1 – VAT on offshore services: what your accountant often overlooks
When you purchase a development, customer support or accounting service from a provider based in Madagascar or Mauritius, the VAT rules are not the same as those applying to a French supplier. And it is not the intra-community VAT regime either. It is a third regime, frequently misunderstood.
1.1: Non-EU services: the reverse charge mechanism
The principle is set out in Article 259-1° of the French General Tax Code (CGI): when a VAT-registered buyer in France purchases a service from a provider established outside the EU, VAT is due in France by the buyer. It is you, the French SME, who must apply the reverse charge.
In practice, the invoice from your Malagasy or Mauritian provider arrives without VAT. This is normal: the provider is not registered for VAT in France. However, you must declare this VAT on your CA3 return (monthly or quarterly), line 2A "Purchases of intra-community or non-EU services". You collect the VAT on this line, then immediately deduct it on line 20 if your activity entitles you to full deduction. Result: a cash-neutral transaction, but a real reporting obligation.
Failing to declare this reverse charge is an irregularity. The tax authorities can reassess the missing collection, without granting you the corresponding deduction. The risk is not theoretical: audits are increasingly targeting service flows with non-EU countries.
1.2: Intra-community VAT: why this term does not apply to Madagascar or Mauritius
Many business owners Google "intra-community VAT offshore outsourcing". The answer is short: it does not apply. Intra-community VAT applies exclusively to transactions between EU member states. Madagascar and Mauritius are third countries. Neither belongs to the EU, the EEA, nor any association agreement that would extend the intra-community regime.
The confusion arises because the reverse charge mechanism exists in both cases. When you purchase a service from a German provider, you apply the reverse charge via the intra-community lines. When you purchase from a Malagasy provider, you also apply the reverse charge, but via the "service importation" regime. The CA3 lines are different, the legal basis is different (Article 259-1° CGI versus Articles 259 A and B for intra-community), and the documentation to be retained differs.
Your intra-community VAT number is irrelevant in dealings with a non-EU provider. What you need to verify: the provider has no permanent establishment in France. If that is confirmed, the non-EU regime applies.
1.3: What you need to fill in on your CA3 in practice
Let us take a concrete example. You pay 3,000 euros net per month to Taram for three dedicated team members. The invoice arrives without VAT. On your CA3, you report 3,000 euros on line 2A (non-EU services), generating 600 euros of collected VAT (at 20%). At the same time, you record 600 euros on line 20 as deductible VAT. The net VAT impact of this transaction is zero. Your cash flow is unaffected.
If you are under the flat-rate exemption scheme (micro-enterprise below the threshold), you do not charge VAT and cannot deduct it. However, you are still required to declare and pay VAT on imported services via a specific CA3 (the so-called "mini one-stop shop" regime or ad hoc declaration). This is the most common trap for very small businesses that outsource offshore without realising it.
Always retain: the provider's invoice, proof of bank transfer, and the service agreement specifying the nature of the service and the place of performance. In the event of an audit, the authorities will want to verify that the service was genuinely rendered from abroad and that no permanent establishment exists in France.
2 – Withholding tax and reporting obligations: DAS2, tax treaty and documentation
VAT is only the first layer. The next question, one that almost no SME asks itself: is withholding tax required on amounts paid to an offshore provider? And must these payments be declared via DAS2? The answers depend on the nature of the service and the applicable tax treaty.
2.1: Withholding tax on non-EU services
Article 182 B of the CGI provides for a withholding tax of 25% (standard rate, increased to 75% if the recipient is domiciled in a non-cooperative state) on certain fees paid to individuals or companies with no permanent establishment in France. The services covered include: artistic or sporting performances, certain royalties, and fees for services rendered in France.
Key point: if the service is performed entirely in Madagascar or Mauritius, without the provider physically intervening on French territory, the withholding tax under Article 182 B does not in principle apply to "standard" services (development, support, accounting, prospecting). The withholding targets services rendered or used in France in specific cases.
But there is a second filter: bilateral tax treaties. France has signed a treaty with Madagascar (1963, amended) and a treaty with Mauritius (1980, amended). These treaties may reduce or eliminate the withholding tax provided for under French domestic law. Before making a payment, verify which treaty applies and which article covers the exact nature of the service.
2.2: The France-Madagascar and France-Mauritius treaties: what changes
The France-Madagascar tax treaty, signed on 22 July 1963, allocates the right to tax business profits to the state where the enterprise has its permanent establishment (Article 4). If your Malagasy provider has no permanent establishment in France, its profits are only taxable in Madagascar. No French withholding tax on standard service fees. Royalties (software, patents), however, may be subject to a reduced treaty withholding rate, which rarely affects outsourcing of human services.
The France-Mauritius tax treaty, signed on 11 December 1980 and revised by amendment, follows the same OECD model. Business profits are taxable in the provider's state of residence, unless there is a permanent establishment in France. Mauritius also benefits from an attractive tax regime (Global Business Licence), but that concerns the provider's taxation, not yours. What matters for you: no withholding tax if the service is rendered from Mauritius without a French permanent establishment.
One point to watch: if your provider is a Mauritian company invoicing for services carried out by teams in Madagascar, the economic substance must be verifiable. The authorities may reclassify the flow if the Mauritian entity has no genuine operational reality. At Taram, management is in Mauritius and delivery is in Madagascar. Two distinct entities, two countries, two coherent tax regimes.
