in France, such an option should be notified by a letter sent to the local tax office of the EU country from which the items are dispatched.
The voluntary registration for French VAT can also be seen as an alternative approach in the price setting strategy of the foreign retailer. For example, a Danish company selling some products in a high pressure competitive environment can significantly reduce its prices by opting for a local VAT registration in France. In order to make the example simpler, let us consider that the shipping costs are offered to French customers.
Our e-retailer will have to apply 25% Danish VAT on each sale under the legal threshold. It will result in €25 VAT for an item sold at €100. The price displayed online will be €125. With a VAT registration in France, the VAT rate applicable will be cut at 20%. The VAT amount collected on the same product will be €20 (calculated on €100 net) with €120 displayed online. Each potential client gains a reduction of €5 on the purchase of that specific item.
In the above example, the price displayed is reduced by 4%. The conclusion would have been the same if the company was established in Sweden. A more advantageous reduction of the price (by about 5.5%) would have been noticed if the seller was established in Hungary where the standard VAT rate is 27%.
Of course, this is only an example and other considerations may be necessary before deciding to be registered for French VAT on a voluntary basis.
4. What happen if you do not comply with French VAT obligations ?
Whether your failure to comply is voluntarily or not, there is no great difference in terms of tax penalties. If you are caught, you will have to bear the consequences of being negligent. (You may be asking yourself how the French authorities can be aware of your activities in France, please read this: France fights against VAT fraud online)
The French tax administration may require that your company pays tax due on the past sales up to 3 years backward and the related tax penalties. In certain situations (especially when there is a suspicion of tax fraud), the statute of limitation can be increased up to 10 years backwards.
To read more on the potential consequences of a VAT infringement on your company, we invite you to go on: VAT penalties and default interest in France
5. Do you need to register your company for French VAT ?
If you are a foreign online retailer and you still have unanswered questions about registering your company for VAT purposes in France, you can send us your message using the contact form.
The content published here above is based on information timely as of 1 January 2016, unless otherwise indicated. Amendments to the tax laws in the EU country covered here could have been passed recently. Therefore, readers should contact Corintax Consulting for further insights.