French VAT rate increases from 19.6% to 20% in 2014

Thu 8th Nov 2012

The French standard Value Added Tax rate will rise from 19.6% to 20% from 1 January 2014.  There will also be an increase in the reduced VAT rate from 7% to 10%.  Plans to raise the French super reduced VAT rate from 5.5% to 5% were struck down by the Constitutional Court, so the rate remains at 5.5%.

The VAT rise came as a surprise since the new Socialist government had promised at this summer’s French Presidential election to reverse Conservative plans for a VAT rise to 22.6%.  This had helped the Socialists secure the election win.

The average VAT rate in Europe is now over 21%.  For many years, France’s rate was above the average, but austerity VAT increases in many countries have put France behind the pack.  Many countries have been using VAT rises as a way to improve their competitiveness – VAT increases help fund cuts to business taxes, which encourage job creation.  Countries such as Spain, the Netherlands, Italy, Portugal and Greece have all increased their VAT rates.

The is no implementation guidance on the French VAT change yet.  Companies need to consider the French VAT returns rules, and when to start changing the rate on the provision of goods or services.  In particular, the correct rates for ongoing services.  France last changed its VAT rate – a cut – in 2000.