2.3: DAS2: do you need to declare fees paid to an offshore provider?
The DAS2 (annual declaration of fees, commissions, brokerage fees and rebates) is mandatory for any payment exceeding 1,200 euros per year per recipient, in respect of fees and commissions paid to third parties in the course of business activity.
The recurring question: must amounts paid to an offshore provider be declared on the DAS2? The tax authority's position (BOI-RPPM-RCM-30-10-20-40) is that DAS2 concerns amounts paid to recipients whose tax domicile or registered office is in France. Foreign providers with no permanent establishment in France are not in principle subject to DAS2.
However: if the authorities consider that the provider has a permanent establishment in France (for example, if a permanent representative acts on its behalf in the country), DAS2 applies. For standard offshore outsourcing where the provider operates entirely from Madagascar or Mauritius, with no office or representative in France, DAS2 is not required for those flows. Nevertheless, retain proof that the provider has no permanent establishment in France: contract, invoices showing the foreign address, certificate of tax residence. Your checklist d'évaluation d'un prestataire offshore should include these elements from the selection phase.
3 – Corporate tax deductibility of offshore costs: what the authorities accept and what they reassess
You pay a provider in Madagascar. You record the invoice as an external cost. Your taxable profit falls. Everything is fine. Until the tax audit. Because the deductibility of an offshore expense is not automatic. It rests on precise conditions that you must document in advance, not when the inspector arrives.
3.1: Conditions for deductibility: reality, reasonableness and business interest
Article 39-1 of the CGI sets three conditions for an expense to be deductible from taxable profit: the expense must be incurred in the direct interest of the business, it must correspond to a genuine consideration, and its amount must not be excessive.
For an offshore outsourcing service, the reality of the service is the first checkpoint. The authorities may request proof that the service was actually performed. Deliverables (code, reports, processed tickets, calls made), activity logs, email or Slack message exchanges constitute this proof. If you outsource three dedicated team members through Taram, the fact that they are integrated into your tools (CRM, Slack, Teams) naturally generates this documentation. stack collaboratif que vous déployez also serves as tax evidence.
The reasonableness of the price is the second test. The rate charged must correspond to market value. Paying 900 euros per month for a full-time senior developer may seem abnormally low from a French perspective. But Malagasy salary scales are publicly available. The employer cost in Madagascar for a confirmed tech profile ranges between 500 and 1,200 euros per month including contributions. Your service invoice covers the salary, local charges, infrastructure and the provider's margin. This is not a sweetheart price; it is a structural differential in labour costs.
3.2: Transfer pricing and related-party relationships: when the issue arises
If your offshore provider is a related entity (subsidiary, sister company, same group), transfer pricing rules apply. Article 57 of the CGI allows the authorities to add back to taxable profit any profits indirectly transferred abroad through inflated or deflated prices.
For a French SME working with an independent provider such as Taram, this issue does not in principle arise. There is no capital link between you and your provider. The invoiced price results from a commercial negotiation between independent parties. Retain the signed contract, general terms and conditions, and pricing schedules to demonstrate the absence of a related-party relationship.
However, if you have set up your own structure in Madagascar to employ team members directly, you enter the transfer pricing framework. Every transaction between your French company and your Malagasy subsidiary must be documented in accordance with the arm's length principle. This is one of the indirect tax advantages of using an independent provider rather than setting up your own offshore entity: you eliminate the transfer pricing risk. calcul TCO complet de l'externalisation should factor in this avoided compliance cost.
3.3: Documentation to produce and retain: the practical checklist
Here is what you must have in your permanent file for each offshore provider, available in the event of an audit:
The signed service agreement, specifying the nature of the services, the place of performance (Madagascar, Mauritius), the legal identity of the provider, and the agreed price. The provider's certificate of tax residence, issued by the Malagasy or Mauritian tax authorities. This document proves that the provider is a tax resident in its country and enables the bilateral tax treaty to be applied.
Monthly invoices, compliant with mandatory particulars: provider identification, service description, net amount, mention of "VAT due by the recipient" or "exemption Article 259-1° CGI". Proof of payment (bank transfers). Deliverables or monthly activity reports proving the reality of the service.
For SMEs outsourcing several functions, such as those described in our article on l'outsourcing multifonction à Madagascar, an activity log per team member and per function facilitates traceability.
If you benefit from the innovation tax credit on certain outsourced work, documentation must be even more rigorous. Our article on crédit d'impôt innovation et externalisation offshore details the specific deductibility conditions in that context.
Every month without compliance is a month of accumulated tax risk
Three offshore invoices per month, thirty-six per year, one hundred and eight over three years. If the VAT reverse charge is missing, if the treaty documentation is absent, if the reality of the service is not proven, each invoice becomes a potential reassessment point. Late payment interest runs at 0.20% per month. The surcharge for failure to declare rises to 40% in cases of deliberate non-compliance.
You do not need an international tax specialist. You need a provider that structures the relationship from the outset: compliant contract, certificate of tax residence provided, properly worded invoices, documented deliverables. Taram provides this documentation because its clients' tax compliance is not a bonus — it is a condition of the relationship. Request your tax compliance audit before your next audit notice does it for you.
