1. Applicable VAT rates
Article 279-0 bis of the French General Tax Code (CGI) provides for the application of an intermediate VAT rate of 10% to improvement, conversion, fitting-out or maintenance work carried out in premises used for residential purposes, provided that such premises have been completed for more than two years on the date of execution of the work. This intermediate rate is a derogation from the standard rate of 20% applicable in principle to property works and may only be applied subject to strict compliance with the conditions laid down by law and regulations, as well as by administrative doctrine.
In addition, Article 278-0 bis A of the CGI introduces a reduced rate of 5.5%, also applicable to dwellings more than two years old, when the work carried out directly improves the energy performance of the property or relates to services that are inseparably linked to it. This measure aims to encourage the energy renovation of existing housing, as part of public policies for ecological transition and energy consumption reduction.
The application of either of these special rates requires the company to rigorously verify the eligibility conditions for the work and to collect the appropriate supporting documents, in particular by means of a signed certificate from the customer or a note on the estimate or invoice. Otherwise, the standard rate of 20% remains applicable.
Furthermore, these rates are only applicable in mainland France. All work is subject to the standard VAT rate in the French overseas departments and territories, i.e. 8.5% in general.
1) Conditions for applying the 10% rate
The intermediate rate of 10% applies to work carried out on premises used exclusively or mainly for residential purposes, whether they are primary or secondary residences, regardless of the status of the client (private individual, property investment company, co-ownership, social landlord, etc.).
The condition relating to the age of the building requires that the premises concerned must have been completed at least two years prior to the start date of the work. This completion condition applies to the structural work: the building must have been made habitable, without necessarily having been occupied for the first time.
The work must be improvement or maintenance work. As such, it must not involve the construction of new surfaces or lead to a transformation equivalent to new construction within the meaning of tax doctrine (in particular BOI-TVA-LIQ-30-20-95).
Consequently, work carried out on new buildings, business premises or premises equivalent to new construction remains subject to the standard rate of 20%.
The 10% rate applies to the work itself and to the supplies necessary for its execution, provided that these supplies are sold and installed by the company as part of the work performed. However, equipment considered to be comfort or furnishing items (household appliances, kitchen equipment purchased separately, etc.) remain subject to the standard rate.
2) Conditions for applying the 5.5% rate
In accordance with the provisions of Article 278-0 bis A of the General Tax Code, energy efficiency improvement works carried out in residential premises completed more than two years ago are eligible, under certain conditions, for the reduced VAT rate of 5.5%.
This reduced rate applies to work directly related to the energy renovation of the dwelling, i.e. work consisting of the supply and installation of equipment, materials or appliances eligible for the energy transition tax credit (CITE) or MaPrimeRénov’, provided that they meet the thermal or energy performance criteria set by the regulations in force, in particular by the amended decree of 30 December 2013.
Eligible works include thermal insulation of opaque or glazed walls, installation of condensing or micro-cogeneration boilers, the installation of heat pumps that meet performance requirements, the installation of heating control systems, thermodynamic water heaters, or renewable energy production devices (solar water heaters, photovoltaic systems, etc.).
The reduced rate of 5.5% also applies, on an ancillary basis, to so-called ‘induced’ works, defined as those strictly necessary for the proper completion of energy improvement works. This condition presupposes a proven technical link between the main works and the induced works, which must be invoiced in the same estimate or in an attached invoice.
3) Justification for applying reduced or intermediate VAT rates
Since 16 February 2025, the obligation to produce a customer certificate (Cerfa 1300-SD or 1301-SD) in order to benefit from reduced or intermediate VAT rates has been abolished.
Instead, the application of the reduced or intermediate rate is now conditional upon the inclusion of a mandatory statement on quotations and invoices, in which the customer certifies that the legal conditions are met:
- The dwelling has been completed for more than two years,
- It is used for residential purposes,
- The work does not result in the production of new housing.
This measure is part of the administrative simplification provided for in the 2025 Finance Act and aims to reduce the formalities imposed on building professionals.
