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Reverse-charge mechanism on import VAT mandatory as of January 1, 2022
22/12/21
VAT e-Alert
As of January 1, 2022, the reverse charge of import VAT will no longer be an optional procedure but will become mandatory and automatic. The management and collection of VAT due on imports and exits from suspensive regimes will be transferred from the French Customs authorities to the French Tax authorities (DGFiP). A significant change related to this transfer is that the reverse charge of import VAT will be applied via the importer's French VAT returns, which will be directly pre-filled by the tax authorities for these transactions.
Tax authorities and the Tax office in charge of the foreign companies (Direction des Impôts des Non-Résidents - DINR) should provide further details on the practical details. Our comments are based on the 2022 Finance Act as well as the regulation and notes to operators published on 23 November 2021.
1. Repeal of the authorization for applying the reverse-charge mechanism on import VAT
Currently, when goods are imported, i.e. when goods from a country outside the European Union arrive in France, import VAT must be paid to the French Customs authorities at the time of the customs clearance. This import VAT is then reclaimed from the tax authorities according to the VAT recovery procedures.
However, it is possible to elect for the reverse-charge mechanism on import VAT via the VAT return. In this regard, importers must meet certain conditions and file an application to obtain the authorization from the Customs authorities to use this mechanism.
In practice, the reform applicable from January 1, 2022 abolishes the optional nature of the reverse charge of import VAT for certain categories of imports of goods in favor of the implementation of a mandatory reverse charge mechanism regime[1].
2. Reverse charge and VAT identification in France
The reverse-charge mechanism on import VAT will apply to all taxpayers carrying out imports in France, who will have to be registered for VAT purposes in this country, since the reverse charge implies the filing of VAT returns.
Therefore, any company wishing to carry out import operations in France will have to ensure to have a French intra-Community VAT number and that it is subject to the “normal real” (“régime reel normal”) tax regime for VAT purposes (monthly or quarterly filing of VAT returns).
On this point, particular attention should be given to this reform by taxpayers who are under the simplified tax regime for VAT purposes (“régime reel simplifié”), since the benefit of this tax regime will no longer be granted when the company carries out import operations.
In addition, Customs authorities (Direction générale des Douanes et Droits indirects - DGDDI) will remain in charge of the payment of import VAT for non-taxable or non-identified importers and several other specific cases (including importers of goods under the regime of distance sales of imported goods).
3. Reporting of the VAT number of the importer on the import documentation
In order to make the link between the importations declared to the Customs authorities and the import VAT reported on the VAT returns, the valid VAT identification number will have to be reported to the DGDDI by the customs broker or the importer himself.
This communication will have to be made on all customs declarations relating to import operations or exits from suspensive regimes taxable for VAT in France, whether they are taxable or not.
4. Pre-filling of VAT returns
VAT returns will be pre-filled as of January 1, 2022 for transactions subject to import VAT, with a similar system to be implemented in 2023 for transactions that are not taxed or are subject to a suspensive scheme.
In this respect, the transactions affected are those for which the import VAT becomes due on or after January 1, 2022. This liability corresponds to the moment when the goods are released for free circulation on the market or temporarily admitted for partial exemption from import duties, i.e., in practice, when the removal order (“Bon à enlever” - BAE) is obtained. The tax administration has clarified this concept in its latest note of November 2021:
- In the case of a normal customs declaration, the import VAT is due in respect of the month in which the voucher for removal (“Bon à enlever” - BAE) is obtained;
- In the case of a simplified customs declaration, import VAT is also payable in respect of the month in which the customs declaration obtains the voucher for removal (BAE), even if it is regularized (i.e., attached to a global supplementary declaration) in the following month."
On the 14th of each month (M), the taxable imports made during the previous month (M-1) will be reported by the tax authorities on line A4 of the VAT returns (line from the draft new VAT return) for month M-1 to be filed during month M, so that the taxable person:
- can verify the accuracy of this data for which he remains responsible, even if it uses a registered customs representative (“représentant en douane enregistré“ - RDE),
- populates the other boxes of the return.
It should be noted that the boxes related to input VAT are not pre-filled by the tax authorities: It is up to the taxable person to report the amount of recoverable import VAT, if any (depending on the importer's right to recovery).
An online service will be set up on the Customs website douane.gouv.fr for companies wishing to obtain the listing related to the pre-filled amounts in order to carry out useful verifications (such data will include in particular the number of the declaration and its date of voucher for removal (BAE), the application used (Delta-G / XI / H7), the reference of the item and the nomenclature of the goods, the rate of VAT applied as well as the associated taxable basis).
In practice, the importers must ensure the proper reporting and documentary practices related to their imports, in particular:
- collection of the removal order (“Bon à enlever” - BAE) and obtention of the import documentation from the customs agents in order to proceed with check and reconciliation work,
- verification of the pre-filled data on the VAT return with the data made available on the customs website,
- implementation of corrections in case of identified errors,
- adaptation of the settings of the information systems,
- modification of the accounting entries, regarding purchases and VAT to be reverse-charged,
- setting up and documenting a reliable audit trail dedicated to this flow.
[1] These new procedures for the reporting and collection of VAT applicable to imports and exits from suspensive regimes apply to all the companies identified for VAT purposes. On the other hand, import VAT due by non-taxable persons, not identified for VAT purposes, continues to be managed by the customs authorities and collected through customs declarations. In addition, VAT returns will not be required for (i) imports exempted from import VAT under the special scheme (one-stop shop for distance sales of imported goods - IOSS) and (ii) the entry into France of goods not having the status of Union goods placed under a special customs procedure (except the operations involving temporary admission with partial exemption from import duties).
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