VAT for French SMEs: rates, returns, and deductions in 2026

Up to date as of 12 May 2026.

French VAT (taxe sur la valeur ajoutée) generates more compliance errors in SME files reviewed by Cabinet Hayot Expertise in Paris than virtually any other indirect tax: wrong rate applied, inadmissible deduction claimed, simplified instalment under-assessed, recoverable credit never requested. This 2026 panorama covers the four statutory rates (CGI art. 278, 279, 278-0 bis, 281 quater), the three filing regimes (exemption threshold, simplified annual CA12, normal monthly CA3), the deduction coefficient mechanism (CGI annex II art. 206), the statutory exclusions (CGI art. 273 sexies), the VAT credit refund process (form 3519), the 2026 filing calendar, and practical cases for four business types.

Standard rate 20% — CGI art. 278#

The 20% rate applies to all taxable supplies that do not qualify for a reduced rate. It is the default: where no special provision applies, 20% applies. The most frequent mistakes in SME files concern para-medical activities (some exempt under CGI art. 261, others taxable at 20%), digital services supplied to foreign customers (territoriality rules CGI art. 259 to 259 D), and professional training that is exempt only where a prefectoral approval is held.

What the tax authority scrutinises: the consistency between the rate invoiced, the description of the supply on the invoice, and the accounting classification. An invoice labelled "consulting assignment" taxed at 10% without a legal basis is an immediate reassessment risk.

Intermediate rate 10% — CGI art. 279 and 279-0 bis#

The 10% rate covers three main families:

Catering: meals served on-site (art. 279, a bis) and take-away sales of hot food. Take-away sales of cold food remain at 5.5%. The distinction is operational: a caterer who delivers cold sandwiches invoices at 5.5%; the same sandwiches reheated on delivery switch to 10%.

Accommodation and hospitality: hotels, tourist residences, furnished tourist accommodation, classified campsites (art. 279, a). This must be distinguished from unfurnished residential lettings, which are in principle VAT-exempt.

Renovation works on older residential premises: improvement, transformation, fitting-out, and maintenance works on residential premises completed more than two years ago (CGI art. 279-0 bis). The condition is that the client provides attestation form 1301-SD before the first invoice is issued. Without that attestation, the applicable rate is 20%. Note that energy-improvement works qualifying for the 5.5% rate (art. 278-0 bis A) do not combine with the 10% rate on the same work.

Reduced rate 5.5% — CGI art. 278-0 bis#

The 5.5% rate is reserved for goods and services with recognised social or environmental utility:

• Unprocessed food products and most items intended for human consumption (CGI art. 278-0 bis A; detailed list in BOFiP BOI-TVA-LIQ-30-10-10)
• Books in any format (art. 278-0 bis B) — including digital books since 2012
• Subscriptions to energy networks (electricity, natural gas, heat) and renewable energy supplies (art. 278-0 bis A)
• Appliances and equipment specifically designed for people with disabilities (art. 278-0 bis A)
• Energy renovation works on older residential premises (art. 278-0 bis A): insulation, condensing boilers, heat pumps, subject to conditions

Practical arbitrage in construction — 5.5% vs 10%: a single worksite may combine both rates when eligible energy renovation works (5.5%) and general renovation works (10%) coexist. The split must appear on the invoice and in the attestation documents. Cabinet Hayot Expertise in Paris systematically checks this point in files for tradesperson clients.

Super-reduced rate 2.1% — CGI art. 281 quater#

This rate is strictly limited to: medicines reimbursable by the French health insurance system (art. 281 quater I, 1°) and press publications registered with the Joint Commission for Publications and Press Agencies (art. 281 quater I, 2°). It does not extend to food supplements, non-reimbursed medical devices, or digital newsletters.

The three-coefficient mechanism#

Deductible VAT is not simply "I have an invoice with VAT, therefore I deduct in full." Article 206 of Annex II to the CGI structures the right to deduct around three multiplying coefficients:

Coefficient of liability (assujettissement): the fraction of use of the good or service for an economic activity subject to VAT, as opposed to private use or activities outside scope. If a laptop is used 80% for professional purposes and 20% privately, the assujettissement coefficient is 0.80.

Coefficient of taxation (taxation): the fraction of transactions subject to VAT relative to all transactions. If a business generates 70% of its revenue from taxable supplies and 30% from exempt supplies (e.g., unfurnished residential letting alongside a commercial activity), the taxation coefficient is 0.70.

Coefficient of admission (admission): statutory exclusions (detailed below) reduce this coefficient to 0 for the categories covered, regardless of actual professional use.

Deductible VAT = invoiced VAT × (assujettissement × taxation × admission)

For a business where all revenue is taxable and the good is used exclusively for business purposes, the first two coefficients equal 1 and the result depends solely on statutory exclusions.

Main statutory exclusions in 2026#

Passenger cars (CGI art. 273 sexies, BOFiP BOI-TVA-DED-30-30): VAT is entirely non-deductible on the acquisition, rental, maintenance, repair, and fuel of vehicles registered as VP (voiture particulière — passenger car), including electric and plug-in hybrid cars. Exceptions apply for vehicles used exclusively for public passenger transport, funeral services, driving instruction, or goods transport.

