VAT exemption in France: the lawyer's guide
Understand everything about the VAT tax exemption: definition, exemption thresholds based on VAT, VAT exemption ceiling, €25,000 reform, specificities for lawyers and best practices for SME managers.
La VAT tax exemption is a very powerful tax regime for small structures, but poorly anticipated, it can generate expensive adjustments and misunderstandings with your customers and your accountant. As an SME manager, you must master both the logic of franchising based on VAT and the evolution of thresholds (2025, 2026, draft single threshold at €25,000), including if you use a lawyer who himself benefits from a VAT exemption.
I. VAT exemption: what exactly is it?
A. What is a VAT-based franchise?
La Exemption based on VAT is a regime that allows certain businesses not to be subject to VAT as long as they do not exceed a certain turnover threshold. Concretely, a company benefiting from the VAT exemption does not charge VAT to its customers, does not declare it and does not remit it it to the State, but it cannot recover VAT on its purchases either.
On your invoices, the practical consequence is simple: you invoice “excluding taxes” by generally mentioning the formula “VAT not applicable, article 293 B of the CGI”. This regime is particularly suited to microstructures or activities whose customers are private individuals who do not recover VAT anyway.
B. VAT exemption and VAT liability: two different logics
It is important to distinguish between two concepts:
- TheVAT liability (in a broad legal sense: a company that carries out an independent economic activity is subject to VAT);
- the Benefit of the franchise based on VAT, which is an exemption allowing VAT not to be charged or declared as long as the thresholds are respected.
An SME manager can therefore be legally taxable but benefit from VAT exemption in practice, which gives him the advantage of simplicity, at the cost of the impossibility of deducting VAT on his investments.
II. How does the VAT-based franchise work?
A. Principle of operation of the VAT exemption
The VAT exemption mechanism is based on three pillars:
- One VAT exemption threshold (main annual turnover ceiling) not to be exceeded in order to continue to benefit from the regime.
- One increased threshold beyond which the VAT exemption immediately ceases to apply and where you become liable for VAT from the first day of the month in which the excess was exceeded.
- Of exit and entry rules in the regime, linked to the turnover of years N and N‑1.
As long as you remain below the franchise threshold and the increased threshold, you can continue to benefit from the VAT exemption. If the increased threshold is exceeded, the switch to VAT is automatic and may generate retroactive obligations (corrective invoices, additional declarations).
B. Consequences for your invoices, prices and cash flow
In the VAT exemption regime:
- you charge for your services or sales without VAT ;
- you do not collect VAT, do not return it and do not file VAT returns;
- you cannot recover the VAT paid on your purchases, investments and expenses.
In real mode (exit from the franchise):
- you charge VAT to your customers, declare it and remit it to the State;
- you can deduct VAT on your business purchases, which can be interesting in case of heavy investments.
Concrete example: a consulting micro-SME invoices €30,000 per year to individuals; free of VAT, it invoices €30,000 net, without VAT, but does not recover VAT on its rent, hardware or software. If it increases to €60,000 in turnover with 20% VAT, it will charge €72,000 including VAT, but will recover VAT on its investments, which may change its margin balance and prices.
III. VAT exemption thresholds: key figures, €25,000 reform and 2025‑2026 evolution
A. What is the VAT exemption threshold today?
The thresholds of the Exemption based on VAT are fixed by category of activity (sale of goods, provision of services), with a main threshold and an increased threshold. In 2025, several adjustments were made or announced, with a transition to a possible single threshold at €25,000 and an increased threshold of €27,500, whose entry into force has been partially delayed.
As of the date of the last updates, the practice highlights the following orders of magnitude:
- For the merchandise sales and accommodation activities : franchise threshold around €85,000 and increased threshold around €93,500;
- For the provision of services : franchise threshold around €37,500 and increased threshold around €41,250.
These figures are regularly adjusted; it is therefore essential to check the thresholds in force for your fiscal year with your accountant or tax lawyer.
B. €25,000 VAT franchise: what exactly is it?
The famous Exemption VAT 25,000€ refers to the reform introduced by a finance law which aims to establish a single exemption threshold based on VAT to €25,000 in turnover, all activities combined, with a threshold increased to €27,500. The announced objective is to simplify the landscape of VAT regimes, but this reform has drawn strong criticism, in particular from the National Bar Council and many liberal professions.
A transitional phase has been planned, with the temporary maintenance of the old sectoral thresholds (85,000€/93,500€ for sales, 37,500€/41,250€ for services), before a gradual transition to the single threshold at 25,000€. Some texts or projects have even indicated a delay in implementation (for example until June 1, 2025), which creates a changing environment in which a manager must remain particularly vigilant.
