France reinstates VAT Exemption Regime retrospectively as of 1st January 2025
The French government has officially restored the VAT exemption regime (franchise en base de TVA) which was in force as of 1st January 2025, following significant opposition. This decision cancels the controversial measure that aimed to introduce a single, much lower threshold for VAT exemption under this scheme, starting March 2025.
Background
The VAT exemption regime allows small businesses and certain professionals to avoid charging VAT on their sales, provided their annual turnover does not exceed specific thresholds. Initially, the Finance Law for 2025 proposed a drastic simplification: replacing the various thresholds with a single limit of €25,000. This reform was intended to align with EU Directive 2020/285, which seeks to harmonise VAT rules across Member States and facilitate cross-border trade for micro-enterprises.
However, the proposal sparked strong opposition from professional organisations, particularly lawyers, authors, and artists, who benefit from higher specific thresholds. Critics argued that lowering the limit to €25,000 would severely impact small businesses and independent professionals.
What Has Changed?
The Government ultimately suspended the reform and reinstated the previous regime for the entire year 2025. The restored thresholds are:
- Total of domestic turnover
- Previous year: €85,000
- Current year : €93,500
- Domestic turnover relating to services other than catering / restaurants services on site, and accommodation services
- Previous year: €37,500
- Current year : €41,250
- Specific activities (lawyers, authors, artists):
- Previous year : € 50,000
- Current year : € 55,000
- Any other activities covered by the exemption:
- Previous year : € 35,000
- Current year : € 38,500
These thresholds apply until at least 31st December 2025. Businesses exceeding these limits lose the benefit of the VAT exemption once the threshold has been reached.
While France maintains its traditional thresholds for now, the EU reform remains in place, allowing businesses to benefit from VAT exemptions in other Member States under certain conditions.
Implications for Businesses
For 2025, small businesses and professionals can continue operating under the existing rules. The debate on a single threshold is expected to resume during discussions for the 2026 Finance Law. The draft finance bill for 2026, already submitted by the Government, plans indeed to modify this regime once again: as of 1st January 2026, the exemption threshold would be set at €37,500, except for property works, for which the threshold would be set at €25,000. The specific exemptions for lawyers, authors and performers would be abolished.
If you wish to discuss this issue with us further, please feel free to contact us, and once of our consultants will be happy to assist you.