Fuel (CGI art. 298-4-1° bis): since the 2022 Finance Act, both petrol and diesel used in vehicles whose acquisition VAT is non-deductible are equally excluded. For commercial vehicles (acquisition VAT deductible), the deductible VAT on both diesel and petrol stands at 80% — the former distinction between petrol (40% in 2021) and diesel (80%) was abolished by the 2022 Finance Act.

Housing provided to directors and employees (CGI art. 273 sexies, 2°): VAT is non-deductible on furnished accommodation provided free of charge to directors and employees, including company housing.

Client gifts with unit value exceeding €73 TTC (BOFiP BOI-TVA-DED-30-30-10, n° 310): VAT on gifts whose unit value exceeds this threshold (to be confirmed: 2025 limit, potential annual revaluation) is not deductible. Below the threshold and where the gift serves a business purpose, VAT is deductible.

Personal expenditure: VAT is non-deductible on any expenditure unrelated to the business, regardless of its form.

Annual and partial adjustments — CGI annex II art. 207 and 208#

The initial VAT deduction on capital goods is not final. If the use of a capital asset changes during the adjustment period (5 years for movable goods, 20 years for real estate), an adjustment is required:

• Annual global adjustment (art. 207): each year, if the deduction coefficient varies by more than 10 percentage points from the coefficient applied at initial deduction, a reversal or supplementary deduction is computed on a fifth-by-fifth or twentieth-by-twentieth basis.
• Partial adjustment (art. 208): disposal or permanent change of use triggers an immediate adjustment.

In practice: SMEs that own their premises or have invested in machinery must maintain a VAT adjustment schedule for capital assets. Cabinet Hayot Expertise in Paris incorporates this tracking into annual accounting review files to prevent reassessments during tax audits.

VAT exemption threshold regime (franchise en base)#

The franchise en base (CGI art. 293 B) exempts a taxable person from collecting, invoicing, and declaring VAT as long as annual turnover before tax remains below the statutory thresholds (indicative 2026 figures: approximately €85,000 for goods sales and €37,500 for services — to be confirmed on impots.gouv.fr, as thresholds are revised every three years). The mandatory wording on each invoice is: "TVA non applicable — article 293 B du CGI."

The underestimated risk: the exemption regime prevents any recovery of input VAT. For an SME or self-employed person investing in equipment, software, or office space, the implicit cost of the exemption may exceed the administrative saving. Cabinet Hayot Expertise in Paris analyses this trade-off when onboarding new clients.

See our dedicated guide: franchise en base de TVA.

Simplified real regime — annual CA12 return#

The simplified real regime applies to businesses whose annual net VAT is below €15,000 and whose turnover is below the normal real regime thresholds. It operates on:

• Two semi-annual instalments: July (55% of net VAT for the prior year, based on the prior-year CA12) and December (40% of the same base), per CGI art. 287, 3°.
• Annual CA12 return: filed no later than the 2nd working day following 1 May for a calendar year-end. It regularises the difference between instalments paid and VAT actually due.

2026 watchpoints: if your activity grows significantly during the year, prior-year-based instalments may be insufficient. Reducing instalments is permitted (10% tolerance without penalty) but the risk of a shortfall is yours. An excessive shortfall triggers late-payment interest at 0.20%/month (CGI art. 1727).

Normal real regime — monthly CA3 returns#

The normal real regime is mandatory once net annual VAT exceeds €15,000 or turnover breaches the simplified regime thresholds, and is also available on option. CA3 returns are filed:

• Monthly for the vast majority of taxpayers, following the DGFiP calendar (the precise date — between the 15th and 24th of the month following the reporting period — varies by SIREN category, per CGI art. 287, 1°).
• Quarterly on option, only if annual net VAT is below €4,000.

Cash-flow implication: the normal real regime requires provisioning for monthly VAT payable. In files reviewed by Cabinet Hayot Expertise in Paris, the absence of a monthly VAT provision is the leading source of cash-flow stress linked to VAT. We integrate this line into cash-flow forecasts from the first engagement.

For a deeper analysis of the filing mechanics, see our article déclaration de TVA.

When deductible VAT exceeds collected VAT, a VAT credit arises. This credit may be:

• Carried forward to the next return (default option)
• Refunded on request via form no. 3519 (demande de remboursement de crédit de TVA), subject to minimum thresholds: €150 for a monthly refund request, €760 for an annual request.

The statutory processing period is 30 days from submission of form 3519. Where the tax authority verifies the claim (common for significant amounts), this period may be suspended. Exporting businesses and those with significant capital investment may request monthly refunds without waiting for the annual regularisation.

Common case: a BNC consultant who invests €50,000 before tax in IT equipment at the start of their activity generates €10,000 of VAT credit. Without a refund claim, this credit sits frozen and weighs on cash flow. Cabinet Hayot Expertise in Paris systematically checks for structural credit positions during half-yearly reviews.

