Corporate tax for French businesses
In France, there are two different methods of taxation: The Corporate Tax, and the Income Tax. While the corporate tax is generally associated with companies and the income tax with individuals or households, there are situations in which a company will pay the income tax.
Here, we will focus mainly on the corporate tax, and what that means for your company.
Summary
- Which companies are subject to corporation tax?
- What’s the Corporate tax rate?
- How is the Corporate Tax paid?
- What happens in the event of a deficit?
- The remuneration of the directors
Which companies are subject to corporation tax?
| Structures for whom Corporate Tax is mandatory | Structures who can choose between income tax and corporate tax |
| Public Limited Companies (SA) | Sole partnerships (EI) who chose the (EIRL), if they’re under the real tax regime |
| Limited Liability Companies (SARL) | one-person limited liability undertakings (EURL) |
| Limited Stock Partnerships (SCA) | Partnerships (SNC) |
| Simplified Stock Corporations (SAS) | Affiliated companies (SEP) |
| Certain civil societies | |
| De Facto Companies |
What’s the corporate tax rate?
The reduced rate: 15%
This rate applies automatically on a fraction of the taxable profit limited to € 38,120 for SMEs (Small and Medium Enterprises):
- who achieve a turnover of less than 7 630 000 € in each year for which the reduced rate is requested,
- for whom at least 75% of the paid-up capital is owned by natural persons or by a company that is itself 75% owned by natural persons.
To assess this threshold of 75%, the shares of venture capital companies, venture capital funds, regional development companies or financial innovation companies are not taken into account.
The normal rate: toward 25% in the coming years
The 2018 Finance Act provides for the reduction of the standard corporate tax rate to 25% by 2022.
- in 2018, the rate of 28% applies up to 500 000 € of profits. Beyond, the rate is 33.33%,
- in 2019, the rate of 28% will apply up to 500 000 €. Beyond, the rate is 31%,
- in 2020, the single rate of 28% is generalized,
- in 2021, the single rate is reduced to 26,5%,
- in 2022, the single rate is reduced to 25%.
Paying the corporate tax
The company calculates the tax it owes and pays it spontaneously to the tax department.
The Corporate Tax is paid on four fixed dates: (March 15, June 15, September 15 and December 15). Payments must be accompanied by a deposit statement (form no. 2571).
The Corporate Tax balance cannot be paid later than the 15th of the fourth month following the end of the financial year by attaching the balance statement (form no. 2572). For companies closing their fiscal year on December 31st, the balance statement and its payment are postponed until May 15th.
New companies and companies subject to the Income tax that opt for the Corporate tax are exempt from down payments of Corporate Tax corresponding to their first tax year to the Corporate Tax. Companies are also exempt from the payment of tax instalments when the amount of tax due in the previous year is less than 3,000 euros. Companies must pay their instalments and their corporate tax balance by electronic payment.
What happens in the event of a deficit?
A deficit only appears on the result of the company. It can absolutely not be deducted from the personal tax return of the directors, deducted from other possible income.
The deficit can be considered as a deductible expense of the profit, optionally and within the limit of the undistributed fraction of this profit.
The carry-forward:
The deficit can be deducted from the profit of the following years without limitation in time. It is limited to 1 000 000 € to which may be added 50% of the taxable profit exceeding 1 000 000 € (article 220c of the French Tax Code)
The carry-back option:
This system makes it possible to deduct the deficit recognized at the close of a financial year to the previous profits. This gives rise to a claim on the Treasury with the value of the tax surplus previously paid.
The deficit can only be deducted from the previous financial year, and within the limit of the smallest amount between the declared profit and the ceiling of € 1,000,000.
This option can only be chosen in the year in which the deficit is recognized, within the time limit for filing the income statement for that financial year.
The remuneration of the directors
The executive’s remuneration is tax-deductible. This means that it can be deducted from the taxable income of the company, regardless of its tax status (salary or executive remuneration), as long as the volume of the remuneration is reasonable (Article 62 of the CGI ).
Associate officers may also receive a portion of the profit in the form of dividends.
As far as the social regime is concerned, they are not considered as remuneration, but as income from movable capital. As such, they are not subject to social contributions, except for SELs, and under certain conditions within the framework of the EIRL and the SARL.
As far as the tax regime is concerned, dividends are subject to income tax in the category of movable capital income.
If you want to learn a bit more about the alternatives to Corporate Tax, you can learn all of that in a couple of comprehensive tables.
