France - VAT 2025 changes and Finance Act

Finance Act for 2025 and VAT measures

This year, the vote on the Finance Act 2025 was postponed following the vote of no confidence in December 2024. Parliament adopted the Finance Act for 2025 on 14 February 2025.

Discover the main VAT changes for 2025:

VAT Group (single taxable person) and payroll tax

Article 36 of the Finance Act for 2025 provides for an exemption from payroll tax on remuneration paid by members of a VAT group (single taxable person). To qualify, companies must meet the following cumulative conditions:

• The company would not be subject to payroll tax if it were not a member of the VAT group.
• In the calendar year preceding the payment of remuneration, the turnover from operations carried out by this single taxable person that entitles them to a deduction is at least equal to 90% of the total amount of their taxable turnover for value added tax.

This measure comes into effect on 1 January 2026.

The VAT group is a provision set out in Article 256 of the CGI. It allows companies meeting certain conditions to form a single tax entity for VAT purposes.

This regime offers several advantages, including:

• A single VAT return for the group (with monthly annex submissions by entity);
• Cash flow optimisation as it neutralises VAT on intra-group activities, which are considered outside the scope of VAT;
• Thanks to a single VAT return, it allows the group to automatically offset one company's VAT credits against another's debts. This thus ensures an optimised and balanced management of cash flow.

VAT SOLUTIONS' opinion: The reform removes one of the main barriers to forming a VAT group in operational groups that have a right to full VAT deduction. Until now, the recognition of non-taxable internal flows for VAT increased the share of turnover outside VAT, thus subjecting certain companies to this tax. This was problematic for companies fully reclaiming VAT, which had no interest in forming a VAT group. This exemption enhances the appeal of the VAT group to companies outside the banking, financial, and insurance sectors.

VAT Exemption and Suspension

Extension of the VAT exemption on works related to cemetery monuments or graves:

Article 39 of the finance law for 2025 extends the VAT exemption provided for in Article 261 4. 10° of the CGI. It concerns construction, development, repair, and maintenance works of monuments, cemeteries, or graves commemorating victims or those who died in attacks. The works must be carried out for public authorities and legally constituted non-profit organisations.

Until now, the exemption only applied to fighters, heroes, victims, or those who died in wars.

Extension of the VAT suspension to certain imports/exports in the aeronautics sector:

Article 40 of the finance law for 2025 extends the suspension of VAT payment provided for in Article 277 A of the CGI. The suspension now also applies to the delivery of goods intended to be placed under simplified clearance of goods in the aeronautics sector.

These are goods related to the aeronautics sector that are placed under the active improvement regime IM/EX or that are allocated to the manufacture, repair, modification, or transformation of goods placed under this active improvement regime, covering the period between, on the one hand, the date of the clearance of this regime and, on the other hand, the date of delivery of aircraft, spacecraft, and related equipment.

Article 40 of the Finance Act for 2025 also extends the VAT suspension to imports of aircraft, parts of aircraft, spacecraft, and related equipment intended to be placed under the simplified clearance regime of the aeronautics sector described above.

These measures come into effect from 1 July 2025.

VAT exemption on certain imports in Guadeloupe, Martinique, and Réunion:

Article 45 of the Finance Act for 2025 provides that the list of raw materials and products defined by decree and benefiting from a VAT exemption on importation (Article 295 of the CGI) may differ in Guadeloupe, Martinique, and Réunion.

This will allow for the adaptation of the list of eligible raw materials and products according to local specificities.

This measure comes into effect immediately and applies until 31 December 2027.

Change in VAT rates

Change in VAT rates in the photovoltaic sector:

Article 42 of the Finance Act for 2025 provides for the application of a VAT rate of 5.5% (Article 278-0 bis) for the delivery and installation, in residential properties, of electricity production equipment using solar radiation energy with a power output of less than or equal to 9 kilowatts-peak.

These equipment must meet criteria defined by decree to fully or partially achieve the following objectives:

• Electricity consumption at the place of production;
• Energy efficiency;
• Sustainability or environmental performance.

This measure comes into effect on 1st October 2025.

