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France set for compulsory import VAT reverse charge

In a major change to the way import VAT is applied in France, the country’s tax administration has announced use of the import VAT reverse charge will become mandatory from 1st January 2022.

What does this mean?

When importing goods into France, businesses will find the import VAT due will be automatically and compulsorily added to their French VAT return under the reverse charge mechanism.

Use of the VAT return as a platform for declaring and paying import VAT will mean this is no longer carried on the customs declaration, as is currently the case.

As a result of the introduction of the mandatory reverse charge, the management and collection of import VAT will be transferred from French Customs (Direction Générale des Douanes et Droits Indirects) to the French tax authority (Direction Générale des Finances Publiques).

Who does it affect?

In short, almost everybody! Businesses that are registered for VAT in France and import goods into the country will have to adhere to the new rules.

Are there any advantages for businesses?

Yes, the new regulations should provide a substantial cashflow boost to companies operating in France as import VAT will automatically appear on their VAT return by the 14th of each month and be deductible in the same month.

How does import VAT in France currently work?

The mandatory reverse charge ruling marks a significant shift from the current regulations, which require businesses importing goods into France to pay import VAT before claiming it back either through their VAT return or via the 13th directive.

This process means businesses must wait – sometimes up to six months – for VAT to be reclaimed and for their books to be balanced, creating a short to medium-term cashflow headache for many.

It is possible to request to defer import VAT in France, but only if the business in question meets a number of conditions, including:

• At least four importations of goods to the EU have been completed in the last 12 months.
• Be willing to appoint a customs broker (if based outside the EU).
• Have a robust, secure booking system to maintain import data.
• Not have any significant tax and customs offences to its name from the last 12 months.

From 1st January 2022 these criteria will be removed and no deferrals can be made as the reverse charge becomes the de facto process for import VAT.

How will the VAT return change?

The French VAT return form and procedure will be updated to include new details that facilitate the use of the reverse charge mechanism. The changes include:

• The VAT declaration will be pre-filled and visible to businesses from the 14th of each month.
• It will show the exact amount of import VAT due based on the same data previously provided to Customs.
• An option to correct the amount of import VAT where necessary will be included.
• The deadline for importers looking to submit a VAT return in France will be extended to the 24th of the month.
• A new online platform will be created by Customs for businesses to download a monthly report of all imports they have made in France.

One thing that will not change is that it will still be the taxpayer’s responsibility to verify the accuracy of the amount of import VAT due.

What are we doing to help?

At Innovate Tax, we help our customers stay on top of everything from rate changes to new regulatory requirements.

We maintain the latest tax content for over 150 countries, providing every client that uses our solution with the ability to ensure every single tax transaction is completed with the latest and most accurate rules in place.

We’re already refining our solution for dozens of clients to ensure they comply with the new French import VAT reverse charge when it comes into effect on 1st January 2022. Get in touch to find out how we could help your business.