Income Tax on Corporations
Corporate Tax is 33.33% and applies to:

• Limited Liability Companies (“Sociétés Anonymes” and “Sociétés à Resonsabilité Limitée”)
• Business Activities of a manufacturing nature
• Unlimited Liability companies that have elected to be liable to Corporation Tax

Corporation Tax is derived from:

1. A full cycle of transaction carried out within France including its Overseas Departments
2. An establishment of this foreign Corporation in France
3. Operations carried out in France by a dependant representative of this foreign corporation

Where corporation Tax applies, the taxable income is income which is attributable to a permanent establishment in France, where a permanent establishment is understood to be a fixed place of business through which the business of a company is wholly or partly carried out, for example, a head office, a branch, an office, or a factory.

For businesses classed as “petits et moyennes enterprises”, with an annual profit of less than
38 120€ corporation tax is reduced to 15%.

Corporate tax must be paid in 4 installments over the course of the financial year and when combined these installments must amount to 42% of the previous financial year’s taxable income. The balance due must be received no later than the 15th of the forth month after the close of the financial year.

Valuation of Assets
In France assets are divided into two categories for the purposes of valuation

1. current assets “capitaux circulants”, for example inventories, accounts receivable and cash
2. fixed assets (“immobilisations”), for example goodwill, buildings and machinery

Net Taxable Income (increase in a companies net worth from one financial year to the next)
In France, it is necessary to calculate the current year’s gross income inclding income from manufacturing, real estate, securities and interest on loans. Deductible expenses (expenses necessary for normal business operation or incured for the companies own interest) are set off against gross income.

Click here for the main categories of deductible expenses in France

Value Added Tax, “TVA”
In France, VAT charged to a company by its suppliers may be credited against VAT charged by the company to its clients. Currently, VAT in France is at 19.6%

Branch withholding tax
Permanent establishments in France of non-French companies must pay a branch withholding tax at 25% applicable to net after-tax profits. However, this tax may be reduced depending on whether the company has French resident shareholders or whether it distributes dividends that amount to less the net after-tax profits or if it does not distribute dividends at all within the 12 month period that follows the close of the financial year.

Transactions between related parties and branches
French tax law forbids the shifting of profits of French companies to affiliated foreign companies. French law prefers that such transactions should have similar characteristics to those of unrelated companies (an arm’s length transaction). In order to determine whether profit shifting has occured, French tax authorities reference that price with a price that would be found in an open market. It is therefore important that management service agreements and all other service agreements meet the conditions set out by the French tax authorities.
For any other questions involving taxation, please contact Thibault du Manoir de Juaye

Corporate Tax - Deductible expenses in France

DEDUCTIBLE EXPENSES IN FRANCE

1. Purchase of raw materials and other supplies,

2. Labour costs – salaries, fees, expenses, social security contributions applicable to the employer, expenses incured from employee benefit plans.

3. Taxes – non deductible taxes are the following: corporation tax, company car tax and dividend equalisation tax.

4. Interest and other financial charges – any interest accrued from debt financing is deductible. Interest paid by a corporation to its shareholders is subject to the following regulations:

• the maximum deductible interest rate is limited to a statutory rate, that of the anual yeild of bonds publicly issued by a company.
• Interest is only deductible once a companies share capital has been fully paid up
• For corporations not classed as “petits et moyens entreprises” interest paid to shareholders is only deductible if the total amount of loans supplied by the shareholders does not exceed 150% of the borrower’s issued share capital.

5. Business expenses – expenses of a luxury nature not incurred for legitimate business purposes are not tax deductible. Equally, reserves for potential charges or losses or depreciation of company cars are not tax deductible.

6. Depreciable assests are depreciated using one of the three following methods

• straight line method (dividing 100 by the number of years of useful life for a given asset)
• declining balance method (multiplying the rate obtained by the straight line method by a ratio which depends on the useful life of the given asset.)
• exceptional declaration (depreciation allowance of 50% of the cost of the given asset for the first financial year. Subsequent depreciation allowance is calculated using one of the above methods)

7. Reserves are deductible as long as they are likely to occur and have been recorded in the company’s books.

Corporate Tax - Deductible expenses in France