VAT Reverse Charge in Construction Subcontracting: Rules, Wording, Example

The reverse charge of VAT (value added tax, “autoliquidation” in French) in construction subcontracting is a mechanism of the French General Tax Code (CGI): the subcontractor invoices its real estate works without VAT, with the wording “Autoliquidation”, and the principal (the company awarding the work) declares that VAT itself, then deducts it if it is entitled to do so.

The subcontractor is the company that carries out part of the works on behalf of another company, under a works contract concluded with a main contractor. The principal (“donneur d'ordre”) is the company that entrusts these works to it: most often the main contractor, but sometimes a higher-tier subcontractor in a chain of subcontracting. With the reverse charge, the declaration of VAT shifts from the supplier (the subcontractor) to the customer (the principal). The subcontractor no longer shows any VAT on its invoice. The principal declares the VAT on its own return and deducts it within the limit of its right of deduction, that is, the share of VAT it is entitled to recover on its purchases.

This article focuses on the relationship between principal and subcontractor, not on how VAT works in general. For the general rules, a service-public.gouv.fr page on VAT gives the basic framework; the administrative doctrine of the BOFiP (Bulletin officiel des finances publiques) specifies how subcontracting is treated and prevails over this article in case of doubt. To organize your contracts, the subcontracting page presents subcontractor management, useful both for small construction businesses and for mid-sized construction companies.

What the reverse charge changes in day-to-day management

For the subcontractor, the invoice no longer includes a VAT line and the payment contains no tax. For the principal, VAT no longer passes through the supplier: it appears in its return. The application of the reverse charge stems from the law, it is not chosen by contract. Both companies must therefore apply the same rule, otherwise their entries diverge. Write a simple internal instruction and circulate it to everyone who issues or records subcontracting invoices.

Key takeaways When the reverse charge applies, the subcontractor invoices the principal without VAT and puts the wording “Autoliquidation” on the invoice. It covers real estate works, notably construction, repair, cleaning, maintenance, transformation and demolition in building and civil engineering, entrusted by subcontracting to a principal subject to VAT. The principal declares the VAT on its own return and deducts it according to its right of deduction. The rule applies neither to the invoice to the end customer nor to the relationship between joint contractors. VAT invoiced in error or a forgotten wording calls for a correction of the invoice as soon as it is detected, with the help of the chartered accountant.

The reverse charge applies to subcontracted real estate works. It notably covers construction works, including repair, cleaning, maintenance, transformation and demolition operations, in building and civil engineering, when they are carried out as subcontracting. The notion of real estate works prevails over the label of the activity: a construction company that supplies a good or service unrelated to a building does not fall within the scope.

Three conditions must be met together: the nature of the works, the contractual relationship and the status of the principal. The subcontractor must carry out these works on behalf of another company, under a subcontracting contract concluded with a main contractor or a higher-tier subcontractor. The principal must be subject to VAT. The rule also applies along the chain: a subcontractor who invoices the higher-tier subcontractor invoices under the reverse charge, and the latter in turn invoices the main contractor under the reverse charge. Only the final invoice from the main contractor to its customer follows the usual VAT rules.

How to check the nature of the works before invoicing

The classification depends on the actual content of the service, not on the label on the invoice. Before issuing or recording an invoice, compare the description of the works with the list above and with the subcontracting contract.

• Reread the contract, the accepted quote or the purchase order: they describe the works entrusted.
• Check that the invoice uses the same description and identifies the site concerned.
• Ask the principal to confirm in writing that it is subject to VAT.
• Report mixed or unusual services to the chartered accountant before the first invoice, not after.
• File the contract with the invoice so you can justify the treatment in case of audit.

The reverse charge does not apply to every construction invoice. A company that invoices its end customer or the project owner (the person for whom the work is built) is not in a subcontracting situation: it invoices VAT under the usual rules. Applying the reverse charge to this type of invoice is a classification error: the invoice does not match the applicable rule and must be corrected.

