Invoicing French clients from St. Barths: withholding and VAT

A St. Barths company that bills a client in France remains exposed to two French tax mechanisms: a 25% withholding tax on the price of its services, and the VAT rules that apply to its client. Neither depends on St. Barths taxes. Both are worth knowing before setting a price.

What withholding tax applies to a St. Barths company?

Article 182 B of the French General Tax Code provides for a 25% withholding tax, which is the French corporate income tax rate. It applies to amounts paid:

• by a payer established in France;
• to a person or company with no permanent business establishment in France;
• as compensation for services of any kind supplied or used in France.

The French client is the one liable, and withholds the tax from the price paid. For the St. Barths company, the withholding is final, and no other French filing is required.

There is no tax treaty between the French State and St. Barths to eliminate double taxation, so nothing sets this withholding aside. In practice, the net price received falls by a quarter.

Royalties paid by a French company to an island resident, for the use of a trademark for example, are subject to the same withholding.

Example: a €20,000 invoice to a Paris client

Take Thomas, a consultant based in St. Barths. His consulting company, which has no establishment in France, bills €20,000 to a business established in Paris for an assignment used in France. The amount is an assumption, chosen for illustration only.

Step	Amount
Price invoiced	€20,000
25% withholding, kept back by the client	€5,000
Amount received by the company	€15,000

The calculation: €20,000 × 25% = €5,000. Thomas’s company collects €15,000, and the client is liable to the French tax authorities for the €5,000. The invoice carries no VAT: the client, a VAT-registered business, accounts for it in France under the reverse charge.

If Thomas later takes on a consulting assignment for a private individual living in France, the VAT question changes. The service is used in France and is taxable there: his company must register for and collect French VAT. This should be examined before accepting the assignment, not after.

Do you charge VAT to a French client from St. Barths?

St. Barths is outside the territorial scope of French VAT. Three consequences follow:

• no VAT on local transactions;
• no EU VAT identification number;
• no deduction of French VAT incurred on purchases, which becomes a cost, except through the export refund procedure for goods that are shipped.

Once the client is in France, however, French VAT can come back into play.

Client or transaction	VAT rule
VAT-registered business established in France	Reverse-charged by the client
Private individual established in France (consulting, IT and similar services)	Collected by the supplier if the service is used in France
Goods delivered to France or the European Union	VAT and import duties due on arrival

For a VAT-registered business, the place of taxation is France, and the client is the one who reports the VAT. A delivery of goods, for its part, is an export from the island.

Private clients are the most delicate case. The services listed in article 259 B of the French General Tax Code, when supplied by a provider established outside the European Union, are taxable in France when they are used there. The supplier must then register for and collect French VAT.

What an invoice from St. Barths must show

An invoice from an island company follows the standard French rules. It shows the company name, legal form, share capital, registered office, SIREN identification number and RCS Basse-Terre registration.

Particulars specific to its situation come on top:

• a statement that VAT is not applicable because the supplier is established in St. Barths, outside the territorial scope of VAT (in French: « TVA non applicable, prestataire établi à Saint-Barthélemy, hors du champ territorial de la TVA »);
• for a French business client, a reference to the reverse charge of VAT by the client (article 283, 2 of the French General Tax Code) and to the article 182 B withholding borne by the payer.

What if the St. Barths company operates in France?

The rules above concern a company with no permanent business establishment in France. A company that is tax resident on the island but operates in France through an establishment is taxable there on that establishment: the St. Barths tax code limits the effects of local tax residency to activities carried on in the territory.

Separately, a company that does not yet meet the five-year residency condition remains subject to French corporate income tax. See also our insight on setting up a company in St. Barths.

Invoicing French clients from St. Barths: common mistakes

• Setting a price without factoring in the withholding. The client withholds it, and the net price falls by a quarter.
• Counting on a tax treaty. There is none between the French State and St. Barths.
• Assuming that no VAT on the island settles the matter. That only holds for local transactions.
• Working for private clients in France without reviewing VAT. Certain services are taxable in France.
• Expecting a refund of French VAT paid to suppliers. It remains a cost, apart from the case of shipped goods.
• Neglecting the invoice particulars. They tell the client what to reverse-charge and what to withhold.

Invoicing French clients from St. Barths: the bottom line

A St. Barths company is free to bill clients in France, but France keeps its right to tax what is supplied or used on its soil. A client established in France withholds 25% of the price when the company has no permanent business establishment in France: on a €20,000 invoice, the client withholds €5,000 and the company receives €15,000. No tax treaty sets this withholding aside. The island is outside the territorial scope of VAT: for a VAT-registered business client, VAT is reverse-charged by the client; for a private individual, certain services are taxable in France. These points should be reviewed with an advisor before the first invoice goes out. They are part of a broader picture, set out in our insight on what France still taxes.

A note for U.S. readers: this article covers French and St. Barths rules only. U.S. citizens and green card holders remain subject to U.S. tax on their worldwide income wherever they live.