Reduced VAT Rate Soon To Enter Into Force In French Catering Industry

by Ulrika Lomas, Tax-News.com, Brussels

30 April 2009

In order to ensure the timely introduction of the reduced VAT rate within the catering industry – to coincide with the very start of the tourist season, French President Nicolas Sarkozy has requested that the new 5.5% rate enter into force on July 1, 2009.

In return for the VAT reduction, lowered from 19.6%, President Sarkozy is demanding a certain commitment from the catering industry, calling for it to lower its prices, to increase employment, and to improve existing conditions for employees, as well as to invest in modernisation.

Detailed in the “contrat d’avenir” or contract for the future, these specific pledges will be unveiled this week and subsequently signed by the respective parties – Finance Minister Christine Lagarde, the Secretary of State for Trade and Services Hervé Novelli, and also by the catering unions.

Regarding prices, restaurant owners are promising to reflect the whole of the VAT reduction in the revised prices of certain products, such as coffee or mineral water, the cost of a main meal or dish of the day, effectively amounting to a price reduction of around 10%.

With regard to employment, the eight catering unions are now pledging to recruit 40,000 individuals over the course of the next two to three years, of which 20,000 will be recruited via either an apprenticeship contract or a professional contract or “contrat de professionnalisation”, whereby a certain percentage of the minimum wage is paid to the individual, depending on their age and particular level of qualification.

It has also been proposed that a system of loans be put in place, specifically designed to accelerate the modernisation of restaurants.

The reduced VAT rate will result in an estimated annual loss of EUR2.5bn for the State.

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