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Value Added Tax (VAT) is an essential tax pillar for businesses, functioning as an indirect tax on consumption, where companies play the role of intermediaries between consumers and the State. This two-headed mechanism allows companies to collect VAT on their sales (collected VAT) and recover the VAT paid on their purchases (deductible VAT), establishing a regular and mandatory financial flow to the tax administration. VAT is distinguished by its flexibility, adapted to the structure and needs of the company through different regimes, thus offering tailor-made tax management.
The articulation between collected and deductible VAT reveals the dynamic nature of this tax, where calculation and payment are adjusted according to business operations. Companies must navigate in a regulated ecosystem, where the expenses eligible for VAT recovery are clearly defined, as well as the specific conditions related to situations such as transactions with VAT-exempt or foreign-based providers. This VAT management, while complex, opens the door to tax optimization strategies, highlighting the importance of a good understanding of the rules in force to maximize VAT recovery and minimize costs for the company.
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Value Added Tax is the tax most commonly encountered by companies. In fact, VAT returns are the most regular tax returns during the year. The company must therefore collect VAT on its turnover but it can also recover this tax on its expenses, which is then referred to as deductible VAT.
What is Value Added Tax?
VAT is an indirect tax that taxes consumption. It is therefore a tax that weighs on the consumer. We speak of indirect tax as opposed to a direct tax such as income tax. For a direct tax, the State directly taxes the persons concerned.
In the case of an indirect tax, the State goes through a third party, here the third party is the companies, which, when they sell their goods and/or services, collect VAT, with the aim of paying this tax to the State.
We will therefore talk about collected VAT when the company collects the VAT paid to it by the consumer.
We will talk about deductible VAT when the company pays VAT on a purchase it makes from a supplier.
The different VAT regimes
There are four VAT regimes. The regime is determined based on the company’s profit taxation regime. However, it is possible to opt for another VAT regime. This regime can be changed during the life of the company, by notifying the Tax Administration of your choice to change your regime.
You therefore have the choice between the simplified VAT regime, which requires 2 advance payment declarations (in July and December), then an annual regularization declaration, expected in April of the following year.
There is also the normal regime with a choice to be made for the quarterly or monthly rhythm. A declaration will be expected per period (per month or per quarter)
The mini-real VAT regime : this regime concerns companies that are in the simplified tax regime but prefer to opt for the normal VAT regime. They will be in this mini-real regime, which allows the mix between a normal regime for VAT and a simplified regime for the taxation of profits