VAT : ONLINE RETAILERS SELLING GOODS IN FRANCE
The Finance Bill for 2016 has reduced the distance selling threshold in France from €100,000 to €35,000 as from January 1, 2016. Overseas companies selling items online to French private individuals are now required to be registered for French VAT as soon as their yearly turnover exceeds the new threshold.
What is a distance selling?
Distance selling refers to goods ordered by various means of communication (mail order sales, phone or tele-sales, orders over the internet) and which are dispatched or transported for or on behalf of the supplier to private consumers.
E-commerce: who should be registered for VAT purposes in France?
If your company belongs to a country of the European Union and you have started selling goods over the internet to private consumers located in France, you must be registered for VAT with the French Tax Office when your annual turnover reaches 35,000 EUR. An option for VAT enrollment is possible before reaching the indicated turnover.
The registration threshold is not applicable when the e-trader does not belong to a EU country, except in the case where the non-EU company dispatches items into France from a warehouse located in another EU country.
Non-compliant companies (i.e. businesses failing to be registered for VAT in France and file periodic VAT returns) are exposed to VAT inspections performed by the French Tax Administration.
A German e-trader (a EU company) sells over the internet consumer goods to French private individuals. The German business will charge German VAT (standard rate is 19% in 2016) to its French clients, until it exceeds the annual turnover of distance selling in France which is 35,000 EUR.
Once the German e-trader exceeds the annual turnover of 35,000 EUR in France, it must start invoicing French clients including French VAT (standard rate is 20% in 2016).
This change in invoicing rules implies that the German business requests a VAT registration to the French Tax authorities and submits periodical VAT returns.
An e-trader located in the USA (non-EU company) specialized in mail ordering of luxury goods dispatches its products to French clients via FedEx International Priority. The introduction of the goods into France is deemed to be an importation on which duty and taxes will be levied by the Customs.
In order to reduce the import tax burden, the US company has the possibility to be enrolled for VAT in France and invoice each local client as if it was a French company. If the US company arranges warehousing in France, the enrollment for VAT will become mandatory.
Situations in which the distance selling threshold does not apply
There are some cases where any supplier who makes distance sales to France must register and account for VAT before the first transaction occurs. The threshold of 35,000 EUR above-mentioned is not applicable in the following cases:
- The foreign e-trader uses fulfillment services (when available) on French online Marketplaces such as Amazon (FBA Program or Fulfillment By Amazon), Cdiscount, PriceMinister, eBay.fr and Fnac.com.
- The foreign e-trader uses dropshipping technique (taking orders online and requesting to French suppliers to dispatch the packages directly to consumers located in France).
- The foreign e-trader arranges private warehousing or logistic platform in France.
- The foreign e-trader dispatches goods from a non-EU country to final consumers in France. In this specific situation, the overseas e-retailer acts as importer of record (IOR) in France.
- The goods sold online are submitted to Excise Duties (example: alcohol or Tobacco).
“VAT registration” is NOT “Company formation”
Registering your company for VAT purposes does not mean that you are creating a new company or a subsidiary in Europe. When an overseas company is required to be registered for VAT in a EU country, it is only in order to comply with the VAT rules in force in that country and recover sale tax it might pay on imports or purchases.
Therefore, corporate income tax will not be paid as long as the foreign company will not have a “permanent establishment” in the EU country of registration.
Tax penalties when failing to comply with French VAT rules
Foreign companies should understand that when their VAT liability in France is clearly established, registration for VAT purposes becomes mandatory. Default of compliance can lead to tax raids performed by the French tax authorities.
Since January 2015, the right of communication of the French tax office has been strengthened in order to fight tax fraud efficiently. For example, listings of overseas companies can be obtained from French e-commerce marketplaces, logistics companies and warehouse keepers.
The information obtained are compared with data available in tax registers in order to detect non-compliant businesses and launch tax investigations. The French tax administration usually requests assistance from its counterparts in other EU countries in order to lay hands on suspected companies and where necessary, proceed to tax reassessments.
Another specificity of the French law is that a tax investigation can cover in some circumstances a period of 10 years backward. For example, an investigation starting in 2019 may cover not only the tax year 2019, but also the previous tax years up to 2010.
A typical VAT reassessment will generally lead to payment of the total amount of VAT due but not paid during the period of reassessment (3 to 10 years backward).
On this basic amount will be added all the following VAT penalties:
- Penalties for late filing of VAT returns: range from 10% to 80% of the VAT amount due.
- Default interest for late payment of VAT due: 0.4% per month of delay (which represents 14.40% for a period of 3 years and 48% for a period of 10 years).
Even if in some cases transactions with the tax office to reduce penalties are possible, the remaining part to be paid by the taxpayer is still unbearable.