C. 2025 VAT franchise and 2026 VAT franchise: what developments?
For 2025, several sources highlight:
- an adjustment of the traditional VAT exemption thresholds (slight decrease for sales, slight increase for services);
- the preparation of the transition to the single threshold €25,000/€27,500, initially planned but postponed in part, which maintains a mixed regime (old thresholds + new framework in preparation).
For 2026, the available information confirms several trends:
- stabilization of the new VAT exemption thresholds for micro-entrepreneurs (€37,500 for services, €85,000 for sales, with increased thresholds);
- continuation of the reform towards the single €25,000 threshold, which could become the reference in the medium term, subject to legislative and regulatory confirmations.
For an SME manager, the challenge is to measure the concrete impact of these developments on its economic model and on the choice of whether or not to remain VAT exempt.
IV. VAT exemption and type of activity: sales of goods, services, liberal professions
A. VAT exemption and sale of goods
For the merchandise sales (trade, retail, e-commerce, etc.), the VAT exemption thresholds are higher than for the provision of services. This is justified by the fact that the unit margin is generally lower and the turnover volumes are higher.
Concretely, a small store or e-commerce site that remains under the franchise threshold can sell without VAT, which makes its prices more attractive for individual customers, but at the cost of making it impossible to recover VAT on purchases of goods. When the volume of purchases increases, the transition to the real regime quickly becomes more interesting, because the recovery of VAT on stocks and investments compensates for the collection on sales.
B. VAT exemption and services
For the provision of services (advice, IT, marketing, training, etc.), the thresholds are lower. Many micro-structures and small service SMEs start up free of VAT, because:
- their customers are sometimes individuals, sensitive to the price including VAT displayed;
- their initial investment level is limited, making VAT recovery less crucial.
Example: a consulting firm charging 45,000€ per year to individuals may have to choose between staying just below the VAT exemption thresholds or voluntarily switching to real money to recover VAT on major investments (premises, software, subcontracting). This choice is strategic and must be made in line with its target customers and their growth trajectory.
C. VAT franchise and liberal professions: focus on lawyers
Les solicitors have historically benefited from a specific exemption regime based on VAT, with thresholds distinct from other service providers. Some texts and analyses refer to dedicated thresholds, beyond which the lawyer must charge VAT from the first day of the month in which it was exceeded, with tolerance and increased threshold mechanisms (for example: franchise maintained up to a certain threshold, then immediate exit beyond that).
The reform of single ceiling of €25,000 has been strongly criticized by the legal profession, as it risks weakening small structures whose clientele is made up of individuals who do not recover VAT. For an SME manager who uses a lawyer benefiting from VAT exemption, this can have an impact on the apparent cost of fees (fees without VAT as long as the lawyer stays under the thresholds, then fees including VAT beyond).
V. VAT franchise and business management: advantages, risks, strategic trade-offs
A. Advantages of the VAT exemption for an SME
The main advantages of the VAT exemption for an SME manager are:
- Administrative simplicity : no VAT declaration, no monthly or quarterly tax monitoring.
- More attractive prices including VAT for private customers who do not recover VAT.
- Cash flow more legible : your receipts correspond directly to your invoices (no VAT to be paid).
This simplicity is particularly valuable during the launch phase or for activities with a low level of investment.
B. Disadvantages and risks of the VAT exemption
On the other hand, the VAT exemption has several limits:
- impossibility to deduct VAT on your purchases, which increases the cost of your investments;
- risk of thresholds being exceeded and unexpected exits, with the obligation of corrective invoices and retroactive declarations;
- sometimes less “professional” perception towards certain business customers accustomed to working with taxable service providers.
Example: a fast-growing SME that artificially stays below the VAT exemption thresholds to “avoid VAT” risks hampering its development and finding itself in difficulty if it suddenly exceeds the increased threshold during the year.
C. Arbitrating between VAT exemption and real regime
The choice between staying in VAT franchise or opting for a real diet should be carried out taking into account:
- the nature of your customers (B2B or B2C);
- your level of investment and your expenses subject to VAT;
- your turnover trajectory (stable growth, strong growth, seasonality).
In some cases, voluntarily opting for a real regime, even while staying below the VAT exemption thresholds, may be more consistent with your strategy (for example if your customers are mainly businesses recovering VAT or if you invest heavily at the start).
