France is to lower its distance selling VAT threshold from €100,000 to €35,000 per annum from 1 January 2016. The change was announced as part of the 2016 Finance Bill last week.

France’s decision to switch to the lower threshold will now draw into the French VAT regime many thousands of small retailers from other EU member states.

It follows hopes for the introduction of a €100,000 VAT threshold on digital services which has similarly brought many thousands of ‘micro-businesses’ into the foreign VAT net. This proposal is under review with the European Commission, and is unlikely to result in any changes for at least two years or more.

Small e-commerce merchants brought into French VAT regime

Distance selling thresholds enable small EU-based online goods retailers to sell to consumers in other EU member states without having to VAT register in the country of the consumer. Instead, they can initially charge the VAT rate of their home country, and declare the VAT to their national tax authority. Once the e-retailer goes over the relevant threshold, they must VAT register their business in the country and charge the local VAT rates.

The EU VAT Directive permits a distance selling VAT threshold of either €35,000 or €100,000 per annum. Larger countries, such as the UK and Germany apply the higher rates.