France: Implications of revised VAT reverse-charge on imports

The import VAT reverse-charge mechanism is being “generalized” or standardized effective 1 January 2022. The change is pursuant to Law n° 2019-1479 of 28/12/2019, Article 181.

The reverse-charge mechanism will apply to imports made to a business-to-business (B2B) taxable operator in France (that is, with regard to deliveries of goods from a third country into the European Union (EU) via France but also with regard to imports to or from the French overseas departments and territories). As a result, taxable persons established in the French overseas departments (such as French Guyana and Mayotte) are automatically deemed to have a French intra-Community VAT number issued by the Directorate of Public Finances (DGFiP).

The revision has several objectives:

• Simplified administrative procedures—with the transfer of management and collection of import VAT from the customs authority (DGDDI) to the DGFiP, economic operators will only have to deal with one agency. As a result, import VAT will now be remitted to the competent tax department and no longer to the customs agency.
• Improved cash flow for taxpayers—this will allow economic operators to collect and simultaneously deduct the import VAT on the VAT return, without requiring a cash advance.
• Reduced administrative burden for taxpayers—this is intended to simplify the process with a partial pre-filling of VAT declarations and the creation of a dedicated reverse-charge space on the customs authority’s website where certain data from import declarations will be accessible.

The VAT-free purchase regime quota (AI2) and the so-called “42 Regime” will, in principle, be maintained but on more limited approach.

Requirements for VAT registration—Because the import VAT will be paid to the tax authorities, it will be mandatory to file a VAT return (form CA3) and to have a valid French intra-community VAT number as of 1 January 2022. The mandatory VAT registration in France can be done directly by taxable persons established in France or by foreign taxable persons when they are located in the EU or in the UK. However, those not established in the EU will have to appoint a French tax representative and it will be this representative that will file the VAT registration application on their behalf. It will be up to economic operators to determine and verify that obtaining this French VAT number does not affect the processing of other transactions, especially tax liabilities.

Pre-filled turnover declarations and normal or “real regime”—Once registered for VAT in France, economic operators will file their VAT returns themselves (or the VAT returns will be filed by a tax agent, when the operators are established in the EU). For operators or traders established outside the EU, the filing of returns will be done through the tax representative in France. An important change concerns the pre-filling of the VAT return (from data collected by the customs authority). This pre-filling of VAT returns will require economic operators to verify the amounts indicated by the tax authorities. In practice, operators will have to combine data from import customs declarations and other documentation in their possession or from information that is sent to them by their customs representatives.

In order to facilitate such verifications, the customs authority will provide a space on its website dedicated to the reverse-charge mechanism. Currently, it is not certain whether the invoice (which would be critical for the taxable person) will be included in the information transmitted by the customs authority. In particular, economic operators will have to turn to their registered customs representatives in order to reconcile amounts such as the reverse-charge amounts on the VAT returns (form CA3), the customs import value, and the invoiced amounts.

The legal and regulatory provisions require economic operators that are involved in importing goods into France to settle the VAT according pursuant to the “normal regime.” As a result, taxpayers that currently benefit from the simplified taxation regime will have to elect for the normal regime if they conduct import operations as of 1 January 2022.

VAT deduction—Currently, foreign operators that are not registered for VAT in France must file a refund claim to recover French VAT for their input expenses. With the new obligation to register in France under the self-charge mechanism, regarding the tax due on import, foreign operators will report directly on their VAT returns the amount of the deductible VAT related to their input expenses.

Beginning 1 January 2022, a taxable person without a valid French VAT number will not be able to use the self-charge system for import VAT. Thus, the tax will have to be paid to the customs authority—even if there is a risk that the taxable person will not be able to clear its products through customs.

There is a high risk that an import declaration cannot be issued if there is no VAT number listed in box 44 of the import customs declaration. In such instances, the risk is high that customs clearance of the products would be blocked. Accordingly, an economic operator needs to consider regularizing its VAT status with VAT registration and application of the reverse-charge mechanism.

Read a November 2021 report [PDF 300 KB] prepared by the KPMG member firm in France