VAT deduction coefficient: a guide for partial taxable persons

Quick answer. The VAT deduction coefficient for a good or service equals the product of three coefficients: scope × taxation × admission, each between 0 and 1, with the result rounded up to two decimal places (French tax code, annex II, article 206). It sets the share of input VAT that is actually deductible.

When a business carries out only taxable transactions, it deducts all the VAT on its purchases. The difficulty begins as soon as it combines out-of-scope activities, exempt transactions or expenses subject to an exclusion. The calculation is no longer global: it is assessed expense by expense, through a single coefficient that combines three distinct questions.

This article explains the mechanism of the three coefficients, the step-by-step calculation method, the often confused distinction between a partial taxable person and a partial payer, and the adjustments that come afterwards. The goal is for you to know where your business stands and which figures to watch.

Deductible VAT on an expense is no longer a binary question. For each good or service acquired, the right to deduct is measured by a deduction coefficient combining three successive filters. Each follows its own logic and each can, on its own, reduce or cancel the deduction.

The final deduction coefficient is the product of these three coefficients. If any one of them equals zero, the VAT is not deductible at all, whatever the value of the other two.

The scope coefficient isolates the share of the expense allocated to transactions that fall within the scope of VAT. A non-taxable subsidy or a non-economic activity is out of scope and lowers this coefficient.

The taxation coefficient comes next, within the scope. It measures the share of transactions that actually give a right to deduct, compared with those that are exempt without a right to deduct. An exempt activity such as the bare letting of premises weighs here.

The admission coefficient, finally, reflects the exclusions set by the rules for certain categories of expense. It equals 1 where there is no exclusion, it is reduced for a partial exclusion, and nil for a full exclusion.

The method is always the same, whatever the expense. It unfolds in five stages.

1. Determine the scope coefficient. Estimate the share of use of the good or service for transactions within the scope of VAT. An expense allocated 100% to taxable economic activity gives a coefficient of 1.
2. Determine the taxation coefficient. Within in-scope use, measure the share allocated to transactions giving a right to deduct. This coefficient may be calculated item by item, or as a single flat rate for the year.
3. Determine the admission coefficient. Check whether the expense is subject to an exclusion from the right to deduct. Where there is no exclusion, this coefficient equals 1.
4. Multiply the three coefficients. The product gives the deduction coefficient for the expense.
5. Round up to two decimal places. The final result, and only that, is rounded up. It applies to the VAT amount shown on the invoice.

For the flat-rate taxation coefficient, the ratio is calculated between turnover giving a right to deduct and total turnover from transactions within the scope. This single ratio then applies to all mixed-use expenses for the year.

In practice: a deduction coefficient must be documented. Keep the calculation basis for each coefficient used, because in the event of an audit the tax authority asks for the justification of the share applied, not just the final figure.

Take a business that uses one piece of equipment 80% for transactions within the scope of VAT, the rest relating to an out-of-scope activity. Among its in-scope transactions, 90% give a right to deduct. The expense is subject to no exclusion.

On invoiced VAT of 1,000 euros, deductible VAT amounts to 720 euros. The remaining 280 euros is a non-recoverable cost. This example is purely illustrative: your own coefficients depend on your actual activity and on how each expense is allocated.

This is the most common confusion, and it does not concern the same coefficient. Both situations reduce the right to deduct, but through different levers.

The partial taxable person carries out both in-scope and out-of-scope transactions. Out-of-scope items include, for example, certain non-taxable subsidies or a non-economic activity. This situation plays on the scope coefficient.

The partial payer carries out transactions that are all within the scope, but part of which is exempt without a right to deduct. This situation plays on the taxation coefficient. One and the same entity may combine both statuses.

The underestimated risk: many directors equate any drop in deduction with an exemption. A non-taxable balancing subsidy is not an exempt transaction: it is out of scope. Confusing the two leads to applying the wrong coefficient and distorting the calculation, one way or the other.

The scope and taxation coefficients are first provisional. During the year they are calculated on the basis of the previous year or a reasonable estimate. They are then finalised before 25 April of the following year, which triggers an adjustment when the actual figures differ from the estimates.

Beyond this annual finalisation, two adjustment mechanisms exist over the life of the asset.

• The annual adjustment corrects variations in the deduction coefficient from one year to the next, over the adjustment period.
• The overall adjustment arises on a specific event: disposal of the asset, change of use, or cessation of activity opening or closing the right to deduct.

The adjustment period differs by the nature of the asset: 5 years for movable goods, 20 years for buildings. This is why a change in the use of a building can produce tax effects long after its acquisition.

What the tax authority looks at: the consistency between the provisional coefficient applied during the year and the final coefficient set the following year. An unadjusted gap, or the absence of an adjustment on a disposal within the period, are classic audit points.

Several situations mechanically reduce the right to deduct. Spotting them in advance avoids overstating recoverable VAT in a budget or forecast.

• Part of the activity falls outside the scope of VAT, for example through non-taxable subsidies or a non-economic activity.
• Part of the in-scope transactions is exempt without a right to deduct, such as certain letting activities or exempt financial transactions.
• The expense is subject to a regulatory exclusion, which reduces or cancels the admission coefficient.
• One and the same good or service is allocated to mixed use, combining several of the above situations.

As soon as one of these situations exists, the reflex of deducting 100% of input VAT becomes a mistake. You must rebuild the deduction coefficient expense by expense, or apply the flat-rate taxation coefficient set for the year.

In the files where the deduction coefficient causes problems, the sticking point is rarely the calculation itself: it is the lack of prior classification of transactions. Until the business has sorted its income between out-of-scope, exempt without a right to deduct, and taxable, no coefficient is reliable.

Our recommendation fits in one sentence: first map your transactions, only then set the coefficients. It is this upstream work that secures the deduction and withstands an audit. For mixed structures, this assessment is best carried out with an accountant when the setup is put in place, then reviewed at each year-end.

Active and passive holding companies. A passive holding, limited to holding shareholdings, carries out a largely out-of-scope activity and sees its scope coefficient sharply reduced. An active holding, which invoices services to its subsidiaries, has in-scope transactions and can recover more VAT, subject to the reality of the services invoiced. The qualification of the holding therefore directly drives the applicable coefficient.

Bodies receiving subsidies. Structures financed by non-taxable subsidies are frequently partial taxable persons. The share of out-of-scope funding weighs on the scope coefficient and limits the deduction on shared expenses. The distinction between a price-supplement subsidy, which is taxable, and an out-of-scope subsidy is decisive here.

Exempt real estate. A bare letting activity for residential use is exempt without a right to deduct and lowers the taxation coefficient. Combined with the 20-year adjustment period specific to buildings, it can generate significant VAT repayments where the use changes. This is a field where anticipation is key.

The VAT part of the French general tax code is being recodified into the code of taxes on goods and services, the CIBS, from 1 September 2026. This is a change of numbering, not a substantive reform: the mechanism of the three coefficients remains identical. Simply make sure to update internal references and document templates that still cite the old numbering of the tax code.