The mandatory B2B e-invoicing reform (stemming from the 2022 Finance Act and clarified by the 2023 Social Security Finance Act) is rolling out progressively in 2026. Mandatory reception for large enterprises and mid-sized companies is scheduled from 1 September 2026 (to be confirmed upon publication of the implementing decree in the BOFiP). Mandatory emission for SMEs is scheduled for a later date to be specified by decree.

The VAT implication is direct: structured electronic invoices (UBL, CII or Factur-X format) carry VAT data in machine-readable form, making automated DGFiP cross-checks more straightforward. Declared VAT inconsistent with issued or received invoices will be detected more readily.

What to watch: the choice between a certified private dematerialisation platform (PDP) and the public Chorus Pro portal determines processing timelines and available features. Cabinet Hayot Expertise advises its Paris-based clients on this choice and on aligning accounting tools (Pennylane, etc.) with the new requirements.

See our complete guide: facturation électronique 2026.

For cross-border supplies and the OSS/IOSS regime, see our article on TVA e-commerce and OSS/IOSS.

Building tradesperson — mixed rates and reverse charge#

An electrician working on residential sites applies the 10% rate (art. 279-0 bis) to premises completed more than two years ago, on presentation of the client's signed 1301-SD attestation. For eligible thermal insulation works (art. 278-0 bis A), the 5.5% rate applies on the same worksite — the split must appear on the invoice. When sub-contracting for a main contractor, VAT reverse charge applies (CGI art. 283, 2 nonies): the tradesperson invoices net of VAT with the note "autoliquidation — article 283, 2 nonies CGI."

E-commerce seller — B2C EU sales and OSS#

An e-commerce operator based in Paris selling to private individuals in Germany and Spain must, once intra-EU B2C sales exceed the EU threshold of €10,000, apply the local VAT rate of each Member State and file via the OSS regime with the DGFiP. VAT collected under OSS is not recovered on the French CA3. See TVA e-commerce and OSS/IOSS for the full reconciliation pipeline.

Paris restaurant operator — multi-rate point of sale#

A Paris restaurateur generates: on-site meals (10%), take-away hot dishes (10%), alcoholic beverages (20%), cold non-alcoholic beverages (5.5%). Managing multiple rates requires a point-of-sale system that allocates sales by rate. The classic error is applying a uniform 10% to all sales, which under-declares VAT on alcohol and generates an assessment risk.

Liberal profession BNC — exemption regime and opting in#

A management consultant with annual turnover of €40,000 before tax exceeds the indicative service-sector exemption threshold. They become subject to VAT under the simplified real regime. If they plan to invest €15,000 before tax in software and equipment, recovering €3,000 of input VAT justifies opting voluntarily for VAT (CGI art. 293 F) before the threshold is breached, rather than waiting for mandatory registration.

Failure to meet VAT obligations exposes the taxpayer to:

• Late-payment interest: 0.20% per month (2.4% per year) on the VAT due (CGI art. 1727)
• Surcharge for failure to file: 10% if regularised before formal notice, 20% after formal notice, 40% for deliberate non-compliance (CGI art. 1728)
• Surcharge for fraudulent conduct: 80% (CGI art. 1729)
• Specific penalties for invoice omissions: 50% fine on undeclared amounts, minimum €15 per invoice (CGI art. 1737)

In practice, a reassessment of €20,000 of uncollected VAT may represent between €22,000 and €28,000 in total cost once late-payment interest and the applicable surcharge are added.

VAT is often perceived as a fiscally neutral tax for the business (you collect on behalf of the State and remit). In practice, three areas generate real stakes in the files we manage:

1. The choice of filing regime is a cash-flow decision. The simplified real regime creates significant cash-flow events (heavy instalments in July and December); the normal real regime smooths the monthly burden. For an SME whose annual net VAT approaches €10,000, we often recommend anticipating the switch to the normal real regime to avoid seasonal cash-flow pressure.

2. Deduction exclusions are underestimated. Passenger cars, gifts above the threshold, mixed-use expenses without proper allocation: in incoming client files, we regularly identify inadmissible deductions accumulated over several years, exposing the business to a significant reassessment. A preventive VAT audit over three years costs substantially less than a tax adjustment.

3. Unclaimed VAT credits tie up cash. We recommend systematising a refund request whenever the credit exceeds €500 and the business does not expect significant VAT collected in the following two months.

• Légifrance — CGI art. 256 (scope of VAT): legifrance.gouv.fr
• Légifrance — CGI art. 271 (right to deduct) and annex II art. 206, 207, 208: legifrance.gouv.fr
• Légifrance — CGI art. 278, 278-0 bis, 279, 279-0 bis A, 281 quater (rates): legifrance.gouv.fr
• Légifrance — CGI art. 273 sexies, 298-4-1° bis (exclusions and fuel): legifrance.gouv.fr
• Légifrance — CGI art. 287 (filing obligations): legifrance.gouv.fr
• Légifrance — CGI art. 1727, 1728, 1729, 1737 (penalties): legifrance.gouv.fr
• BOFiP — BOI-TVA-DED (VAT deduction): bofip.impots.gouv.fr
• impots.gouv.fr — VAT regimes, CA3, CA12, form 3519: impots.gouv.fr