Equivalence surcharge: what it is, rates, and how it works

The equivalence surcharge is a special VAT regime that applies to retail traders who are individuals. Understanding how it works is key to meeting tax obligations and correctly managing business costs.

What is the equivalence surcharge

The equivalence surcharge is a special regime of Value Added Tax (VAT) applicable to retail traders who are individuals or entities under an income attribution regime (joint ownership arrangements, civil partnerships) when all their members are individuals.

Under this regime, the trader pays an additional surcharge on top of the VAT when purchasing from suppliers, but in return is not required to file periodic VAT returns or maintain VAT ledgers.

Who is required to apply the equivalence surcharge

The equivalence surcharge is mandatory for retail traders who meet the following conditions:

• Being an individual or a joint ownership / civil partnership whose members are all individuals.
• Selling at retail: at least 80% of sales must be made to end consumers (not to businesses or professionals).
• Selling products without transformation: marketing products in the same condition as they were purchased, without subjecting them to manufacturing, processing, or production processes.

Excluded activities

The following are not subject to the equivalence surcharge:

• Sale of vehicles, boats, aircraft, and accessories.
• Sale of jewelry, precious stones, luxury furs, and antiques.
• Sale of original works of art and collectibles.
• Trade in petroleum products.
• Industrial machinery and minerals.
• Mixed activities where the industrial component exceeds 20% of total turnover.

Equivalence surcharge tax rates

The equivalence surcharge is applied as an additional percentage on top of the corresponding VAT rate:

For example, if a trader purchases goods worth 1,000 euros with standard VAT, they will pay:

• VAT (21%): 210 euros
• Equivalence surcharge (5.2%): 52 euros
• Total payable to the supplier: 1,262 euros

How the equivalence surcharge works

For the trader

The operation is straightforward from an administrative standpoint:

• The supplier includes the equivalence surcharge as an additional line on the invoice.
• The trader pays the VAT plus the surcharge to the supplier.
• The trader does not file VAT returns (forms 303 or 390).
• The trader does not maintain VAT ledgers.
• The trader sells to end consumers with VAT included in the price, but does not need to break it down or remit it to the Tax Agency.

For the supplier

The supplier must:

• Verify that the client is under the equivalence surcharge regime.
• Include the equivalence surcharge separately on the invoice.
• Remit both the VAT and the surcharge in their periodic returns.

Tax obligations of traders under the equivalence surcharge

Although the regime significantly simplifies VAT obligations, the trader must comply with:

• Form 309: declaration and payment of VAT on intra-community acquisitions and reverse charge transactions.
• Form 349: recapitulative declaration of intra-community transactions, if any.
• Notifying suppliers of their status as a trader under the equivalence surcharge regime.
• Income tax obligations: the equivalence surcharge does not exempt from personal income tax obligations.

Advantages and disadvantages

Advantages

• Administrative simplification: no periodic VAT returns to file.
• Lower management burden: no VAT ledgers to maintain.
• Fewer errors: by not filing VAT settlements, potential mistakes are eliminated.

Disadvantages

• Input VAT cannot be deducted: the trader absorbs the VAT and surcharge as a higher purchase cost.
• Higher acquisition cost: the purchase price is increased by the surcharge.
• Not voluntary: if the requirements are met, the regime is mandatory.

Compatibility with other regimes

The equivalence surcharge is compatible with:

• Direct estimation regime for personal income tax (standard or simplified).
• Objective estimation (modules) regime for personal income tax.

However, if the trader also carries out an activity subject to the standard VAT regime, separate accounting must be maintained for each activity.

How to manage the equivalence surcharge with Holded

Holded allows you to configure the equivalence surcharge regime in your accounting to:

• Automatically record purchase invoices with the surcharge broken down.
• Correctly calculate the actual cost of goods including VAT and surcharge.
• Generate the necessary tax forms (309, 349) when applicable.
• Maintain traceability of all transactions without the need for additional VAT ledgers.