MOTORING has been an important source of revenue for the French government for a long time.

The national treasury raises revenue from vehicles in France via three principal tax instruments.

Firstly, there are the taxes associated with the acquisition, purchase and registration of a vehicle, such as VAT at 19.6%.

Secondly, there are taxes payable in connection with the possession or ownership of a vehicle, such as car tax and business tax.

And thirdly, there are taxes directly or indirectly related to the use of vehicles, such as fuel taxes.

Starting with VAT, the French standard VAT rate applicable to car transactions (purchase or lease) as well as the various services or goods in connection with a car is 19.6%.

The VAT incurred on the purchase price, or on lease rentals is not recoverable, even if the car is used exclusively for taxable business.

This general restriction to the right of recovery does not, however, apply to the following situations:

  • If cars are purchased to be resold.
  • If cars are purchased to be leased to a third party.
  • If they are commercial cars i.e. cars not equipped to transport passengers (only two seats).
  • If they are cars with more than eight seats used for the transport of employees.
  • If they are cars used for the transport of passengers for consideration e.g. taxis.

    The VAT incurred on goods or services in relation to cars is not recoverable except for the exceptions listed above.

    It should be noted that the French tax authorities consider that maintenance and repair services on cars, which are physically carried out in France, are always subject to French VAT even if the recipient is established outside France and the car is temporarily in France.

    It should also be noted that French restrictions applied to the recovery of input VAT have not been harmonised with other European Union countries.

    The French VAT law qualifies as a supply of goods covering sales i.e. the transfer of the title of ownership on the car.

    Or it can be the handing over of cars pursuant to a contract for the hire of goods for a certain period or for the sale of goods on deferred terms which provides that in the normal course of events ownership shall pass upon payment of the final instalment.

    The following agreement qualifies as a supply of services - the lease of a car with or without option to buy it at the end of the leasing period.

    However it should be noted that the qualification of services only applies to the leasing period.

    When the lessee is entitled to purchase the car at the end of the leasing period, the transaction will be treated as a supply of services until the lessee exercises the purchase option when it becomes a supply of goods.

    Cross-border transactions

    France applies the European Territoriality rules defined by the European Commission VAT Directive.

    The sale of a car is subject to French VAT when the transfer of title of ownership takes place in France.

    Rentals paid for the use of cars are subject to French VAT when the lessor is established in France and the car is used within the European Union.

    In order to fight against various forms of tax planning, France has implemented anti-avoidance legislation which obliges foreign lessors to charge French VAT to French lessees when a lease with an option to buy qualifies as a supply of goods in the country where the lessor is established. Whether this anti-avoidance legislation conforms with the VAT Directive is open to discussion.

    Company car tax

    Companies should declare the cars they own or use. All cars registered in France fall under the scope of this tax, known as TVS (taxe sur les vehicules des societes), except trucks and some other exceptions such as cars to be sold or to be leased or cars dedicated the transport of passenger for consideration (for example, taxis).

    With leasing, the lessor is exempt but the lessee is subject to the tax if the lease exceeds 30 days. The tax is self assessed and ranges from from 1,130 Euros to 2,440 Euros for 2003.

    Vehicle tax (vignette)

    This tax is a local tax. The amount may vary depending the place where the car is registered and its technical characteristic.

    The scope of this tax has been modified so that private individuals are exempt from this tax. Fleet daily rentals and leasing companies have to buy the vignette, but finance law for 2002 meant that companies could benefit from an exemption for three cars per tax period.

    There are, however, some exemptions in certain 'departements' (administrative regions) for low emission and zero emission vehicles powered by electricity, natural gas and liquefied petroleum gas.

    Fleet customers must pay for the vignette of leased vehicles in the departement where they are located, and the leasing company is responsible for making sure its clients have bought the vignette.

    Daily rental companies with at least 30 vehicles must buy a vignette in the departement where the vehicle is first hired to a customer. 'Green' cars - cars powered by electricity - can benefit from tax advantages.

    Business tax

    Individuals and legal entities that habitually carry on a business for their own account are subject to a business tax (taxe professionnelle).

    Business tax is an annual tax, based on the value of real property, fixed assets, salaries and wages.

    The fixed assets include not only the assets owned by the person liable for the tax, the assets which the tax payer has at its disposal, and also the leased assets, provided the leased period exceeds six months.

    Stamp duties ('grey' card)

    Each registered car has its identity card (grey card). A stamp duty is due for the delivery of this document whose amount may vary depending on the car and its place of registration.

    Registration

    Cars have to be registered in order to obtain a number plate. From a general point of view the registration is granted to the owner; when the owner is a legal entity it should be 'established' in France, although this requirement has been challenged by the courts.

    Drivers pay their charges on the exact cost of the benefit

    Company car drivers in France face a benefit-in-kind (avantage en nature) tax charge related to the use of a company car for private use, including journeys to and from work.

    There are different ways to calculate the tax charge.

    The first is based on the exact value of the benefit, including road tax, fuel, depreciation, insurance and maintenance.

    The second is based on the cost of acquisition of the vehicle and amounts to 12% of this cost, if the company paid the fuel of the vehicle (9% if the car is older than five years).

    The benefit-in-kind is evaluated to 9% of cost of acquisition of the vehicle if the company does not pay the fuel (6% if the car is older than five years).

    Benefit-in-kind tax for drivers with a leased company car amounts to either
    (i) the exact value of the benefit (costs of rental, maintenance, insurance, fuel) or
    (ii) 40% of the monthly lease rental, maintenance, insurance costs if the company paid the fuel (30% if the company does not pay the fuel).

    Finally, the value of the benefit, multiplied by the proportion of private to business miles, is multiplied by the driver's income tax rate to calculate the actual tax he or she will pay.

    In general, the element of private use should exceed 13% to account for weekends and public holidays, although some businesses may apply a lower percentage if they can convince the URSSAF union that their staff work six days a week.

    Companies can reimburse their employees who use their own private cars for business journeys according to the actual costs incurred, or alternatively can take advantage of official cost per kilometre tables, published by the tax authority, to calculate the level of reimbursement.

    Exceeding these costs may change the treatment of the car so that it becomes a 'company car', incurring TVS (taxe sur les vehicules des societes).

    In addition, if business journeys account for more than 85% of a car's annual mileage, the tax authority is likely to treat the car as a company car, forcing the employer to pay TVS.