CJEU: factoring fees are subject to VAT – key implications for businesses

On 23 October 2025, the Court of Justice of the European Union (CJEU) ruled that fees for a wide range of factoring services do not fall within the scope of the VAT-exempt financial services and should be subject to VAT. The judgment on case C-232/24 (Kosmiro) affects all providers of factoring and receivable financing services that extend working capital financing through the purchase and management of trade receivables within the EU. Find out what this means for your contracts, invoicing and VAT reporting.

Background and context

Given the diverse nature of factoring services and the different approaches used in practice to calculate factoring fees, determining their VAT treatment is not straightforward. This is particularly so in light of the general position under VAT legislation  that services relating to financing and the granting of credit are VAT-exempt, whereas debt collection services and ancillary administrative services are subject to VAT. In this regard, the interpretations in the case law of the CJEU, which are also followed by the Bulgarian revenue authorities, have so far been focused predominantly on the criteria for distinguishing VAT-exempt transactions with receivables from taxable debt collection services, which does not exhaust the full range of VAT issues pertaining to the factoring arrangements.

The new CJEU

The new CJEU judgment on case C-232/24 (Kosmiro) was delivered in response to a preliminary ruling request from the Supreme Administrative Court of Finland in connection with a tax dispute concerning the VAT treatment of two factoring products, namely trade factoring and invoice factoring:

• Trade factoring – the factoring company purchases invoiced trade receivables and assumes the risk of non-payment;
• Invoice factoring – the factoring company provides financing in the form of a loan corresponding to the invoiced receivables, which serve as a collateral for the financing provided, with the customer retaining ownership of the receivables and the risk and the factor providing assistance in collecting them.
• The fees include a factoring commission calculated as a percentage of the receivable payable in advance, a fixed arrangement fee payable in connection with compliance with the anti-money laundering legislation, etc.

In the judgment, the CJEU held that:

• Taxable service: the trade factoring and the invoice factoring qualify as taxable debt collection services for VAT purposes, even when they involve the provision of financing.
• Single service: the Court held that the factoring fees at issue represent remuneration for a single and indivisible supply of a debt collection service. Therefore, even where the factoring services involve the provision of financing, the components of the fees corresponding to the financing activities are not eligible for VAT-exempt treatment.
• Broad interpretation: the Court considers that the term “debt collection”, which is expressly excluded from the list of VAT-exempt financial services, should be interpreted broadly to cover all forms of factoring, regardless of their terms, insofar as the main purpose of factoring is the recovery and collection of debts owned by a third party.
• The role of the factor: the Court reached the above conclusions by focusing on the role of the factoring company: even where the factoring arrangement entails elements of financing, the key consideration substantiating the VAT taxable treatment is that the factor is responsible for the recovery and collection of the debts.
• VAT-exempt services: the Court distinguishes between the taxable debt collection services at issue in the Kosmiro case and other debt-related services for which VAT-exempt treatment has been expressly recognised in previous cases, such as synthetic securitisation (judgment of 6 October 2022 in Case C‑250/21 (O. Fundusz Inwestycyjny Zamknięty reprezentowany przez O)) and certain tripartite legal relationships involving a factoring company replacing bank financing (judgment of 17 December 2020 in Case C 801/19 (Franck)), etc. According to the Court, the active role of the factor in the recovery and collection of the debts is the key difference justifying the taxable treatment of the services under Case C-232/24 (Kosmiro).