How to get a VAT number as a sole trader

If you run a micro-business, once you’re past a certain threshold or working with other EU countries, you must charge and file VAT, which means you need a VAT number as a sole trader. Here’s everything you need to know about this number so your accounting meets legal requirements.

A quick refresher on VAT

VAT (Value Added Tax) is an indirect tax, meaning businesses act on behalf of the government by collecting VAT, before remitting it to the SIE (Service des Impôts des Entreprises, the French business tax office).

Businesses set VAT aside in their invoicing to balance credit and debit, and it’s ultimately the end consumer who pays this tax, whose rate varies depending on the nature of the goods and services, ranging from 2.1% to 20%.

When should you apply for a VAT number as a sole trader?

Setting up a micro-business is often how new entrepreneurs launch out on their own. The main advantage of this status is that it’s simple to manage, requiring only very basic bookkeeping. Founders in particular don’t have to deal with VAT, since sole traders benefit from a VAT exemption.

However, since 2018, the rules for the sole trader (auto-entrepreneur) status have changed. The thresholds for keeping the status have doubled, but a VAT exemption threshold has been introduced:

• below this revenue threshold, the sole trader does not charge VAT;
• above this threshold, they charge VAT, which they will need to declare, then pay to the SIE, before recovering it.

These operations require holding an intra-community VAT number as a sole trader, which must appear on invoices, as well as in correspondence and exchanges with the tax authorities.

2021 threshold reminder

The threshold above which VAT applies depends on your business activity.

1 — For craftsmen and independent professionals:

• the revenue cap is €72,600;
• the VAT exemption threshold is €34,400;
• the increased VAT threshold is €36,500.

2 — For retailers:

• the revenue cap is €176,200;
• the VAT exemption threshold is €85,800;
• the increased VAT threshold is €94,300.

The VAT exemption still applies if your revenue stays between the exemption threshold and the increased threshold, but only temporarily. If your revenue falls within the same range for two consecutive years, you lose the right to the VAT exemption and must declare and charge VAT starting January 1st of the third year.

On the other hand, if you exceed the increased VAT threshold during the year, VAT applies instantly. From the first day of the month in which you exceed it, you must charge and declare VAT.

The VAT number as a sole trader for international trade

The second reason a sole trader must hold an intra-community VAT number concerns their trade with other EU countries. Indeed, “intra-community” applies to all countries within this zone.

This VAT number becomes mandatory if your business sells or buys services to or from companies established in the EU, as well as when the amount of purchases made within the EU exceeds €10,000 per year.

For sales outside the European Union, you don’t need an intra-community VAT number, but you must produce other documents for customs clearance (and pay related fees in the process). Check the requirements for the specific country, as each has its own rules and requirements.

How do you get your VAT number as a sole trader?

Create a free account for easy invoicing with bizyness.fr

Applying for a VAT number as a sole trader takes a few days, which should encourage you to apply before you actually need it. A micro-business not liable for VAT can submit a request for an intra-community VAT number at any time, so it’s worth planning ahead and being ready.

You take no risk in doing so, because applying for the number doesn’t mean you lose the benefits of the exemption. That’s why you can start the process early so you’re not caught off guard if your revenue is growing and approaching the VAT exemption threshold, or if you’re planning to trade with the European Union.

When you set up a business that is liable for VAT from the outset, the business tax office automatically sends you the intra-community VAT number at the time of registration. Since the sole trader status is a special case due to its VAT exemption, the number isn’t assigned automatically.

• Your first step is to create an account on the tax portal for professionals. This account is what gives you access to VAT filings and payments.
• You then need to send your application for an intra-community VAT number as a sole trader by post to the business tax office you depend on. You can also go there in person, but be sure to call ahead to make sure you can get an appointment.

It generally takes two days for your number to be assigned.

What does the sole trader’s intra-community VAT number look like?

Your intra-community VAT number is an individual tax identification number. There’s no harmonization of VAT numbers across Europe, and each country has its own format.

In France, the number consists of:

• the code FR for France;
• a 2-digit or 2-letter computer key;
• the company’s 9-digit Siren number.

Check the intra-community VAT number of your business partners

If you do business with clients or suppliers established in the European Union, the tax authorities themselves strongly recommend that you verify their intra-community VAT number is valid. Indeed, every year our tax administration records fraud and scams that are very difficult, if not impossible, to recover from.

So, before any transaction with a new client or new supplier, take the time to verify their VAT number as a sole trader. You are fully entitled to ask them to provide you with their number. Any refusal is suspicious, and you should be wary of continuing the relationship, and certainly of sending any money to that business.

