We must remember that the reverse-charge mechanism prevents cashing out import VAT at the time of importation of the goods and to subsequently request its reimbursement. The cash-flow effect is significant, especially for companies not established in France requesting VAT reimbursements through longer proceedings.
From June 22nd, 2016, it was possible to elect to account for VAT under the reverse-charge mechanism by way of simple option, for companies established in the EU (including France). The businesses concerned did not need to meet any particular criteria and the option could be sent to the French customs authorities. According to our information, at the end of October, around 3000 companies have opted for the application of this mechanism.
However, the situation of companies established outside the EU did not change as they still had to benefit from a Single Authorisation for Simplified Procedures (SASP) obtained by their customs representative in order to implement the reverse charge mechanism for import VAT.
The new regime provides for a system of prior approval by the French customs authorities. Authorisations should however be easily obtained by the operators.
Companies established in the EU have to fulfil the following four criteria which will be checked by the French customs authorities:
- Having carried out at least four imports in the EU in the last twelve months preceding the application. This condition de facto excludes new businesses ;
- Detain a management system of the customs and tax entries enabling the follow-up of the import transactions. The applicant simply has to certify this management on the application form;
- The proof of the absence of significant or repeated infringements to the customs and tax provisions;
- The proof of financial solvency in the last twelve months. This condition concerns applicants neither having been in default payment towards the tax and customs authorities nor having been the subject of collective insolvency proceedings. If the applicant has been established for less than twelve months, its solvency will be assessed based on the information available on the day of the request.
Please note that those who enjoy the AEO (“authorised economic operator”) status are deemed to fulfil the aforementioned conditions but still have to file an application.
Companies established outside the EU have to designate a customs representative with AEO status in order to qualify for this regime. These companies will have to be VAT registered and have designated a VAT representative in order to apply the reverse-charge mechanism.
The “Sapin II” law thus provides for a more favourable regime for companies established outside the EU because, in practice, customs representatives generally have AEO status.
The reverse-charge mechanism on import VAT will be applicable to transactions which occurred as of the 1st day of the month following the approval decision until December 31st of the third following year. It is renewed automatically.
Companies which have opted for the option regime provided for since June 22nd will have their options automatically approved for three years but will not be able to benefit from the automatic renewal set out in the “Sapin II” law. They will therefore have to request a new authorisation after three years.
We are not yet aware of the date of publication of this regulation and therefore its exact date of entry into force. Indeed, the text has been referred to the French Conseil constitutionnel in order to check its conformity to the French constitution.
We will issue an alert as soon as we will be aware of the exact date of entry into force of the law, provided that it is not declared unconstitutional.