VAT Exemption at Start-up: Keep It or Opt Out

Quick answer. At start-up, the VAT base exemption (franchise en base de TVA) frees you from charging and reporting VAT, but bars you from recovering VAT on your purchases. If your launch investments are heavy or if your clients recover VAT themselves, opting out of the exemption (article 293 F of the French tax code) is often the winning move. If you sell to consumers with few purchases, keeping it protects your margin.

Many founders activate the VAT base exemption by default, without really choosing it. It is comfortable in year one: no return, no VAT to remit, simpler invoicing. But that comfort has a hidden cost. As long as you are exempt, the VAT paid on your equipment, fit-out works, launch stock or start-up fees stays permanently on your books. For a firm, this is one of the most profitable trade-offs to settle in the very month of incorporation, before the first large purchase.

This article frames the concrete decision: when to keep the exemption, when to opt out, how to cost the gain, and how to formalise the option without getting the date wrong.

The base exemption is a regime that frees you from reporting and paying VAT as long as your turnover stays below certain thresholds. In practice, you do not charge VAT to your clients and you state the wording "TVA non applicable, article 293 B du CGI" on your invoices.

The trade-off is mechanical: a taxable person under the exemption deducts no VAT on purchases. The VAT paid to your suppliers becomes a real cost that inflates the price of your investments and expenses.

The 2026 thresholds to know#

The VAT base exemption thresholds depend on the nature of the activity. For 2026, they are set as follows (article 293 B of the French tax code).

As long as your turnover stays below the base threshold, the exemption applies automatically. Exceeding the increased threshold ends the exemption from the 1st day of the month in which it is crossed. For the detail of the overshoot rules and the intermediate thresholds, see our analysis of the 2026 VAT base exemption thresholds.

Our take. The exemption is not a tax gift, it is a deferral of complexity. It simplifies year one but it can cost you thousands of euros of recoverable VAT at the very moment your cash flow is most fragile: the launch investment phase.

Keeping the exemption makes sense when two conditions come together: your clients are mostly consumers (or entities that do not recover VAT), and your VAT-bearing purchases are low.

In that case, invoicing without VAT makes you more competitive against a taxable competitor, or lets you keep a higher margin at an identical sale price. The founder collects 100% of the price, without remitting a slice to the Treasury.

Typical profiles for which keeping the exemption is often relevant:

• consultant or intellectual service provider starting alone, with no heavy equipment;
• personal services activity invoiced to consumers;
• small complementary activity in a test phase, with no investment;
• profession whose clientele is mainly non-taxable.

Opting out of the exemption means choosing to be liable for VAT from the start. You charge VAT to your clients (20% in the general case), you remit it to the State, but above all you deduct VAT on all your business purchases.

That is where the gain lies. The VAT paid on your launch investments, equipment, fit-out, utility vehicle, initial stock, set-up services, becomes recoverable again. On a project that invests heavily before collecting revenue, this VAT credit refund is a real cash-flow lever.

The signals that favour opting out#

• Your launch investments are significant: premises fit-out, equipment, IT fleet, launch stock.
• Your clients are taxable businesses: they recover the VAT you charge, so the gross price does not penalise them.
• You expect to cross the thresholds quickly: better to be on the target regime straight away than to switch mid-year.
• You buy heavily with VAT to resell: trading, e-commerce with stock, activity with a high purchase ratio.

The underestimated risk. A founder who keeps the exemption "to keep things simple" and buys EUR 30,000 (excl. VAT) of equipment in year one effectively forfeits EUR 6,000 of recoverable VAT. That is not a saving, it is a dead loss that nothing will recover afterwards.

Take an example representative of a creation file, with no named data. A founder launches a fit-out and small-works activity, with mixed clientele. Year one: EUR 20,000 of VAT-bearing investments and supplies.

If the clientele is made up of businesses that recover VAT, opting out saves EUR 4,000 without penalising clients. If the clientele is made up of consumers and purchases are low, the exemption better protects the margin. The right answer depends on the pair "weight of investments" and "nature of the clientele".

Trade-off. Business clients plus heavy investments: opt out. Consumer clients plus low purchases: keep it. In between, cost the expected recoverable VAT over 12 to 24 months and compare it with the administrative cost of the returns.

Opting out of the base exemption is a formal option provided for in article 293 F of the French tax code. It is not automatic: you have to request it.

1. Send the request to your business tax office (SIE), in writing or via your professional online account.
2. Check the effective date: the option takes effect on the 1st day of the month in which it is declared.
3. Allow for the commitment period: the option covers a two-year period, tacitly renewed for further two-year periods.
4. Bring your invoicing into compliance: from the effective date, your invoices must show VAT and the applicable rate.
5. Set up your returns: simplified real regime or normal real regime depending on your situation, to be settled with your firm.

In practice. In creation files, the most frequent sticking point is not the decision itself, it is the timing. An option exercised after the first large purchase loses the VAT on that purchase. The right reflex is to settle the trade-off before committing the investments, ideally in the month of incorporation.

Mixed sales and services activity. If you combine sales of goods and provision of services, two thresholds coexist. Management quickly becomes technical and warrants a review with a chartered accountant to avoid an unanticipated overshoot.

Liberal and legal professions. Some professions have their own territoriality and exemption rules. For lawyers, for instance, the interplay between the exemption and VAT obligations deserves a dedicated read; see our analysis of VAT and the exemption for the legal professions.

Furnished rentals. For furnished rentals under the micro-BIC regime, the issue is not the VAT exemption but the standard allowance applicable to receipts. Since the so-called Le Meur law, a classified tourist furnished rental qualifies for a 50% allowance capped at EUR 77,700 of receipts (2025 income), while a non-classified tourist furnished rental benefits from a 30% allowance capped at EUR 15,000. These micro caps are separate from the VAT exemption thresholds, which must not be confused.

VAT reform and e-invoicing. The trade-off must also be read in light of the timetable for the VAT reform and the CIBS recodification of September 2026, which changes certain references and obligations.

The authorities mainly check the consistency between your declared regime, your invoices and your actual turnover. Two points of vigilance:

• The wording "TVA non applicable, article 293 B du CGI" is mandatory on invoices as long as you are exempt. An invoice that shows VAT while you are exempt obliges you to remit it.
• Crossing the thresholds during the year must be tracked month by month: exceeding the increased threshold moves the business out of the exemption from the 1st day of the month concerned, with an obligation to charge VAT from that date.

• The base exemption frees you from VAT but bars recovery of VAT on purchases: it is a deferral of complexity, not a net advantage.
• Opting out is often the winning move when launch investments are heavy or when clients recover VAT themselves.
• Keeping the exemption protects the margin when the clientele is made up of consumers and purchases are low.
• The opt-out option (article 293 F of the French tax code) takes effect on the 1st day of the month of the request and commits you for two years.
• Timing is decisive: settle the choice before the first large purchase so as not to lose deductible VAT.
• The 2026 thresholds are EUR 85,000 / 93,500 for sales and EUR 37,500 / 41,250 for services.