To check an intra-community VAT number, go to the official VIES website.

If it turns out the number is invalid, they should be able to provide you with a certificate of tax liability issued by their country’s tax administration. If they can’t, they must be invoiced under the French VAT regime. Even so, take every precaution, with strong guarantees, such as a deposit collected at the time of order, especially with a new client. The balance should be paid on delivery.

If this partner claims there’s an error in their number, they must correct the situation with their country’s tax administration. In that case, verify the new number they provide before signing any binding sales documents.

How to invoice including VAT

Remember that as long as you haven’t exceeded the VAT exemption threshold, you invoice your clients excluding tax, stating on all your invoices: VAT not applicable, art. 293 B of the French Tax Code (CGI). On the other hand, you pay your suppliers’ invoices including VAT and cannot claim a VAT refund.

Once you’re no longer VAT-exempt, you must remove the “VAT not applicable” mention and systematically display the breakdown of your calculation with:

• the price excluding VAT;
• the applicable VAT rate and its amount;
• the price including VAT.

If your invoice has several lines corresponding to various services or products, you’re not required to show the VAT breakdown for each line — it just needs to appear at the bottom of the invoice, below the total excluding VAT.

That said, nothing stops you from specifying the VAT for each item or service. Some businesses use this as a sales argument. When addressing businesses, they highlight the real price paid, since the client recovers this VAT. When addressing individuals, who do pay the VAT, the point is to highlight the actual amount that goes to the business, which can have a psychological impact.

Declaring and paying VAT to the tax authorities

You declare your VAT on the tax authority’s website, through the account you created when you applied for your intra-community number. You need to provide your bank details and send your bank a signed SEPA mandate for VAT direct debit from your dedicated bank account.

You can pay your VAT under the normal regime or the simplified taxation regime. In the first case, you declare your VAT every month and pay it as you go.

In the second case, you declare your VAT annually, before the second business day following May 1st, reporting the VAT for the previous year. The amount in your declaration serves as a benchmark for the tax authorities. They calculate an estimate split into two payments: the first due in July and the second in December.

When you send your actual declaration the following year, the tax authorities carry out an adjustment, which can work in your favor or against you.

Using professional invoicing software

As long as you’re VAT-exempt or only trade within France, your accounting can stay fairly simple, especially since your obligations as a sole trader are fairly basic.

As soon as your business grows, and even more so once you need to charge VAT, the task becomes much more demanding and time-consuming. You have to spend a lot of time on it, and you’re never immune to mistakes. That can work against you: you might forget to invoice an order or chase an unpaid one, creating lost revenue, but you’re also exposed to a fine in case of an audit.

It’s very much in your interest to use professional invoicing software. You save time and are assured of keeping impeccable books. It’s all the more convenient since you have tools that let you issue your invoices, but also automate your entire process: quotes, purchase orders, and delivery notes.

What’s more, all your information is centralized, which helps with your sales strategy and gives you a complete history for each client, including their specifics and preferences.

Special rules for French overseas territories (DOM-TOM)

The DOM-TOM (French overseas departments and territories) are not subject to the same tax regime as mainland France.

To start with, only 7 of the 13 territories allow you to set up a business under the sole trader (auto-entrepreneur) regime. These are:

• Guadeloupe;
• French Guiana;
• Martinique;
• Réunion;
• Saint-Barthélemy;
• Saint-Martin;
• Mayotte.

The others are not eligible:

• Saint-Pierre-et-Miquelon;
• Wallis and Futuna;
• French Polynesia;
• New Caledonia;
• Clipperton;
• the TAAF, French Southern and Antarctic Lands (population: 0!).

The VAT regime overseas

The VAT regime overseas doesn’t follow the same rules across all territories.

Since March 2017, and for a period of 5 years, micro-businesses based in Guadeloupe, Martinique, and Réunion have benefited from a new experimental VAT exemption cap:

• for commercial activities: €100,000;
• for other activities: €50,000.

Once you exceed these caps, you must, as on the mainland, charge and declare VAT, but at much lower thresholds. Overseas VAT is split into three rates:

• the standard rate: 8.5%;
• the reduced rate: 2.1%;
• the special rate: 1.75%.

In French Guiana, there is no threshold, and sole traders are never subject to VAT, regardless of their revenue.

Another quirk, closer to mainland rules: businesses registered in Monaco hold a French intra-community VAT number.

Managing VAT adds weight to your bookkeeping, but it’s a sign that your business is growing well, and it doesn’t force you to give up the sole trader status, which is less demanding than other regimes.