The VAT to be refunded is calculated as the difference between the VAT charged on goods (output VAT) and that deducted from expenditures (input VAT).
When the VAT eligible for deduction exceeds that collected on the sale of goods or services, the business has a VAT credit.
If the credit is not used to offset a later VAT payment, a company may, under certain conditions, claim a refund.
Any company whose business activity is liable for VAT may claim a VAT credit refund.
Regardless of its tax regime, a company liable for VAT may, upon request, obtain a refund of its VAT credit.
Even a company that has just started its activity and has not yet sold goods or services liable for VAT may claim a refund. In these cases, the claim may cover all of the VAT deductible from the expenses incurred by the company in setting up its business.
Nevertheless, not all companies choose to claim a refund, i.e. the use of the VAT credit is at the discretion of the company, which may opt for:
- Offsetting: the company may decide to offset its VAT credit against future tax periods. The credit is then deducted as soon as possible from VAT to be paid, calculated based on later VAT returns
Example: During the month of June (monthly return filed in July), a company has a VAT credit of €2,000. Knowing that it will have VAT to settle for the month of July (return filed in August), the company decides to offset its credit against that future debt.
On its August VAT return, the VAT owed by the company comes to €3,000. The company can then use its credit to pay off part of what it owes. It will only have to pay €3,000 – €2,000 = €1,000.
- Refund: a company may, for cash-flow reasons, request that part or all of its VAT credit be refunded (providing all the conditions are met). It makes its request when filing the return in which the credit appears.
Foreign companies established outside the European Union whose transactions are liable for VAT in France must appoint a tax representative who must be a taxable person liable for VAT based in France, and who must be known to the French tax authorities.
VAT refund claims must be filed with the Foreign Business Tax Department with jurisdiction over your representative's place of business.