International Expansion Blog

Change to French VAT Law Should Make Country More Attractive to Importers

By Nina Kingsley, VAT Manager

Nina Kingsley, VAT Manager, Radius, The best-laid plans for the sale of goods abroad often go awry, stuck at the border and impeded by a mess of customs paperwork and confusion. In theory, the advent of the European Union created a common market in which ease of doing business is uniform across the member states. In practice, however, state-level implementation of EU-wide policy and the retention of some idiosyncratic state-level regulations have resulted in important variation. As my colleague Nick Hart noted in his recent blog post on indirect taxation, “[even in the EU] specific country rules regarding registration, recovery, and compliance can vary greatly.” Indeed, tax regulations and procedures can vary so much in the EU as to become a source of competitive differentiation. In this context, France’s recent tax code revisions could be an important step to making it a more attractive country in which to do business. 

Effective January 1, 2015, France now permits an optional value-added tax (“VAT”) reverse charge procedure. The announcement follows the successful implementation of the procedure in the Netherlands and Belgium, both of which have enjoyed greater levels of trade.

France now permits an optional value-added tax (VAT) reverse change procedureThe new procedure is big news for importers, which in the past were compelled to pay any applicable VAT taxes on importation before seeking repayment. Importers will now be able to document the payment of VAT through business-as-usual VAT returns. In effect, they will document the paying of VAT by their customers. The importer will thus be freed from the necessity of paying VAT immediately on importation — effectively lending the French tax authorities money — before deducting that amount from periodic VAT return filings.

Eligibility for the optional procedure is limited to importers that are VAT-registered in France and hold a Single Clearance Procedure (“PDU”) certificate. Eligibility can be gained by either requesting a PDU certificate or employing a third-party customs broker.

Importers will immediately benefit from the new procedure in two important ways. First, they will realize cash flow relief because they will no longer be out 20% of the imported goods’ value from arrival to recovery of funds. This can make a significant difference for small- and large-scale importers alike who previously were forced to, more or less, extend a significant loan to the government. Second, because ambiguity of VAT payment will be reduced, confusion and delays at customs should also decrease; less uncertainty at the border makes doing business in France all the more attractive.

The tax change could give a significant boost to France’s economy. The reverse charge procedure, which will likely apply to approximately one-quarter of non-oil VAT collected by customs authorities, represents billions of euros each year. By offering customs procedures that are more flexible for customer clearance, VAT registration, and VAT liability, France can create a hub for international trade as both the Netherlands and Belgium have done. As members of the EU, each is able to serve as a point of entry both for goods bound within the country and beyond. The business community can only hope that other EU members follow suit.

 

To hear Nina discuss the principles of VAT, along with common VAT issues and recommended best practices, watch our webinar recording Value Added Tax 101: Understanding the Basics.