Why Perfection is Essential for the VAT calculation

If the amount of VAT levied by a company on its sales, which it must remit to the State, is lower than that of deductible VAT on its purchases, including investments and imports, the difference, the VAT credit, Is reimbursed by the State.

Activities not subject to VAT and “taxable jobs”

Certain activities are exempt from VAT, for example: teaching activities; health or medical activities; non-profit works of a social or philanthropic nature; rentals of immovable property (but the purchase of new accommodation is subject to the normal rate); much of the banking and insurance business.

A “partial taxable person” exercises both activities subject to and not subject to VAT. He can only deduct VAT on his purchases in proportion to his sales subject to VAT.

Legal persons whose activities are totally or partially exempt from VAT are subject to “payroll tax”, based on their payroll, in proportion to their activities not subject to VAT. You can count such taxes now with the business calculator.

If the turnover of a company is below a threshold of 86,000 € for trade activities and 34,000 € for the provision of services, it benefits from the “base franchise”: its sales are exempt from VAT, but she cannot be reimbursed for VAT on her purchases.

Taking into account these exemptions and the possibilities of deducting VAT on purchases, VAT is applied economically to a base, called “taxable jobs”, made up for about 60% of part of household consumption, for around 8% of their investments in new housing, for around 15% of part of the purchases of goods and services by businesses (non-taxable and partially taxable persons) and for 16% of public administration purchases.

VAT rates

Since January 1, 2014, the “normal rate” of VAT has been 20.0%. It applies to about 65% of taxable jobs.A rate of 10% applies in particular to hotels, restaurants and passenger transport. A rate of 5.5% applies in particular to take-out food and drinks, gas and electricity, books. A rate of 2.1% applies in particular to drugs reimbursable by social security, to the press, to live shows. Lower rates apply, for these products, in Corsica and in the overseas departments and territories.


In national accounts, VAT is recorded in established rights: the VAT paid by companies in January N + 1 on their sales in December N is charged to year N. Its return, net of refunds, amounted to 174 € billion in 2019 for all public administrations, including € 124 billion allocated to the State; € 46bn for social security and € 4bn for local public administrations (regions). In budgetary accounting, it is recorded when it is collected and its net income in 2019 was € 129 billion for the State. It is the main source of state revenue.

Last Words

A 1 point increase yields € 7.0 billion for the common law rate (20%), € 1.4 billion for the reduced rate of 10%, € 2.0 billion for the reduced rate of 5.5% and € 0.5bn for the super-reduced rate of 2.1%, or around € 11bn if all rates are increased.

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