Import VAT and Reverse Charge: How It Works in France

Any goods entering the European Union from a third country, China included, are in principle subject to import VAT, on top of any customs duties. This VAT follows the rates applicable in the destination country of the goods, not those of the country they leave from.

Historically, this VAT was paid to customs, at the same time as duties, before being recovered later by the taxable business through its usual VAT return. This gap between payment and recovery weighed on the cash flow of regular importers.

The chargeable event for import VAT coincides with that for customs duties: release of the goods for free circulation in the Union. Goods placed under a suspensive regime, a customs warehouse or transit for instance, do not trigger VAT as long as they are not released for consumption.

Since 1 January 2022, management and collection of import VAT have been transferred from customs to the tax authority (direction générale des finances publiques), and reverse charge has become the default mechanism for businesses registered for VAT in France. Concretely, VAT due on import is no longer paid to customs at the time of clearance: it is declared and deducted in the same move, on the VAT return, when the business has a full right to deduct.

The customs declaration transmits the necessary data, and the tax authority pre-fills the corresponding box on the VAT return. This mechanism neutralises the cash-flow effect for businesses that recover their VAT in full: the tax is due and deducted on the same return, with no actual outlay.

Before this reform, a business could apply for a deferred payment procedure for import VAT, subject to conditions and sometimes a bank guarantee to provide. The generalisation of reverse charge in 2022 removed the need for this specific step for businesses registered for VAT in France, by making the mechanism automatic.

The import VAT base is not the customs value alone. It adds to that value the customs duties and any taxes due on import, as well as incidental costs, transport, insurance, handling, incurred up to the first known place of destination of the goods in the Union, provided they are not already included.

The rate then applied is the one in force for that type of product in the destination country: the standard rate for most goods, reduced rates for certain categories defined by national regulations, food, books or medical equipment for instance depending on the country. Import VAT therefore follows both a broadened base and a rate that depends on the product, not just its value.

The VAT rate applied does not depend on the rate charged in China nor on any notion of reciprocity between countries: only the regulations of the destination country within the Union count. A product that benefits from a reduced rate once sold in store keeps that same reduced rate at customs clearance, provided its customs classification matches the relevant category.

The generalised reverse charge on import VAT is not uniform across the European Union. Each Member State organises its own regime, with eligibility conditions, formalities and sometimes different exemptions from financial guarantees. A business importing through several European ports must check the regime applicable in each.

The country of customs clearance is not necessarily the one where the goods end their journey. Goods cleared in one EU country for final delivery in another fall under specific intra-Community VAT rules, to be distinguished from customs clearance itself.

The most common confusion is believing that reverse charge simply exempts you from paying import VAT. It only exempts businesses with a full right to deduct from an immediate outlay: the tax remains due, it is simply declared and deducted at the same time.

A partially taxable business, or one that does not recover all its VAT, keeps a real residual cost, calculated according to its deduction ratio. An error in the VAT identifier used on the customs declaration can also block the reverse charge and bring back a direct payment to customs.

Technically, reverse charge requires the importer to hold a valid EORI number and an active intra-Community VAT number at the time of clearance. A mismatch between these two identifiers, a VAT registration that is too recent for instance, can delay the customs system's recognition of the right to reverse charge.

Sorva, a brokerage and sourcing house, prepares the elements needed for a correct import declaration, customs value, customs code, transport documents, sent upstream by our Chinese-speaking team in Guangzhou as soon as production ends.

In most cases, you pay no fees: you open a file, we negotiate the goods for you, and we take a commission on their ex-factory value. The tax treatment of import VAT then remains a matter for your accountant or customs agent, based on the documents we provide.