Freelance developer and SaaS: MRR, VAT and revenue recognition

Quick answer. A SaaS subscription collected in advance is not earned revenue. Revenue is recognised prorata temporis over the period covered (matching principle, French PCG). The portion not yet earned at closing is booked as deferred income, account 487, excluding VAT. VAT depends on the customer's country and status.

Selling software on a subscription basis changes the accounting logic. You sometimes collect twelve months upfront, yet you only deliver the service over time. Confusing collection with revenue distorts your result, artificially inflates one financial year and impoverishes the next. For a freelance developer moving towards a SaaS product, two topics keep coming up in our files: subscription revenue recognition and VAT when customers are spread across several countries.

This article describes the method we apply for a SaaS publisher, from collection through to MRR tracking, within the framework of the French general chart of accounts. It is part of our accounting support for tech startups.

The French chart of accounts rests on the matching principle: a revenue item belongs only to the period during which the service is performed. For a subscription, the service is spread over the entire period the software is made available.

An annual subscription of EUR 1,200 excluding VAT collected on 1 October therefore represents only EUR 300 of revenue for a financial year ending 31 December (three months earned). The remaining EUR 900 covers the following year: it is deferred income.

Our view. Many SaaS founders read their cash position as if it were a profit and loss statement. Cash can be excellent while recognised revenue stays modest, because part of the collections accounting-wise belongs to tomorrow. This is precisely the gap that the deferred income mechanism corrects.

Here is the sequence we follow to secure revenue recognition for a subscription publisher:

1. Identify the period covered by each subscription. Link each invoice to its usage period and to the service availability date.
2. Recognise revenue prorata temporis. Book as revenue (account 706) only the portion covering services already delivered at closing.
3. Record deferred income. Debit the revenue account, credit account 487 for the portion not yet earned, calculated excluding VAT.
4. Handle VAT according to the customer's country. Distinguish intra-EU B2B, non-EU B2B and electronic B2C (see below).
5. Reconcile invoicing and collections. Match the payment provider flows with the invoices and the adjustment entries.
6. Track MRR, churn and ARR. Follow these management indicators, separate from the accounting entries.

The deferred income entry#

At closing, you isolate the portion of subscription not yet earned. Take again the annual subscription of EUR 1,200 excluding VAT collected on 1 October.

The calculation is performed excluding VAT: VAT itself becomes due under its own rules, independently of when the revenue is recognised. This is a point that bookkeeping and accounting review secures at each closing.

A SaaS subscription is a service supplied by electronic means: largely automated, with minimal human intervention, impossible to provide without information technology. Its tax treatment depends on the status and country of the customer. For more detail, see our article on VAT on intra-community services.

Intra-EU B2B: reverse charge and DES#

For a taxable customer established in another member state, you invoice without French VAT: the customer reverse-charges the tax in their country (art. 259-1 of the French tax code, art. 196 of directive 2006/112/EC). The invoice carries the "Reverse charge" mention and the customer's intra-community VAT number, to be checked in the VIES database. The VAT mentions for invoicing a foreign customer deserve particular attention.

These services trigger a European declaration of services (DES) from the first euro, with no threshold. It is monthly, to be filed online by the 10th working day of the following month, with the customs service. A flat penalty (in the order of EUR 750 per missing declaration, to be confirmed) applies to omissions. The DES does not concern non-EU customers.

Electronic B2C: the EUR 10,000 threshold and the OSS#

For private EU customers, a single threshold of EUR 10,000 excluding VAT per year applies (distance sales of goods and electronic B2C services within the EU combined). Below it, you charge French VAT. Above it, or by option, VAT is that of the country of consumption (art. 259 D of the French tax code).

Beyond this threshold, the OSS one-stop shop avoids registering in each member state: a single quarterly return centralises the VAT due in the various countries. The OSS replaced the MOSS on 1 July 2021.

The underestimated risk. Many new publishers apply French VAT to all their EU private customers, ignoring the EUR 10,000 threshold. Once crossed, the VAT of the customer's country is due from the first euro of the transaction that exceeds it, with a sometimes heavy catch-up. The right reflex is to set up monitoring of this threshold from launch.

MRR (monthly recurring revenue), ARR (annual recurring revenue) and churn (attrition rate) are management indicators, not concepts of the chart of accounts. You do not "book" MRR: accounting records recognised revenue, while MRR measures contracted recurring revenue at a given moment.

In practice. We keep two views side by side: the accounting view (recognised revenue, deferred income) and the management view (MRR, ARR, churn). They never coincide exactly, and that is normal. A month with a large annual collection inflates cash without changing the MRR, while recognised revenue rises slowly. Understanding this gap means knowing how to read your own growth. The choice between annual and monthly subscriptions weighs directly on this cash timing.

Subscription cancelled mid-period. If you refund the unused portion, you reverse the corresponding deferred income and issue a credit note. VAT follows the same treatment.

Invoicing through a payment provider. Stripe or a similar operator collects on your behalf and deducts a commission. Revenue is recorded on the gross amount invoiced to the customer; the commission is a separate expense, not a reduction of turnover.

Freelancer still under the micro regime. Under the micro regime, you do not keep accrual accounting, so there is no deferred income to record; but the VAT territoriality rules apply as soon as you become liable. Our file on freelancing in France 2026 sets out the thresholds.

Recommendation. No IFRS 15-type framework is mandatory for a French freelancer or very small business: the framework remains the PCG (deferred income and matching principle). IFRS 15 only concerns consolidated accounts or international standards.

During an audit, attention focuses on the consistency between collections, declared turnover and deferred income. A publisher who collects many annual subscriptions but records no deferred income at closing draws attention: its result is mechanically overstated. On the VAT side, justifying the customer's status (valid intra number, proof of location for B2C) and filing the DES are classic control points.

At Hayot Expertise, a firm registered with the Order of Chartered Accountants of Île-de-France, we regularly see SaaS publishers who have underestimated this double issue. Recently, a director of an SME software publisher contacted us after presenting a very profitable first year: the absence of deferred income had pushed twelve months of upfront subscriptions into revenue, with corporate tax calculated on a result that did not yet exist. The adjustment smoothed the result over the correct financial years.