As an auto-entrepreneur, you are by default exempt from VAT thanks to the VAT exemption, which simplifies your tax obligations. However, when you exceed certain turnover thresholds or if you voluntarily decide to opt for the VAT regime, this exemption ends. It then becomes necessary to declare and collect VAT from your customers, while being able to recover on some of your business expenses. This guide explains how VAT works for microentrepreneurs, with a particular focus on thresholds and implications for European activities.
VAT: a thorough definition
Value Added Tax (VAT) is an indirect tax included in the price of goods or services and paid by the final consumer. As a self-employed person, you generally sell goods or services without charging VAT, but this situation changes if you exceed certain thresholds or choose to become liable for VAT.
In France, VAT is collected at the standard rate of 20%, but reduced rates exist for specific categories: an intermediate rate of 10%, a reduced rate of 5.5% and a super-reduced rate of 2.1%. These rates apply based on the type of product or service you offer.
VAT-based franchise: how does it work?
When you are an auto-entrepreneur, you benefit from the VAT exemption by default, exempting you from declaring and invoicing this tax to your customers. Your invoices must then include the words “VAT not applicable, art. 293B of the CGI”, clearly indicating to your customers that you do not apply VAT. Attention this is not always an advantage, since in return, you cannot recover VAT on your professional purchases.
VAT thresholds in microenterprises: key points
Standard and increased thresholds:
Maintaining the VAT exemption depends on compliance with turnover thresholds specific to your business. Here are the applicable thresholds:
- €36,800 for services, whether for commercial or liberal activities.
- 91,900€ for purchase-resale activities.
In the case of mixed activity (i.e. a combination of sales and service provision), the total turnover must not exceed €91,900, and the portion related to the provision of services must not exceed €36,800.
However, increased thresholds exist, offering a certain tolerance. They allow you to continue to benefit from the VAT exemption, even if you exceed the normal thresholds for a given period:
- €39,100 for commercial and liberal services.
- €101,000 for purchase-resale activities.
These increased thresholds allow you to remain free of VAT for the current year and the following year. However, if you exceed these thresholds for two consecutive years, you become liable for VAT as of 1 January of the third year.
Impact of a direct overtaking
If you directly exceed the increased thresholds, VAT becomes immediately applicable from the first day of the month in which the excess occurs. This means that you will need to start charging VAT without waiting for the end of the fiscal year. The switch to VAT is then mandatory., whether anticipated or not.
VAT in Europe: special attention
If you are self-employed and carry out commercial transactions within the European Union, VAT management becomes more complex. This concerns the intra-Community trade in goods and services, where specific obligations apply.
The intra-community VAT number: essential for export
The intra-community VAT number is an essential fiscal identifier for any company trading within the European Union. This number is assigned by the Business Tax Service (SIE) and is mandatory as soon as you exceed certain purchase or sales thresholds, even if you benefit from the VAT exemption.
For purchases in Europe, if the amount of your acquisitions exceeds €10,000 per year from European professionals, you must have an intra-community VAT number, even if you are under a basic franchise. In addition, if your purchases crossed the threshold of 460,000€ the previous year, you will have to file a Declaration of Exchange of Goods (DEB) as early as the first month of the following calendar year. If this threshold is reached during the year, you must do so starting from the month in which it was exceeded.
Regarding the sale of goods in Europe, if you get out of the VAT exemption, you will also have to do a DEB for each intra-community transaction. This allows you to declare goods sold to customers in the European Union and to comply with your VAT tax obligations.
Reverse charge: simplified management for exchanges of services
When you make purchases of services in the European Union, the VAT reverse charge mechanism applies. This means that you do not pay VAT to your European supplier, but you are required to declare it and remit it it directly to French taxes. This process does not affect the amount of VAT you owe, as you are declaring and recovering it on the same return.
Likewise, if you provide services to customers in the European Union, you will need to file a European Service Declaration (DES). This declaration is made monthly and must be submitted no later than the 10th working day following the month in which the invoice was issued. This makes it possible to declare the VAT collected on services sold in the EU.
Conclusion: monitoring thresholds and choosing VAT
In summary, the auto-entrepreneur benefits from VAT exemption as long as his income does not exceed the fixed thresholds. However, particular vigilance is required when approaching or exceeding the standard and increased thresholds, whether you are a service provider or involved in the purchase-resale process. In addition, intra-European activities require rigorous VAT management, with the obligation to hold an intra-community VAT number and to comply with specific rules on intra-community trade.
VAT, although it may seem complex, can also offer advantages, especially in terms of deducting business expenses, if you opt to leave the franchise regime in base. Make sure you choose the regime that suits your situation and that you remain attentive to your turnover thresholds to effectively manage VAT in your microbusiness.