TLDR: Freelance lawyers not previously subject to VAT can, upon becoming liable, deduct VAT on stock and fixed assets in use at the date of liability. The deduction is full for stock, but reduced for fixed assets (1/5 per year or fraction for movable assets, 1/20 for immovable assets). Those under the franchise regime (Articles 293 B or 293 B bis of the French Tax Code) cannot deduct VAT. A starting credit is possible for new liable persons or those opting for liability, unless they were already liable.
Who can deduct VAT?
Freelance lawyers not subject to VAT on any transaction and who become liable for all or part of their activities are considered new VAT liable persons. They can then exercise the right to deduct VAT according to the rules set out in Article 207 of Annex II to the French Tax Code.
Conversely, lawyers benefiting from the franchise regime (Articles 293 B or 293 B bis of the French Tax Code) cannot deduct any VAT on goods and services acquired for the needs of their activity.
Which assets are eligible for deduction?
The deduction applies to:
- VAT on stock at the date of liability;
- VAT on fixed assets in use at that same date, reduced by one-fifth per year or fraction of a year of use for movable assets, and by one-twentieth for immovable assets.
Starting credit for new liable persons
Lawyers who were not partially liable for VAT can exercise the right to deduct:
- VAT included in expenses for which the right to deduct arose from 1 January of the year of liability;
- VAT on stock as of 1 January of the year of liability;
- VAT on fixed assets in use.
This starting credit is also granted to lawyers who voluntarily opt for VAT liability, unless they were already liable at the time of exercising the option.
Exclusions and limits
Deduction is excluded for lawyers under the franchise regime (293 B or 293 B bis of the French Tax Code). For fixed assets, deductible VAT is reduced based on their prior period of use:
- 1/5 per year or fraction of a year for movable assets;
- 1/20 per year or fraction of a year for immovable assets.
This reduction applies only to assets already in use at the date of liability.
Special cases: option for liability
Lawyers who opt for VAT liability benefit from the same deduction rules as fully liable persons. They can thus claim the starting credit for stock and fixed assets held at the effective date of the option, unless they were already liable at the time of exercising this option.
General conditions for deduction
The deduction of VAT is subject to the use of goods and services for the purposes of taxable transactions or transactions entitling to deduction. Lawyers must retain supporting documents (invoices, fee notes) stating the amount of VAT.