VI. Educational framework: summary table of VAT exemption logics
VII. Example of a clause relating to VAT exemption in a service contract
In some service contracts (including mission letters from a lawyer or consultant), a clause may specify the applicable VAT regime, for example:
“The Service Provider declares to benefit, on the date of signature hereof, from the VAT exemption regime within the meaning of article 293 B of the General Tax Code. Consequently, VAT is not applicable to the fees invoiced to the Customer as long as the Service Provider remains under this regime. The Service Provider will inform the Customer without delay of any change in his tax situation resulting in the subject of his services to VAT. In this case, the fees will automatically be increased by the current VAT rate, without this modification being considered as a substantial modification of the contract.”
This type of clause makes it possible to clarify, from the outset, the situation in the event of an exit from the VAT exemption and to avoid difficult discussions with your customers when VAT becomes applicable.
VIII. FAQ: VAT exemption — frequently asked questions from SME managers
1. What is the VAT exemption?
La VAT franchise, or exemption based on VAT, is a tax regime that relieves certain businesses from charging, declaring and remitting VAT as long as their turnover remains under a certain threshold. Customers then pay “tax-free” amounts, and the company does not recover VAT on its purchases either.
2. What is the VAT exemption threshold?
The VAT exemption threshold depends on the nature of your activity (sale of goods, provision of services, liberal professions) and the texts in force for the year in question. As an indication, recent orders of magnitude are around €85,000 for goods sales and €37,500 for services, with slightly higher raised thresholds.
3. What is the basic threshold for the franchise based on VAT in 2025?
In 2025, the basic VAT exemption thresholds were adjusted, with slightly modified values for sales and services. At the same time, the reform towards a single threshold of €25,000 has been initiated but partly postponed, which requires verifying the exact figures applicable to your activity and your fiscal year.
4. 25,000€ VAT franchise: what is it?
La Exemption VAT 25,000€ corresponds to a draft single franchise threshold based on VAT, set at €25,000 in turnover, regardless of activities, with a threshold increased to €27,500. This reform aims to simplify the regimes, but it calls into question certain specific thresholds, in particular those for lawyers, and is implemented gradually with transitional periods.
5. What is the deductible limit based on VAT?
The Exemption limit based on VAT corresponds to the main turnover threshold that must not be exceeded in order to maintain the franchise. When we talk about an “increased threshold”, we aim at a second ceiling above which the exemption immediately ceases to apply, with an automatic switch to the VAT regime starting from the month in which the excess was exceeded.
6. What is the VAT exemption threshold?
The VAT exemption threshold is in practice the exemption threshold based on VAT, which allows the company not to collect or report VAT on its sales or services. It is not an exemption in the material sense forever, but a conditional exemption, subject to compliance with turnover ceilings.
7. Avocado VAT franchise: how does it work?
For the solicitors, the VAT exemption is based on specific turnover rules, with a first threshold below which the lawyer benefits from the franchise, and an increased threshold beyond which he becomes liable for VAT from the first day of the month in which the excess was exceeded. The reform of the single ceiling at €25,000 has aroused strong criticism because it is likely to weaken small firms whose clientele is mainly composed of individuals.
8. Exemption from VAT for the sale of goods: what are the particularities?
En sale of goods, the VAT exemption has the advantage of simplifying management and making your prices including VAT attractive for private customers, as long as your turnover remains moderate. But beyond a certain volume, the impossibility of recovering VAT on purchases of goods and investments can penalize your margin, which calls for a transition to the real regime.
9. 2025 VAT franchise: what should I look out for first?
For 2025, you need to monitor:
- The new thresholds applicable to your sector (sales, services, liberal);
- the possible switch to the single threshold €25,000 and transitional arrangements;
- the impact of these thresholds on your business plan, your rates and your communication with customers.
Support from your accountant or a lawyer can be very useful in arbitrating between maintaining VAT exempt and opting for a real regime.
10. 2026 VAT franchise: what are the options for SME managers?
In 2026, the VAT exemption thresholds continue to evolve in order to harmonize and adjust to economic realities. For SME managers, it is essential to anticipate these changes in their budget, pricing and legal structure (choice of tax regime, status, group organization, etc.).
IX. A regulated matter where the support of a lawyer is essential
La VAT exemption is at the crossroads of tax law, business law and sometimes European law, with frequent reforms and complex transition periods. For an SME manager, it is illusory to want to secure these questions alone: the advice of a lawyer, in conjunction with your accountant, is necessary to anticipate, model and integrate all the legal, economic and human considerations specific to your structure.