Example of wording to include on quotations and invoices :
“I, the undersigned customer, certify that the premises concerned by the works were completed more than two years ago and are used for residential purposes. I have been informed that the reduced (or intermediate) VAT rate is applicable under these conditions and undertake to report any changes that may affect eligibility.“
The company is therefore no longer required to collect or retain a Cerfa certificate, but must still keep a copy of the signed quotation or invoice bearing the above statement for five years, in accordance with Article L. 102 B of the Tax Procedures Code.
In the event of a tax audit, the authorities may request these documents to justify the VAT rate applied.
If the statement is missing or if the conditions are not actually met, the company is liable to an increase in VAT to the standard rate, as well as possible penalties and interest for late payment.
2. Reverse charge mechanism – specific to subcontracting
For subcontracting contracts in the construction sector concluded on or after 1 January 2014, the 2014 Finance Act introduces a reverse charge mechanism for VAT by the customer, which applies to work carried out by a subcontractor on behalf of a taxable customer.
1) Overview of the scheme
a) Reverse charge mechanism
This mechanism, which complies with EU law (Directive 2006/112/EC of 28 November 2006), requires the taxable customer (the main customer) to collect and pay VAT on services provided by a subcontractor.
It applies to subcontracting contracts concluded on or after 1 January 2014, in the following situations :
- The subcontractor and the customer are both established in France and subject to VAT;
- The subcontractor is established in France and the customer is established abroad but registered for VAT in France.
Important : This scheme does not apply to relationships with customers who are not subject to VAT (in particular private individuals).
b) Transactions covered by the reverse charge mechanism
The mechanism applies to construction work, in the specific case where it is carried out in relation to immovable property, within the framework of a subcontracting relationship within the meaning of Article 1 of Law No. 75-1334 of 31 December 1975.
Definition of subcontracting :
This refers to the process whereby a main contractor entrusts, by contract, a subcontractor with the execution of all or part of the contract it has concluded with the project owner.
The subcontractor never acts directly on behalf of the project owner, but always on behalf of the main contractor.
This includes :
- Structural and finishing work;
- Plumbing, electrical, carpentry, painting, etc.;
- Renovation or refurbishment work.
Intellectual or design services (architects, design offices, project management, etc.) are not covered by this regime.
2) Reverse charge procedure
a) Consequences for subcontractors
Subcontractors do not apply VAT to their invoices for the work concerned. These invoices must :
- Be issued excluding tax (HT);
- Include the mandatory statement : ‘Reverse charge – VAT payable by the customer in accordance with Article 283 II-2 nonies of the French General Tax Code’
The subcontractor does not have to declare these transactions on their CA3 return, either as taxable or non-taxable transactions.
Responsibility for collecting VAT is transferred to the customer, provided that the customer is liable for VAT.
b) Consequences for the customer
The customer liable for VAT (the subcontractor’s client) must reverse charge the VAT by declaring the pre-tax amount of the work in their turnover declaration (CA3) :
- Line 05: ‘Reverse-charged taxable transactions’ – indicate the amount excluding VAT of the work invoiced without VAT by the subcontractor;
- Line 20: ‘VAT due or reverse-charged’ – enter the corresponding VAT amount (calculated according to the applicable rate);
- Line 21: ‘VAT deductible on other goods and services’ – to deduct this same VAT, if the conditions for deduction are met (neutrality of the transaction).
c) In the event of a billing error
Errors can occur, with different consequences depending on whether they concern the subcontractor or the customer :
Subcontractor error :
If the subcontractor mistakenly charges VAT when the reverse charge mechanism applies :
- The customer cannot deduct this incorrectly charged VAT, as they must reverse charge the VAT themselves and cannot recover the VAT charged by the subcontractor.
- The subcontractor remains liable for paying the invoiced VAT to the authorities, even if they have not collected it.
- The invoice can be adjusted (credit note or corrective invoice) if this is done within the legal time limits and without loss to the Treasury.
Error by the customer :
In the event of an omission or error in the reverse charge declaration (e.g. failure to declare the pre-tax amount or VAT on the corresponding lines of the CA3 form), the customer is liable to a fine of 5% of the VAT not self-assessed (Article 1788 A, 4 of the CGI).
3. Summary diagram of VAT in the construction industry
This article was written in September 2025 by Calixta EVRARD, Tax Specialist, Tax Department