Joint contracting (“co-traitance”) is the other situation not to be confused with it. In a group of joint contractors, each company contracts directly with the customer for its share of the works. None works on behalf of another, so there is no subcontracting relationship between them: the reverse charge does not apply between joint contractors. If a set-up also includes genuine subcontracting, that relationship follows the subcontracting rules. To tell the two set-ups apart, the page on joint contracting groups details the contractual organization.

The case of a principal not subject to VAT calls for the same caution. The mechanism relies on a principal that can declare the VAT: if that is not the case, the subcontractor cannot assume that the reverse charge applies. It then asks the principal to confirm its status and has the treatment validated by its chartered accountant before issuing the invoice.

A simple benchmark to identify the relationship

Ask yourself one question: with whom did the company sign its contract? If it contracted with the customer, it invoices the customer with VAT. If it contracted with another company that holds all or part of the contract, it is a subcontractor and invoices that company under the reverse charge, provided that company is subject to VAT. If in doubt about the classification of the set-up, have the case validated by your chartered accountant before issuing the invoice.

Mixed set-ups require the most vigilance. The same company may be a joint contractor on one part of the contract and a subcontractor on another. Each invoicing flow is then classified separately, according to the contract on which it is based. Document this distinction in the site file from the start, so that the person in charge of invoicing applies the right rule to each invoice.

The subcontractor issues an invoice without VAT bearing the wording “Autoliquidation”. This wording is required on the invoice when the mechanism applies. For the general invoicing rules, the entreprendre.service-public.gouv.fr page covers VAT in general; it does not replace BOFiP doctrine for this specific case. The invoice states the amount excluding tax and includes no invoiced VAT: the amount payable is therefore equal to the amount excluding tax.

The wording “Autoliquidation” must be legible and unambiguous, so that it is clear why the invoice contains no VAT. Electronic invoicing also changes the way invoices are exchanged: the electronic invoicing guide presents the Factur-X format and its implications for issuing invoices. If the site is invoiced by progress, each progress invoice issued by the subcontractor must follow the same logic as the final invoice: same classification, same wording, no VAT invoiced.

What does the subcontractor do with the transaction in its VAT return?

The subcontractor does not collect VAT on this invoice. It reports the transaction in its VAT return, in the box indicated by the official form in force. Its chartered accountant confirms this box according to its tax regime. Before each issue, check the setup of the VAT-free invoice and of the wording in the management and invoicing tool you use: once the invoice has been sent, correcting it requires a credit note and a new invoice.

1. Check that the customer is indeed the principal, that it is subject to VAT and that the works are real estate works in building or civil engineering.
2. Issue the invoice without VAT, stating the amount excluding tax.
3. Add the wording “Autoliquidation” to the invoice.
4. Report the transaction in its VAT return, in the box indicated by the official form in force.
5. Keep the subcontracting contract with the invoice.

A good practice is to create an invoice template dedicated to subcontracting, with the wording already entered and VAT disabled. The template avoids improvising on every site, reduces the risk of omission and makes checking faster for both the manager and the administrative department.

On the customer side, the VAT is due by the principal. It calculates it itself from the amount excluding tax on the invoice, at the rate applicable to the works concerned, then declares it on its VAT return, according to its tax regime. It can then deduct it: deductible VAT is the VAT the company recovers on its purchases, within the limit of its right of deduction.

In the common case of a company with a full right of deduction, the VAT due and the deductible VAT offset each other. However, the deduction does not always occur at the same time as the declaration of the VAT due: a timing difference can affect cash flow, and the chartered accountant confirms the applicable timetable. The return boxes are read on the official form in force. If the company has only a partial right of deduction, only the deductible share is cancelled out, and the rest weighs on the return. The principal's manager must therefore know their company's situation on this point, because it determines the real effect of each subcontracting invoice.

