Non-deductible VAT: the list of excluded expenses in 2026

Quick answer. VAT on certain expenses cannot be deducted, in particular passenger vehicles (purchase, lease, maintenance), catering, accommodation, housing for directors and employees, and gifts above €73 incl. VAT per recipient per year. Deduction rights are measured by a coefficient combining three parameters: jurisdiction, taxation and admission.

VAT deductibility is not automatic. Article 206 of Annex II to the French tax code lists the cases where VAT remains non-deductible, even when it appears on a valid invoice. This rule, often underestimated, triggers adjustments at every audit. Before committing significant spend, it is best to check recoverability.

Deduction rights are calculated from a coefficient, the product of three elements (Articles 205 to 207 of Annex II to the tax code):

Deductible VAT equals invoiced VAT multiplied by this overall coefficient. When an admission coefficient is zero, VAT is not recoverable, whatever the business use.

Passenger vehicles#

VAT on the purchase, lease or maintenance of a passenger vehicle is non-deductible (Article 206-IV-2-6° of the tax code), whatever the use.

Catering, accommodation and reception#

VAT on catering, accommodation and reception incurred for directors, employees or third parties is non-deductible (Article 206-IV-2-5° of the tax code). This covers meals, buffets, hotels for an employee or client, and free housing for a director. Reception costs (caterer, drinks) follow the same rule.

Gifts#

VAT on gifts and goods transferred without payment is non-deductible, except for items of very low value. The threshold, assessed per recipient and per year, is €73 incl. VAT (the amount in force since 1 January 2021, subject to a five-year revaluation). Below this threshold, VAT remains deductible; above it, it is excluded.

The threshold is assessed per recipient and per calendar year: several gifts to the same recipient whose cumulative value exceeds €73 incl. VAT remove the deduction right on the whole.

Passenger transport and self-supply#

VAT on passenger-transport services (taxis, ride-hailing, employee shuttles) is non-deductible. By contrast, goods transport opens deduction rights. Finally, giving goods away free (samples above the low-value threshold, gifted items) can trigger self-supply taxation.

For a passenger vehicle (excluded from deduction rights), VAT on fuel is recoverable on a limited basis:

Example: for €100 (excl. VAT) of petrol (€20 of VAT) used by a saloon car, you deduct 80% × €20 = €16; the remaining €4 is not recoverable. Charging electricity, which is not a petroleum product, follows ordinary rules and remains 100% deductible when used for the business.

When a good or service is used both for operations that open deduction rights and for others, VAT is only deductible up to the coefficient calculated in the year of acquisition (the reference coefficient). That coefficient must then be tracked over time.

• Annual adjustment. If a year's final coefficient differs from the reference coefficient, an adjustment — additional deduction or repayment — is required by 25 April of the following year at the latest.
• Global adjustment for fixed assets. The deduction on a capital asset may be revised during an adjustment period (five years for movable goods, twenty years for buildings) in the event of a significant change in use, a disposal or a change of purpose.

A partly taxable business — one carrying out both taxable and exempt operations — must therefore manage these coefficients. An over-favourable assessment results, years later, in a repayment plus interest.

• Tolls and parking. VAT on motorway tolls and parking incurred for business travel is deductible, even for a passenger vehicle: these are services, not charges specific to the excluded vehicle.
• Phone and mixed subscriptions. For both business and private use, VAT is deductible only in proportion to business use, which must be justifiable.
• Samples and advertising items. Samples handed out to promote a product, and very low-value advertising items, follow their own rules, distinct from the gift threshold, and may remain deductible.
• Director's travel costs. Carrying documentation, training or equipment hire remain deductible; meals and accommodation on the trip, however, follow the exclusion seen above.

Beyond the admission coefficient, three conditions must be met for any deduction:

1. a compliant invoice showing the supplier, its VAT number, quantities, description and price;
2. a good or service necessary for the business, directly linked to the activity;
3. VAT that has become chargeable at the supplier.

1. Forgetting that restrictions combine. For a passenger vehicle, VAT is non-deductible and the accounting depreciation is only deductible for tax up to a cap based on the vehicle's CO₂ emissions (Article 39, 4 of the tax code). Both limits apply together.
2. Mixing catering with services. A seminar invoice combining room hire (deductible), catering (non-deductible) and speakers (deductible) must be itemised; otherwise the inspector may reject all the VAT.
3. Overlooking the jurisdiction coefficient. A good used 60% for taxable operations gives only 60% of the VAT, even if deductible by nature.
4. Forgetting the annual adjustment of the prior year's coefficient.

An IT company recently contacted us after a VAT assessment spanning three years. It was deducting VAT on a passenger vehicle, client catering and gifts with a unit value above the threshold. None of these opened deduction rights. The company had wrongly assumed that anything on an invoice was recoverable. We structured a settlement plan with the administration.

Hayot Expertise advice. Before committing significant spend, check its VAT recoverability. A falsely justified deduction is costly at audit, with late interest and a penalty. A non-deductible expense you accept is safer than a fragile recovery: flag vehicle, reception and property purchases to your accountant before year-end.