French u-turn on reduced VAT will stay at 5.5%
The latest French Finance Act for 2014 will not now include a drop in the reduced 5.5% VAT rate to 5%.
Confusion on French VAT increase
There have been many announcements on changes to the French VAT rate in the past year. This included an abandoned plan to raise the standard French VAT rate from 19.6% to 21.4% in 2012. This was dropped after the Socialist government won the Parliamentary elections. It then subsequently announced that the French VAT rate would rise to 20% from 1 January 2014. This rise is still scheduled to go ahead.
There were also announced plans to raise the 7% rate (restaurants etc) to 10%. This will also still go ahead on the 1 January 2014.
The second reduced rate of 5.5% (food, power, books) was to be lowered to 5%. However, this cut has now been stopped in the Finance Act.
In accordance with the EU VAT Directive, member states must maintain a standard VAT rate of 15% or above on most goods and services. They are permitted to reduced VAT rates for public services, foodstuffs, domestic power and other sensitive goods and services. There is also a zero rate (e.g. education), and some products are exempt (e.g. financial services).