VAT: definition, calculation and declaration

VAT (value added tax) is a tax imposed on individuals when purchasing goods or services. Companies are not responsible for this tax, but are responsible for collecting VAT on behalf of the state and its subsequent payment. At the same time, the VAT paid by companies on their professional purchases is refunded by the state: this is deductible VAT. Definition, calculation and declaration… focus on VAT.

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– What is VAT?

What is VAT (value added tax)?

VAT: definition

VAT is a French indirect tax imposed on individuals when they purchase a good or service. It is an indirect tax in the sense that the tax is collected indirectly from individuals through companies that sell purchased goods or provide paid services.

Professionals must declare the VAT collected for tax purposes

It is up to the professionals to collect and declare the VAT on these taxable supplies. These are the following professions:

  • commercial,
  • industrial,
  • artisanal,
  • liberal.

How does VAT work?

When a company sells a good or service, the price charged to the customer takes into account the amount of VAT. This means that the company collects the price inclusive of VAT (including all taxes) but only keeps the price excluding VAT (excluding tax) for itself.

The difference between these two amounts corresponds to VAT. The end consumer, the individual customer, therefore pays the price including VAT, and the company keeps the price without VAT and remits the VAT amount to the state.

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Also read: What is purchasing power?

What operations are subject to VAT?

Several types of transactions are taxable.

From nature

Operations by their nature include the supply of movable goods, the provision of services or intra-Community acquisitions (those involving the payment of consideration to the buyer, which relate to an economic activity and which are carried out by an independent person).

By statutory provision

We find all operations imposed on VAT by law. Know :

  • importation,
  • personal delivery of goods and services,
  • deliveries of buildings built less than five years ago.

By options

Some VAT-exempt professionals may voluntarily submit to it. For example:

  • tenants of bare premises for industrial or commercial use,
  • companies that want to waive VAT exemption,
  • territorial or local authorities,
  • agricultural operators.
Also read: Corporate income tax: IS rates, returns and procedures

What operations are exempt from VAT?

Certain operations are exempt from VAT, namely the following activities:

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  • sea ​​fishing,
  • health and medical,
  • teaching,
  • export and intra-Community supplies,
  • rental of bare buildings or furnished accommodation,
  • deliveries of new industrial waste and recycled materials.
Also read: VAT within the Community and the self-employed: what rules?

How to calculate VAT?

A rate that varies depending on the nature of the goods and services

To calculate the relevant VAT, it is necessary to know the VAT rate, which is set by law by the state and which varies depending on the nature of the goods or services sold. There are different VAT rates in France, the amount of which varies depending on the nature of the goods or services sold.

Standard VAT rate 20%

It applies to most goods or services. This is the rate that applies unless the law provides for a different rate.

Intermediate VAT rate equal to 10%

These are:

  • irreversible drugs,
  • securing hotel accommodation,
  • sale for consumption on the spot,
  • work related to residential premises, which is not subject to the 5.5% rate,
  • unprocessed agricultural products,
  • firewood,
  • Fairs and Exhibitions,
  • games and fairground rides,
  • entrance fees to museums, zoos, monuments,
  • passenger transport,
  • waste management,
  • Renewal.

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VAT rate reduced to 5.5%

It concerns basic needs such as:

  • water,
  • electricity or gas,
  • food products,
  • books,
  • catering in school canteens,
  • live performances and cinema tickets,
  • equipment and services for the disabled,
  • accession to property.

VAT rate 2.1%

It applies to certain press publications, covered drugs and even some shows.

>> Our complete tax guide. How to declare your income? How to reduce taxes with investments? What to do in the event of an administrative audit?

What VAT does the consumer have to pay?

To determine the amount of VAT paid by the customer, the VAT rate must be applied to the price without tax of the goods or services sold:

  • Product price without taxes (HT) = 100 euros
  • Amount of VAT = 100 x 20% = 20 euros of collected VAT, which the company remits to the state
  • Product price including tax = 100 + 20 = 120 euros including tax

What is deductible VAT?

Discount on professional purchases

When a company pays VAT on these professional purchases, it is called deductible VAT.

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The amount of deductible VAT that businesses pay on their business purchases is attributable to the amount of VAT they have collected from their customers on the sales they have made.

Conditions to benefit from it

In order for a company to deduct VAT, it must meet certain conditions:

  • deductible VAT must be justified by the performance of the company’s professional activity;
  • the company must have a corresponding invoice indicating the amount of VAT paid.

If the amount of deductible VAT is higher than the collected VAT, the company uses a VAT credit. The professional then has several options available:

  • apply the VAT credit in your other VAT returns;
  • get a refund of the loan from the tax authorities.
Also read: Self-employed taxes: regime, rates and returns

VAT declaration and payment: what steps to take in 2024?

Annual statement

Companies that declare less than 15,000 euros of VAT per year benefit from the simplified real regime. The VAT return is an annual return that must be filed no later than the 2nd business day after May 1, 2024 via Form 3517-S-SD.

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This statement must include all transactions subject to VAT for the previous year.

If the financial year of the company does not correspond to the calendar year, the declaration must be sent within three months after the end of the financial year.

Online payment on the tax website

The VAT payment is made online on the tax website in two half-yearly installments calculated according to the VAT payable for the previous year according to the following methods:

  • 55% in July.
  • 40% in December.

Companies that report more than €15,000 in VAT per year are subject to the normal real regime.

Every month, the company declares the previous month’s VAT online and also pays it from its professional account on the tax website.

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