The sequence to follow for each invoice received

• Check that the invoice does fall under a case of subcontracting of real estate works in building or civil engineering.
• Check the wording “Autoliquidation” and the absence of VAT on the invoice.
• Calculate the VAT due from the amount excluding tax, using the rate applicable to the works.
• Declare this VAT on the VAT return corresponding to its tax regime.
• Deduct the VAT within the limit of the company's right of deduction, according to the timetable confirmed by the chartered accountant.

If the invoice received includes VAT although the reverse charge applies, do not record it as it stands. Ask the subcontractor for a corrected invoice before paying and declaring.

Organizing the checking of subcontracting invoices

The principal bears its own responsibility: it is the one that declares the VAT. It therefore has an interest in checking each subcontracting invoice before payment, rather than at the end of the period. It also checks that it has communicated its status as a taxable person to its subcontractors, so that they invoice correctly. Appoint a person in charge of this check, give them the sequence above and have them match the invoice against the contract. This discipline avoids late corrections. On a site with several levels of subcontracting, it applies to each invoice received, whatever the tier of the issuer.

Here is a typical subcontractor invoice, then the treatment at the principal. All amounts and the rate are fictitious and given for illustration only. A subcontractor invoices €10,000 excluding tax of works to a principal. The invoice shows the amount excluding tax, the wording “Autoliquidation”, no VAT line, and a total payable equal to the amount excluding tax.

On the principal's side, the calculation starts from the amount excluding tax on the invoice, here €10,000. For illustration, a fictitious rate is used. The rate actually applicable depends on the works and is checked before each return. The VAT due then amounts to a figure calculated on the base excluding tax. If the company has a full right of deduction, it can deduct this VAT: the balance of the transaction is then zero, subject to the timing of the deduction.

What the principal checks on this invoice

• The wording “Autoliquidation” appears on the document.
• No VAT line appears and the total payable equals the amount excluding tax.
• The description of the works matches the subcontracting contract and the site concerned.
• The rate used to calculate the VAT due matches the nature of the works.

In this example, the subcontractor receives €10,000 and pays no VAT over on the transaction. The principal does not pay VAT to its supplier either: it declares it, then deducts it according to its right. The result is fictitious, but the mechanics are the ones to remember for every real invoice.

Five errors come up regularly: invoicing VAT in error when the reverse charge applies, forgetting the wording “Autoliquidation”, applying the reverse charge outside a subcontracting case (for example on an invoice to the end customer), confusing subcontracting and joint contracting, and ignoring the status of the principal. Each calls for a check of the invoice and of the VAT returns concerned.

The risks affect both companies. An invoice that does not follow the applicable rule can lead to a correction of the VAT returns, on the subcontractor's side as well as on the principal's. A principal that forgets to declare the self-assessed VAT is exposed to an adjustment of its return, with the consequences provided for by the regulations. This article does not quantify those consequences, which depend on each company's situation and on BOFiP doctrine: ask your chartered accountant or your business tax office (service des impôts des entreprises). An error detected early is easier to correct than one discovered later. To avoid deposit errors on a subcontracted site, also see the page on the construction deposit invoice.

How to correct an invoice issued with VAT by mistake?

The correction procedure below is common practice: validate it with your chartered accountant before applying it.

• Identify the invoice concerned and check that it does fall under subcontracting of real estate works in building or civil engineering.
• Issue a correction of the invoice, for example through a credit note (a document that cancels all or part of an invoice) followed by a new compliant invoice bearing the wording “Autoliquidation”.
• Inform the principal so that it does not record the VAT wrongly shown.
• Have the chartered accountant confirm any correction of the VAT returns of both companies.
• Keep a record of the correction in the site file.

To limit errors, put simple checks in place: an invoice template dedicated to subcontracting, a review before sending, a check before payment on the principal's side. A written instruction shared between the manager, the administrative department and the accountant costs less than a correction after the fact.

Borderline cases Faced with an ambiguous contractual set-up, a principal whose status is uncertain or an error already declared, contact your chartered accountant or your business tax office (service des impôts des entreprises). Check the up-to-date rule in BOFiP doctrine and on service-public.gouv.fr before correcting.