The Territorial Dimension of VAT

The territoriality rules make it possible to determine whether a transaction is subject to VAT in France or not.

1. Main Principle of territoriality

A transaction carried out in France is liable to French VAT. In the contrary case, it would be exempt from the territorial scope of French VAT and would be subject to the VAT of the State or country on whose territory it is deemed to be carried out, in other words, if it is a third country to the European Union, if there is a VAT system in that country. The applicable rules differ according to whether the supply is of goods or services.

• Supplies of goods

1. General rules and regulations
2. Imports
3. Exports

• Services provided

1. Rules of territoriality
2. European Declaration of Services

• Intra-Community trade

1. Intra-Community acquisitions
2. Intra-Community supplies
3. Persons benefiting from a derogatory regime
4. Distance sales
5. Declaration of trade in goods

2.Supplies of goods

1. General rules and regulations: Supplies of goods in their unaltered state located in France at the time of their dispatch, transport or delivery are taxable in France, subject to derogations specific to exports, intra-Community supplies and distance sales to another European Union Member State. Supplies of goods whose place of departure for dispatch or transport is abroad are, in principle, taxable only if they are made in France by or on behalf of the importer.
2. Imports: The introduction into France of goods originating from a third country to the European Union gives rise to the collection of VAT by the Customs services at the time of import (border crossing). Imports subject to VAT consist of the entry into France of goods originating in or coming from a country outside the European Union which have not been released for free circulation, or the release for consumption in France of goods placed, on entry into French territory, under a Community customs procedure or a tax suspension procedure.

There is a specific VAT exemption for goods imported by tourists in their personal luggage from third countries to the EU.

1. Exports: Exports are defined as shipments of goods outside the European Union. In principle liable to VAT, they are exempt if they meet certain conditions which differ according to whether the export is carried out by the seller or on his behalf, or by the foreign buyer.

The buyer residing for tax purposes in a non-EU country may be exempt from VAT on goods for export which he has acquired in France, provided that the French seller issues him an export sales slip to be presented to the customs office at the EU exit point. Exports made by or on behalf of the seller (as well as services directly associated with them) are exempt from VAT if they are the subject of special accounting and a dematerialised export declaration issued by the Customs Service.