The threat of a much lower VAT threshold of 25,000€ per year for all entrepreneurs in France is finally officially over. A text of law was voted on this week to officialise what had already been confirmed by the Minister of the Economy, Eric Lombard, in May. Here’s a recap of what happened and what to expect this winter.
1 - 25,000€ VAT threshold recap
A decree was voted in December 2024 changing the VAT rules in France for 2025. These thresholds changed slightly compared to 2024:
- 41,250€ for manual and intellectual services (versus 39,100€ in 2024).
- 93,500€ for buy-to-resell ecommerce (versus 101,000€ in 2024).
In January, Prime Minister François Bayrou decided to skip the parliamentary negotiations by forcing the 2025 budget through using article 49.3. This law enabled him to move the budget to the next step - The Senate, which quickly voted it without any modification to avoid further economic instability. Suddenly, we discovered that somehow, a new VAT threshold of 25,000€ applicable to ALL French businesses had been included in the budget.
Meaning that businesses reaching 25,000€ of sales had to start charging 20% or 10% of VAT, depending on their activity. A huge shock for small business owners and freelancers. Especially, as no mention of this had been made before.
Further to the uproar of bodies representing micro entrepreneurs, such as FNAE and Union des Auto Entrepreneurs, the press relayed the huge impact that this measure would have had on small businesses:
- Over 250,000 Micro Entrepreneurs
- + 100,000 entreprises individuelles potentially impacted.
Finally, in February, Minister of the Economy Eric Lombard confirmed the VAT measure was on hold and to be reviewed by a commission. Fast forward to May 2025 and the commission has confirmed the negative impact of this measure and its cancellation. Which led to this week’s vote at the Parliament to close this chapter.
2 - Impact of the 25,000€ VAT threshold
If you are in business, I'm sure that you already get the idea. If you add 20% of VAT on top of your prices, you're going to become very expensive for your customers. Or you are about to lose 20% of your profit margin, i.e. your income.
The reality is that this measure was very unfair, as it impacted entrepreneurs very unevenly.
- Someone working B2B providing services wouldn’t have been affected, as you just impact the VAT to your customers who themselves are VAT registered. It just means that you need a little bit more cash flow, but you don't lose any income.
- But entrepreneurs working B2C (i.e with the end consumer), this meant that your prices would have gone up by 20% to 10% overnight. Think of all the language teachers, coaches, DIY services, craft jewellery, delivery vans, ecommerce, nail & eyelash extensions, and cleaning services.
This measure also had the potential to:
- Push businesses to slow down to stay below 25,000€ or go bust.
- Push small entrepreneurs' income precarity.
- Entice the black market economy by under-declaring income.
With 25,000€ of sales, once you take off the social charges for manual services at 24.6%, you are below the minimum wage SMIC and precarity. And this doesn't even reflect their fixed expenses. This would have also increased inflation for the end consumer and risked killing small local businesses. The delivery van, market stall, beauticians, home services, etc.
3 - What will happen next with VAT
As one might say, the battle is over, but not the war. Simply because the next budget is around the corner and discussions will start this summer to prepare for a winter vote. Expect more talks about VAT thresholds.
Here’s what I’m expecting to see:
- A new VAT threshold being added at 25,000€ just for the building trade.
- The two current VAT thresholds, “seuil de base” and “seuil majoré” being reduced to just one to simplify things. At the moment, you have to track your turnover between two thresholds before knowing whether you will end up becoming VAT registered. Far too complex and confusing.
- Lots of scary articles and videos being published by influencers to gain visibility on a scary topic.
Remember two things:
- These changes were pushed by Chambre de Métiers, who think that micro entrepreneurs are unfair competition. They’ve been lobbying for years and won’t stop the pressure in the building sector.
- This will be a slow process. Don’t panic at the first changes being suggested this summer.
Check the process indicated below to know when a law is becoming more likely to be passed. And when things get scary, do sign a petition with FEDAE or Union des Auto-Entrepreneurs to put pressure on the Government.
4 - How does the budget process work
Here is the standard process for the budget to be voted is:
- Parliament discussions and vote. Unless the prime minister decides to use article 49.3
- Then Senate discussions and vote
- Back to the parliament to be voted on again if changes were submitted from the Senate.
- Then an implementation decree is published and the law or budget is officially passed
The closer we get to step 4, the closer we are to a new law being enforced. This summer will start with step 1, discussions at the Parliament. By December, we’ll be at the final stage, with a budget normally being added to the text of law on 31st December.
As I prefer facts to scaremongering, I will therefore update you when changes are likely to happen and not after every declaration from someone at the Parliament.
