US Company: Launching Operations in the European Market
The US company specializes in the design and commercialization of industrialized modular landscaping solutions. It sells its products to professional distributors.
As part of its expansion into the European market, the company has established a supply chain structure centered in France, where the products are manufactured by a local industrial partner.
The goods are then stored with a logistics service provider in France, which also handles order fulfillment operations, including packaging, labeling and shipping.
The deliveries are made to professional customers located:
- in France,
- in other European Union Member States,
- and, to a lesser extent, outside the European Union.
The company is therefore considering a comprehensive supply chain structure operated from France, covering procurement, storage and distribution.
The operations carried out from France are as follows:
- Domestic purchases
- Domestic B2B sales
- Intra-EU supplies
- Exports
Attention - For confidentiality and anonymity purposes, certain elements presented in this business case have been intentionally modified. In particular, the country of establishment, the business sector, and the nature of the products have been adjusted, without affecting the consistency, relevance, or overall scope of the analysis. As each situation has its own specific characteristics, an individual assessment is required to determine the applicable VAT treatment, as well as the related reporting and invoicing obligations.
Procurement and Sales of Goods from France: VAT Implications
Transactions Requiring VAT Registration in France
The development of the US company’s activities in France has direct VAT implications.
Certain taxable transactions carried out in France by the US company require it to register for French VAT purposes and file French VAT returns.
Exempt Intra-EU Supplies :
Sales of goods made from inventory held in France to customers located in other European Union Member States, and invoiced to customers identified for VAT purposes in those Member States, may qualify, in the present case, as exempt intra-EU supplies, subject to compliance with the applicable substantive and formal requirements.
This type of transaction triggers a French VAT registration requirement for the US company.
For further information on the VAT treatment of intra-EU supplies, please refer to our dedicated blog article.
Exports : Shipments of goods from inventory held in France to countries located outside the European Union generally qualify as VAT-exempt exports, subject to compliance with the applicable legal and documentary requirements.
This type of transaction also triggers a French VAT registration requirement for the US company.
For further information on exports, please refer to our dedicated blog article.
Transactions that do not, in themselves, require French VAT registration
With respect to domestic purchases of goods, the US company incurs French VAT on purchases made from its French manufacturers. In order to recover this VAT, two options are available:
- either through a VAT refund claim under the 13th Directive (Directive 86/560/EEC), if the company is not required to register for French VAT purposes based on the nature of its activities;
- or by deducting the VAT on its French VAT return, if the company is required to register for French VAT purposes and file French VAT returns due to its activities.
Regarding sales of goods made from inventory located in France and supplied to taxable customers established in France, these transactions should be treated as domestic sales subject to French VAT.
Where customers are taxable persons, such sales may fall under the reverse charge mechanism provided for under Article 194 of the VAT Directive, subject to strict conditions being met.
Taken in isolation, such domestic activities would not require the company to register for French VAT purposes. However, their treatment requires a detailed analysis of the place-of-supply rules, invoicing requirements and the VAT status of customers.
In practice, considering the overall scope of transactions carried out, the US company was required to register for French VAT purposes. This registration enabled the company to recover the VAT incurred on its domestic purchases directly through its French VAT returns.
Structuring and Compliance: Solutions Implemented
French VAT Analysis
In this context, it became necessary to structure and secure the company’s VAT position in France.
A prior and comprehensive review of all transaction flows was carried out in order to determine their VAT treatment, identify the mandatory invoicing requirements, and assess the conditions for applying VAT exemptions, the reverse charge mechanism and the right to deduct input VAT.
Based on the conclusions of this analysis, it was determined that the company was required to register for French VAT through an accredited French VAT tax representative.
French VAT Fiscal Representation and VAT Compliance
As the US company engaged our French VAT fiscal representation services, we carried out the following activities:
- French VAT registration of the company
- Obtaining a French EORI number
- Ongoing management and filing of French VAT returns
- Submission of European Sales Lists (ESL) for intra-EU supplies
This type of structuring illustrates the logistics models frequently implemented by foreign companies seeking to optimize and simplify their supply chain operations. It is particularly relevant for companies that design their products outside France but outsource manufacturing to a French industrial partner, which produces the goods on a made-to-order basis. The products are then handled by a logistics provider responsible for packaging, labeling and distribution operations to end customers.
Such a structure, relying on a production and distribution chain fully organized in France, requires prior VAT structuring and assessment in order to secure all related flows, ensure compliance with reporting obligations and mitigate VAT risks.
VAT Penalties and Risks Avoided
Failure to comply with French VAT obligations may result in significant financial consequences for companies, including those established outside France.
This notably includes non-compliance with filing obligations (VAT returns, VAT recapitulative statements, EMEBI), failure to comply with the substantive or formal requirements applicable to VAT regimes, as well as the absence or insufficiency of accounting documentation.
Such deficiencies may result in the loss of VAT exemptions, the application of reverse-charge mechanisms being challenged, or the denial of VAT deduction rights.
With respect to the French VAT return, the main penalty provisions include:
- late payment interest calculated at a rate of 0.20% per month;
- a 10% penalty surcharge in the event of late filing, increased to 40% where the filing occurs after a formal notice to comply;
- a 5% surcharge in the event of late payment.
Regarding ERTVA, failure to submit the required declaration within the statutory deadlines is subject to a penalty of €750, which may be increased to €1,500 if the declaration is not filed within 30 days following a formal notice.
Furthermore, each omission or inaccuracy is subject to a €15 penalty, capped at €1,500 per declaration, including errors relating to mandatory registers.
Failure to report a transaction in the ERTVA declaration may result in the loss of the VAT exemption applicable to intra-Community supplies.
Regarding EMEBI, failure to submit the declaration is subject to a penalty ranging from €75 to €150, which may reach €2,250 in the event of repeated non-compliance. Errors or omissions may be treated as a failure to file and may result in the same penalties.
In relation to VAT reverse charge mechanisms, failure to apply the required reverse charge is subject to a penalty equal to 5% of the VAT amount that should have been declared.
Finally, with respect to invoices, each error or omission may result in a penalty of €15 per error or omission and per invoice, subject to a cap equal to one-quarter of the amount that is or should have been stated on the invoice.
VAT Solutions, your accredited tax representative
Companies established outside the EU carrying out activities in France are often required to appoint a VAT fiscal representative for VAT registration, filing VAT returns, and, where applicable, paying VAT to the tax authorities.
VAT Solutions, an accredited VAT fiscal representative, manages your VAT obligations (VAT, OSS, ERTVA, EMEBI) and ensures your VAT compliance in France.