Abolition of the certificate for energy renovation services at the VAT rate of 5.5%:

Article 41 of the Finance Act for 2025 abolishes the obligation for the service recipient to establish a certificate indicating that the conditions set out in Article 278-0 bis A to benefit from the reduced VAT rate on these services are met.

From now on, the recipient certifies that the conditions are met on the quote or invoice.

These documents must be prepared in duplicate, and each party (provider and recipient) must keep one copy.

Note, if the content of the certification by the recipient is inaccurate due to their fault, they are jointly liable for the payment of the additional tax in the event of a check.

National VAT exemption thresholds

Article 32 of the Finance Act for 2025 provided for the reform of the VAT exemption scheme set out in Article 293 B of the CGI. The article provided for the establishment of a single threshold of 25,000 euros (basic threshold), raised to 27,500 euros (tolerance threshold).

This measure was to take effect from 1st March 2025.

As a reminder, the VAT exemption provided for in Article 293 B of the CGI states that small businesses that are liable and established in France benefit from an exemption that relieves them from paying VAT when they do not exceed a certain turnover threshold.

As a non-VAT liable taxpayer, these businesses cannot deduct or obtain a refund of the VAT paid on their purchases.

Currently, the thresholds, modified by the Finance Act for 2024, are as follows:

Entry into force on 1 January 2025 of certain measures from the finance law for 2024

As a reminder, the VAT measures from the finance law of 29 December 2023 for 2024 came into effect on 1 January 2025, including in particular:

• The extension of the reduced VAT rate of 5.5% to all deliveries of works of art, collectibles, or antiques (excluding sales under the margin scheme, where the margin remains taxed at 20%).
• The removal of the VAT margin scheme on resale when a reduced VAT rate has been applied to the purchase or importation of the resold good.
• The change in the place of taxation for virtual access to cultural, artistic, sporting, scientific, educational, entertainment, or similar events. They are now taxable at the place of establishment or residence of the participants, whether they are professionals (B2B) or individuals (B2C).
• The creation of a new European exemption scheme establishing a single threshold of €100,000 to benefit from the new cross-border exemption scheme, subject to new prior reporting obligations, and then quarterly obligations.
• Repeal of the occasional tax representation scheme provided for in Article 289 A.III of the CGI, in favour of a new tax representative scheme provided for in Article 289 A bis; the decree for the implementation of the new scheme is still awaited.

Another change decided for 2027: Simplified taxation regime

Article 38 of the finance law for 2025 transforms the current simplified real regime (Article 287 of the CGI). It will move to an annual reporting regime with two instalments to a quarterly regime without instalments from 2027.

The quarterly reporting system will now benefit businesses that do not benefit from the VAT exemption and have a turnover of less than:

• €1,000,000 during the previous calendar year
• €1,100,000 during the current year.

Turnover is the total annual amount of deliveries of goods and services, excluding VAT, carried out in France, plus taxable acquisitions.

This measure comes into effect on 1 January 2027 and applies to transactions for which VAT becomes due on that date.

For businesses under the simplified regime whose accounting year does not follow the calendar year, the reform will apply after the end of their current financial year on 31 December 2026.

VAT SOLUTIONS' opinion: Paradoxically, this reform simplifies the "simplified regime". It replaces the single declaration and the double instalment system with a quarterly reporting system. Businesses will now be able to deduct VAT every three months. This thus accelerates VAT recovery. It is a major advantage for those who invest heavily at the start. Furthermore, the establishment of a single turnover threshold of €1 million, across all sectors, ends previous distinctions and brings greater clarity.

Discover our services

VAT solutions offers you various services to support you with your VAT issues in France and internationally:

• Diagnosis of your VAT organisation, your flows, and the methods of retaining evidence for exempt operations, impact assessment of the new VAT rules;
• Confirmation of the VAT treatment of your flows;
• Coaching/training;
• Management of VAT obligations in Luxembourg and abroad: assistance, preparation, and submission of the VAT identification request and VAT returns.

Contact us

Phone number: + 33 6 12 37 32 22

Email: info.fr@vat-solutions.com

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