In France, corporate tax goes from 33% to 25%

The change in French corporate tax

If you’re thinking about creating a company in France, you might be worried that corporate tax is too high. Well, a bill passed in 2017 introduced a number of changes to the way companies are taxed. While the drop of the corporate tax from 33.33% to 25% is by far the most noticeable of these changes, it is by no means the only one.

 

The drop of the tax rate

The bill seeks to radically change the evolution of the tax rate, and now, it will progressively drop until 2022, when it will reach the rate of 25%. This drop will be progressive, and evolve in the following fashion:

Progressive drop in corporate tax
Fiscal yearRate
2018
  • 28% on the segment of your profit lower than 500 000€
  • 33.33% on the segment higher than 500 000€
2019
  • 28% on the segment of your profit lower than 500 000€
  • 31% on the segment higher than 500 000€
2020
  • 28%
2021
  • 26.5%
2022
  • 25%

 

Additional details: you might remember that originally, in 2019, it was planned for there to be an extension of the reduced tax rate: companies with an annual turnover lower than 50 million € would benefit from a corporate tax that only went up to 15%. This is no longer true, and it will continue to only concern companies with a turnover lower than 7.63 million €.

 

Exceptional contributions

Companies used to have to pay contributions of 3% on distributed revenues, and particularly, on dividends. Now, this has been judged unconstitutional, and as such, this tax is completely removed.

Instead, however, companies with a turnover exceeding 1 billion € have to pay another contribution on top of the corporate tax. This new contribution is based on the same amount as the corporate tax and has a rate of:

  • 15% for companies with a turnover between 1 billion € and 3 billion €
  • 30% for companies with a turnover exceeding 3 billion €

Thankfully, even if you’re concerned by this, don’t fret: it will only apply to the turnover generated in the year 2018, so you’ll only ever have to pay it once.

 

Deduction of expenses

Acquiring shares

It’s always been possible to deduct some expenses related to acquiring shares. However, the buying company could not do it if couldn’t prove that:

  • The decision to buy these shares was made by a business located in France that is controlling the company, or that the company controls
  • That the company does indeed control (or is controlled by) this business.

These rules still exist, but they’re much laxer. Now, as long as the controlled/controlling company is in the EU (European Union) or in the EEA (European Economic Area), it remains possible.

“Lending” workforce

Sometimes, it’s possible for a large company to pay the salary (as well as social contributions, professional charges, etc.) of an employee, even though this employee temporarily works for a small business or an SME. Essentially, the large company “lends” one of its employees to a smaller structure. From now on though, all of these expenses are tax-deductible, even if the company bills part of these costs to the smaller company!

Of course, as you might expect, lending the employee has to respect a few conditions. In particular, the business receiving the employee must have 250 employees or less and be less than 8 years old, while the company paying the employee must have more than 5000 employees or be part of a group (though in this case, the receiving company can’t be part of that same group). Furthermore, this “loan” can’t last for more than 2 years, and it has to allow the receiving company to either increase the qualifications of its workforce, to ease professional transitions, or to establish some sort of partnership.

Foreign taxation

In principle, if your French company pays taxes in another country, the tax administration grants you a  tax credit so that you don’t have to pay taxes twice (unless conventions explicitly forbid it, of course). What’s new, unfortunately, is that if you’re unable to benefit from this tax credit, for example, because your profit is too low for you to pay taxes, you can’t deduct the rest of the taxes from your financial result.