Would you like to set up your business in France? Understanding corporation tax (IS) is essential to optimize your tax management. In France, corporation tax applies on company profits. Since 2021, corporate income tax rates have been adjusted to stimulate the economy and adapt to the needs of businesses.
What is the applicable rate?
In 2021, the standard corporate income tax rate in France has been set at 25%. This rate applies to the majority of companies, whatever their sector of activity or size.
To support small and medium-sized enterprises (SMEs), a reduced rate of 15% applies to taxable profits up to €42,500. To qualify for this reduced rate, SMEs must meet the following criteria:
- Sales: Annual sales must be less than €10 million.
- Capital: The company’s capital must be fully paid up.
- Capital ownership: At least 75% of the capital must be held by individuals
Understanding how corporation tax is calculated in France
Corporation tax (IS) is calculated on the basis of the company’s taxable income.
Expenses incurred in the direct interest of the company are generally deductible, although there are certain exceptions. For an expense to be deductible, it must meet several conditions:
- The expense must be incurred in the direct interest of the company’s operations and relate to its normal management.
- It must correspond to a real expense supported by the appropriate receipts (invoice or receipt).
- Lastly, the expense must be included in the financial statements for the year in which it was incurred.
The categories of deductible expenses include :
- Operating expenses: These include expenses linked to the day-to-day running of the business, such as salaries and purchases of raw materials…
- Financial expenses: These include interest on loans taken out by the company, and bank charges.
- Non-recurring expenses: These expenses relate to non-recurring events in the life of the company, such as losses on bad debts.
- Fiscal and parafiscal charges: These are compulsory taxes and contributions other than corporate income tax (non-deductible), such as property tax (taxe foncière).
- Depreciation costs: The depreciation of a company’s fixed assets. This may involve the depreciation of company premises or industrial machinery.
- Other specific expenses: Various expenses that don’t fit into the previous categories but are necessary for the company’s activity, such as training costs or consultancy fees.
Finally, here are a few examples of expenses that are NOT deductible: fines and penalties, corporation tax itself, company car tax, vehicle leasing charges above a certain ceiling, etc.
What happens in the event of a deficit?
When a company’s expenses exceed its sales, it generates a tax loss.
In the event of a deficit, this can be carried forward or back:
- Carry-forward: The deficit is deducted from the profits of subsequent years, without any time limit.
- Carry-back: The deficit is offset against the previous year’s profit, up to a limit of €1,000,000, creating a tax credit which the company can recover.
How do I pay corporation tax?
Companies must complete and file an income tax return (Form 2065) within three months of the end of the financial year1 . Corporation tax is paid in quarterly instalments on the following dates:
- March 15
- June 15
- September 15
- December 15
Companies whose previous year’s corporation tax was less than €3,000 are exempt from these advance payments, and pay only at the end of the year. The balance of corporate income tax must be paid by the 15th of the fourth month following the end of the financial year, together with the balance statement (form n°2572). Payments must be made electronically.
By way of exception, companies with a December 31 year-end have until May 15 of the following year to declare and pay the balance of their corporate income tax.
We hope this guide will help you to better understand corporate tax in France. If you have any questions or require any assistance, please do not hesitate to contact us. We’re here to help you with all your tax issues.
Cabinet Roche & Cie – Your trusted chartered accountant in France.
