BUYING & SELLING GOODS IN FRANCE
It often happens that a foreign company orders goods from a French supplier and requests that the delivery should be made directly to an address in France. It could be for example the address of the end customer in case of chain transactions (Party “A” sells to “B” and “B” resells the same goods to “C”), or the premises of the French supplier in case of an EX Works (EXW) sale, or the premises of a French service provider that will process the raw material into finished or intermediate products, or finally the business address of a shipping company.
For the sole purpose of this article, we retained the scenario where the delivery address in France is that of the end customer in the context of “chain transactions”. This type of sales includes at least two separate commercial transactions, each falling within the scope of the French VAT :
- The sale from the French supplier to the foreign company (the first sale)
- The sale from the foreign company to the final client (the second sale)
Each transaction is subject to a specific VAT rule in force in France.
The first Sale: from the French supplier to the foreign company
The supplier will charge French VAT to its overseas customer. There is no way to avoid this VAT because the delivery takes place within France. However, under certain conditions, this VAT is recoverable by the foreign company.
Note that standard VAT rate applied to most products in France is 20%. There is also a reduced rate of 10% or 5.5% applied to specific goods and services.
The second Sale: from the foreign company to the final client
The VAT treatment of this sale will depend on the VAT status of the final customer, especially if it is another company registered for VAT in France (B2B transaction) or a non-VAT registered person such as a private consumer or a business not enrolled for French VAT (B2C transaction).
In case of a B2B transaction:
The resale by a foreign company of a good sourced in France can take place either immediately after the initial purchase (it is a normal sale transaction) or after a long period of rental with option to purchase (it is a leasing agreement).
If the final client is another company registered for VAT purposes in France, the foreign company (the “middleman”) won’t need to charge local VAT on the sale price or on the rents to be received under a lease contract. However, the foreign company will be eligible to reclaim VAT charged by its French supplier.
For companies located within the European Union, a VAT refund claim can be filed through the electronic portal of their national tax administration. They can also choose to appoint a third party (a VAT Consultancy Company) who will deal with the VAT refund application.
Companies established outside the European Union will be obliged to appoint a tax representative in France who will prepare and file on their behalf the VAT refund claim. According to the French tax law, a VAT refund application in this case is not possible without the appointment of a local fiscal representative.
In case of a B2C transaction:
These transactions include the cases where the final customer is a private consumer, a company not registered for VAT in France and other non-VAT registered organizations like public bodies, associations and NGOs.
The foreign supplier will need to be registered for VAT in France and issue to its client an invoice including French VAT. On the periodic VAT return to be submitted to the Tax Authorities, the tax paid to the upstream French supplier will be offset against the sale tax collected.
Registering your company for VAT in France does not mean that you will form a new entity therein. The purpose of VAT registration is to enable the foreign company to comply with its local VAT obligations, while recovering the tax paid to its suppliers.