Terms to know
B2B: Business-to-business shipments
B2C: Business-to-consumer shipments
DAP (Delivered at Place): Shipments sent via the carrier’s bill recipient option which makes the recipient responsible for value-added tax (VAT) payment
DDP (Delivered Duty Paid): Shipments sent via the carrier’s bill sender option which makes the seller/supplier responsible for VAT payment
VAT reverse charge: A VAT reverse charge is when a B2B shipment is sent internationally without the payment of VAT, and the recipient is able to pay the tax due on import and deduct it simultaneously on their monthly VAT return. Simply put, the term “VAT reverse charge” refers to the VAT liability shifting to the buyer in B2B transactions. The business buying the goods or services declares both the input (import) and output (sales) VAT
As of January 2022, France has changed the eligibility requirements for reverse charge VAT, making it mandatory for businesses to file a reverse charge if they plan to reclaim or deduct VAT. The goal of the reverse charge on French B2B imports is to make VAT management and collection easier for French businesses importing goods and French tax authorities. Prior to January 2022, the VAT reverse charge existed, but it was not widely used due to eligibility requirements; those eligibility requirements have been lifted as the reverse charge has now been made mandatory. Now, in order to clear customs with the VAT reverse charge method (explained later), every B2B shipment is required to have a French VAT number.
A VAT number is different from an EORI number
and they cannot be used interchangeably.
This guide will cover the following:
- What exactly is the VAT reverse charge?
- Who does the VAT reverse charge affect?
- How to stay compliant under the French VAT reverse charge
What is a VAT reverse charge?
To better understand what a VAT reverse charge is and further expand on the definition provided at the beginning of this blog, it is important to first understand how VAT collection was previously handled in France for B2B imports.
- Prior to January 2022, for DAP shipments, a France-based company importing goods for resale from a foreign country would pay VAT to the carrier, who would have already paid it to French Customs.
- Now, as of January 1, 2022, the responsibility of VAT payment has shifted from the carrier to the receiving business in France.
Under this reverse charge, a French business with a valid French VAT ID on the DAP shipment will pay the VAT due on the import as part of their monthly tax filing to the French tax authorities with the carrier no longer fronting the cost at customs. The foreign sender provides the recipient with a reverse charge VAT invoice—an invoice for the goods/services with no duty and tax added that states that the recipient company will be responsible for VAT payment (explained below). The sender can provide this invoice to the recipient via email; it does not need to be sent with the shipment. On the commercial invoice; however, the French business’ VAT ID needs to be on the commercial invoice in order for French Customs to know VAT will be paid later and enter the tax amount due into the French Tax authorities.
Note that most B2B shipments are sent DAP so that the recipient business
can reclaim import VAT.
French recipient businesses should request their shipments be sent using the carrier’s bill recipient option to accommodate this regulation.
For DDP B2B shipments, the sender can
still assume responsibility for VAT payment but must have both a French VAT ID and
EORI number. However, the best way to send B2B shipments is DAP.
What to include on a VAT reverse charge invoice
A VAT reverse charge invoice is a standard invoice with the following information included, along with a note stating VAT is being reverse charged:
- Address of the foreign business (sender/service provider)
- VAT identification number or tax ID of the France-based business (recipient)
- Invoice date
- Date of service supply (if different from invoice date)
- Unique invoice number
- Description of the service or goods rendered with no tax included (net amount)
- Reference to reverse charge procedure, e.g. Invoice excluding VAT because this is a VAT reverse charge or VAT reverse charged
- Your country may have its own standard of how to write this note.
Who does this change affect?
Whether you are an EU or non-EU business shipping to France, this change applies to you; so keep reading to learn how to stay compliant.
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What do you need to do to be compliant?
Foreign companies – shippers/sellers (outside of France)
If you are a foreign company currently selling or looking to sell into France.
- You don’t have to do anything except provide a VAT invoice to your French business recipients and ensure that their VAT number is on the commercial invoice. As a foreign importer, you do not need to have your own VAT number once you are sending the shipments DAP.
- If you opt to ship B2B with DDP rather than with the bill recipient option, you can voluntarily collect VAT on goods over €150. However, you would need to register for a French VAT identification number from the French tax authority in order to operate under the VAT reverse charge.
Importers or the recipient business in France
If you are a business in France importing from a foreign company, you need to be VAT-registered in order to operate under the VAT reverse charge mechanism.
Effective January 1, 2022, any French business without a valid French VAT number is not able to use the reverse charge system for import VAT.
If you do not have a VAT number or if your VAT number is not on the commercial invoice…
- The carrier will continue to pay VAT to the French customs authority on your behalf, but you will not be able to reclaim it.
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Benefits of VAT reverse charge
- Better cash flow
- Prior to 2022, businesses importing into France would pay import VAT and either claim it back through their VAT return or the 13th Directive, which can take an extended amount of time (up to 6 months). This created a cash flow issue for many businesses. Now, the waiting period for receiving their VAT return is significantly shorter due to the French Customs authorities communicating directly with the French tax authority.
- Streamlined VAT declaration process
- France has implemented an online system to simplify customs procedures. This includes simplifying the process of VAT declarations with the creation of a dedicated reverse charge portal.
- Reduction in manual reporting processes
- The reverse charge allows the importer to collect and simultaneously deduct the import VAT without having to first pay the carrier and then process a refund request on their income tax; the French recipient company remits import VAT directly to the tax authority. Therefore, the French business only has to file one return instead of two.