VAT adjustment on fixed assets: 5 and 20 years

Quick answer. VAT deducted when a fixed asset is acquired can be adjusted over 5 years for movable assets and 20 years for buildings. Any change in the deduction coefficient beyond ten points triggers a repayment (negative change) or an additional deduction (positive change), either annually or in a single step on disposal.

The VAT recovered on the day of purchase is not final. Many business owners assume that once VAT has been deducted on premises, a commercial vehicle or a machine, the matter is closed. It is not. Article 207 of annex II to the French General Tax Code (CGI) requires the use of the asset to be tracked over several years, and any material change in its use may oblige the company to repay part of the VAT, or conversely to recover an additional amount.

At Hayot Expertise, we regularly see this mechanism overlooked at the moment it matters most: a property sale, a change of activity, the shift from taxed premises to an exempt lease. We set out here the logic of the 5 and 20-year periods, the role of the deduction coefficient, and how to calculate an adjustment without surprises.

A VAT adjustment on a fixed asset corrects, after the fact, the amount of VAT initially deducted when the asset was acquired. The correction reflects how the asset has actually been used over the years, compared with the use expected at the outset.

The principle rests on the deduction coefficient. At the time of purchase, the company determines the recoverable share of VAT according to the asset's use: a coefficient of 1 means full deduction, a coefficient of 0.5 a half deduction, a coefficient of 0 no deduction. The coefficient set at acquisition becomes the reference coefficient.

If the use of the asset later changes, the deduction coefficient for the year differs from the reference coefficient. Article 207 of annex II to the CGI then organises an adjustment: a VAT repayment to the Treasury when the right to deduct decreases, an additional deduction when the taxable use of the asset increases. The logic is neutral: the deduction must mirror the real economic use of the asset.

This tracking applies only to fixed assets, that is, assets intended to serve the business over the long term. VAT on consumed goods and services (inventory, supplies, running costs) is outside this scheme.

The tracking period depends on the nature of the asset. The year of acquisition or completion counts as the first year of the period.

For a movable asset, the company therefore monitors use over five years, reasoning in fifths. For a building, the tracking spreads over twenty years, in twentieths. The longer the period, the greater the chance of a triggering event, which explains the particular attention paid to premises and property transactions.

This difference in duration is structural. On a building acquired with VAT deducted, a disposal or change of use during the twenty years may trigger an adjustment covering the VAT for the years remaining to run. For our property, SCI and furnished-rental support, this point is central: commercial premises leased with VAT and then assigned to an exempt lease almost always trigger an adjustment.

The annual adjustment compares, each year of the period, the deduction coefficient for the year with the reference deduction coefficient. It applies only if the gap between the two exceeds ten points.

The mechanism of article 207 of annex II to the CGI is as follows:

1. Identify the initial VAT charged on the asset and the reference deduction coefficient set at acquisition.
2. Determine, for the year concerned, the final deduction coefficient reflecting the asset's real use that year.
3. Calculate the difference between the year's coefficient and the reference coefficient.
4. Check that this change exceeds ten points: below that, no annual adjustment is due.
5. Multiply the initial VAT by this difference, then apply the annual fraction (one fifth for a movable asset, one twentieth for a building).
6. Report the result on the VAT return: an additional deduction if the change is positive, a repayment if it is negative.

Take a simple arithmetic illustration, without any VAT rate. A movable asset is acquired with a reference deduction coefficient of 1 (full deduction). Three years later, the use of the asset changes and the year's coefficient falls to 0.5. The change is 0.5, fifty points, well above the ten-point threshold. The annual adjustment for that year equals one fifth of the initial VAT multiplied by 0.5, in the form of a repayment.

The global adjustment occurs once, on the occasion of an event that interrupts or durably changes the asset's use during the 5 or 20-year period. It covers the VAT corresponding to the years remaining to run until the end of the period.

The main triggering events are:

• the disposal of the asset, or the cessation of its use for transactions giving rise to deduction;
• a change in the asset's use or allocation;
• the asset leaving the company's balance sheet;
• the cessation of the activity giving rise to deduction.

The global adjustment is often the heaviest, because it concentrates in a single year the VAT for the years not yet elapsed. This is typically the case on the sale of a building during the period: if the disposal is not subject to VAT, the company may have to repay the VAT for the remaining twentieths. Conversely, a taxed disposal, or the exercise of an option, may neutralise that repayment.

A director recently consulted us about an SCI that had acquired commercial premises with full VAT deduction, because the premises were intended for a lease subject to VAT by option. The reference deduction coefficient was 1. Seven years later, the premises were reassigned to an exempt activity, with no VAT charged.

The year's deduction coefficient then fell to 0. The change against the reference coefficient was 1, one hundred points, far above the ten-point threshold. As this is a building, the reference period is twenty years, including the year of completion. At the seventh year, thirteen twentieths remain to run. The change of use triggers a global adjustment: a repayment covering these thirteen twentieths of the initial VAT.

This example shows why, in our property files, we insist on the VAT history of each asset. An operating decision taken without visibility on the remaining twentieths can turn a profitable transaction into an immediate cash burden. The same vigilance applies to the group structures we monitor under holding and group taxation, where property assets often move between entities.

The underestimated risk. The most frequently forgotten trigger is not the sale, but the silent change of use: taxed premises sliding into an exempt lease, part of a building reassigned to a non-taxable use, an ancillary activity that becomes predominant. No invoice signals the event, yet the global adjustment is due.

What the tax authority looks at. The tracking of the deduction coefficient year after year and the consistency between the declared and the actual use of the asset. A full deduction maintained while taxable use has fallen is a classic audit target. The traceability of the reference coefficient, from acquisition onwards, is therefore essential.

On 1 September 2026, the VAT rules of the CGI are recodified, without substantive change, into the Code des impositions sur les biens et services (CIBS). The adjustment mechanism remains unchanged in substance, but the article references evolve. We explain this transition in our article on the recodification of the CGI into the CIBS: references to the CGI remain valid, but new decisions must factor in the CIBS numbering. This recodification is among the key measures from 1 January 2026 to anticipate.

The adjustment scheme is neutral in principle, but it becomes penalising when ignored until the day of the triggering event. Good practice is to keep, for each fixed asset bearing VAT, a tracking sheet stating the initial VAT, the reference coefficient, the applicable period and the remaining twentieths or fifths. This sheet turns an adjustment suffered into a decision anticipated.

In property transactions and group restructurings, we recommend reviewing the VAT position of each asset before any disposal or reassignment, not after. The choice between VAT on payments received or on invoicing and the decision on an adjustment rest on the same logic: securing the company's position upstream. As a chartered accountant and statutory auditor registered with the French institute (Ordre des experts-comptables), we systematically build this tracking into our engagements.

Hayot Expertise tip. Before any sale, closure or change of use of a fixed asset, ask your accountant to calculate the potential VAT adjustment. A repayment covering the remaining twentieths of a building can weigh heavily on the year's cash flow. Carried out upstream, this analysis often allows a structuring that neutralises or spreads the impact.