France Drops Controversial VAT Reform for Auto-Entrepreneurs: A Win for Small Businesses

France Abandons VAT Reform for Auto-Entrepreneurs

The French government has officially dropped its proposed reform of the VAT system for auto-entrepreneurs, following strong and repeated opposition from both chambers of Parliament. This decision comes after months of debate and pushback from small business associations, who argued the measure would harm self-employed workers and complicate their already delicate financial balance.

Amélie de Montchalin, Minister of Public Accounts, confirmed the withdrawal after the proposal was rejected twice — by both the National Assembly and the Senate. “It was said in both chambers that this was not a good idea. I take note of that — this is democracy, and it will not be included in the final budget,” she declared at a post-cabinet press briefing.

What the Reform Proposed

The reform sought to lower the threshold for VAT exemption for micro-enterprises — a move critics described as a hidden tax hike on small businesses.

Originally, the government planned to:

Reduce the annual VAT-exempt turnover from €37,500 to €25,000 for service providers,
And from €85,000 to €25,000 for businesses in the building and trade sectors.

The idea was to align thresholds across sectors and recover an estimated €780 million per year in revenue, half of which would have gone to the state budget.

Why the Plan Collapsed

The measure was first removed from the 2025 budget by MPs, then eliminated again in December 2025 during readings of the 2026 draft budget. Both chambers agreed that such a change would unfairly penalize micro-entrepreneurs — especially those who work primarily with individuals, who cannot reclaim VAT.

Main reasons for rejection:

Competitiveness loss: Clients would face higher prices once VAT was added.
Administrative burden: Many small self-employed workers would have to register for VAT and file returns for the first time.
Economic timing: The measure came amid inflation and rising costs of living, making it politically toxic.

As a result, the current VAT exemption thresholds remain unchanged:

€37,500 for services
€85,000 for commercial and accommodation activities

A Relief for 1.4 Million Micro-Entrepreneurs

The decision comes as a major relief for France’s 1.4 million micro-entrepreneurs, who represent one of the fastest-growing segments of the French job market. Many depend on simplified tax rules to remain viable, especially in rural areas and small towns where self-employment often fills job gaps.

The auto-entrepreneur status — introduced in 2009 — was designed to make self-employment simple and flexible. It allows freelancers and small traders to launch a business quickly with minimal paperwork and no VAT collection below the legal turnover thresholds. Changing that system would have undermined one of its greatest advantages: administrative simplicity.

What Happens Next?

While the reform is officially off the table for now, the debate over VAT fairness in France is far from over. Larger business federations have long argued that VAT exemptions give micro-entrepreneurs an unfair competitive edge, especially in service industries.

However, for the foreseeable future, no changes are planned to the current VAT system for auto-entrepreneurs. The government has instead shifted focus to measures supporting business creation and simplification in 2026.

Final Thoughts

This move marks a rare victory for small business owners and highlights how powerful public and parliamentary pressure can still shape policy in France. For auto-entrepreneurs already juggling inflation, rising social contributions, and fierce competition, the government’s U-turn offers a welcome breather — and a sign that simplicity still wins out over complexity.