France

Last modified: 20/03/2024 14:43

Corporate taxation

	Rate
Corporate income tax rate	25
Branch tax rate	25
Capital gains tax rate	25

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Residence: A company incorporated in France is deemed to be tax resident (registered in France and/or effective place of business and management). A foreign company can be tax resident in France if it has a permanent establishment (PE) in France. A PE will be materialised in one of the three following situations: • Business activity conducted through an establishment (i.e. a fixed business installation operating with some degree of autonomy [e.g. a branch, sales office]). • Business conducted in France by a dependent agent. • Existence of a complete commercial cycle in France.

Basis: A resident company is subject to unlimited corporate income tax liability (corporate income tax) on its worldwide profits and gains, with the option to exclude profits and gains of foreign permanent establishments. Non-resident companies are subject to a limited corporate income tax liability, as only their French income are taxed.

Taxable income: With the exception of dividend and interest income, French and foreign companies are taxable only on income derived from French sources. However, French companies may be taxed on profits generated in tax-haven countries, through subsidiaries, under certain circumstances. Net taxable income is defined as the net profit derived from all operations of every kind carried out by a business, including capital gains from the transfer or sale of every type of asset. It may be arrived at by one of two ways. The first starts with the income statement and makes adjustments for non-taxable income and non-deductible expenditure. The second is a net-worth comparison method. It starts with the balance sheet and compares net worth at the beginning and end of the taxable period and adjusts for non-taxable increases in capital and non-deductible distributions to members. Very small enterprises may calculate their taxable income on the basis of simplified accounting rules. Such an enterprise is one that satisfies at least two of the following three criteria: • The balance-sheet total is less than EUR 4 million • The turnover is less than EUR 8 million • The average number of employees is fewer than 50

Significant local taxes on income: • The territorial economic contribution (Contribution Economique Territoriale or CET) is comprised of two different taxes: the companies’ land contribution (Cotisation Foncière des Entreprises or CFE) and the companies’ added value contribution (Cotisation sur la valeur ajoutée des entreprises or CVAE). The taxes have a similar scope but are subject to very different rules. o The CFE tax is based on the rental value of assets that are subject to the real estate tax, excluding movable goods and equipment. Each town set a specific rental value and each year an upgrading ratio is set forth at the national level. o The CVAE is based on a company’s added value. However, the finance law for 2023 abolishes the CVAE over two years from 2023. In practice, the CVAE rate is halved in 2023 before the tax disappears in 2024. • The property tax on built properties (TFPB) is due by the owner or usufruitier of a flat or house on the 1st January of the taxation year. There are permanent or temporary exemptions (subject to conditions ). • The property tax on unbuilt properties (TFPNB) is due by the owner or usufruitier a plot of land, on the 1to January of the taxation year. It is collected by the territorial authority (municipality or EPCI in whose territory the land is situated. There are permanent or temporary exemptions (subject to conditions).

Alternative minimum tax: No

Taxation of dividends: As a general principle, dividends received by a French-resident company, or the French branch of a non-resident company are subject to corporate income tax in full. However, for accounting periods beginning after 31 December 2015, following a decision of the court of justice of the European union in 2015, if the company or branch opts for the participation exemption, dividends received by it from an affiliated French or EEA company meeting the conditions that would be required of a resident company for consolidation in a tax group (see below) will qualify for 99% exemption from corporate income tax.

The remaining 1% is deemed to cover the administrative cost incurred by the shareholder for its shareholding and is treated as a non-deductible expense. For previous accounting periods, the add-back was 5%, as it still is where the distributing company is a non-EEA company.

The conditions for the application of the participation exemption are the same as those for capital gains (see under ‘participation exemption’ and ‘group relief’ below). The participation exemption does not apply to dividends from companies located in ‘tax havens’ (strictly speaking, ‘non-cooperative states and territories’). It should be noted that a recent legislative amendment now requires shares held in bare ownership (i.e. Shares the usufruct of which is held by a party other than the bare owner) to be taken into account when determining whether the 5% ownership threshold has been reached.

Capital gains: Capital gains are generally subject to corporate tax at the standard rate, but capital gains derived from the sale of qualifying shareholdings can benefit from the participation exemption (see below).

Losses: Losses may be carried forward indefinitely. However, the amount is limited to the first EUR 1,000,000 of profits and 50% of the profits in excess of EUR 1,000,000. There is also an option for corporate taxpayers, with certain restrictions, to carry losses back for 1 year to set them off against the previous year’s profits up to EUR 1 million, via a tax credit. The tax credit may be used during the following 5 years. A refund is issued the sixth year if the tax credit was not used within the 5 years.

Foreign tax relief: In general, income subject to foreign tax and not exempt from French tax under the territoriality principle is taxable. However, most tax treaties provide for a tax credit that generally corresponds to withholding taxes on passive income.

Participation exemption: A participation exemption on dividends applies where the recipient owns at least 5% of the shares of the distributing entity for at least 24 months. If the participation exemption applies, the dividends are 95% tax exempt. A participation exemption of 88% also applies to capital gains arising on the sale of shares that form part of a substantial investment if the shares have been held for at least 24 months.

Holding-company regime: See Above (participation exemption)

Tax-based incentives: Incentive programmes are available, for example : • R&D tax credit of 30% on qualifying research expenses up to EUR 100 million and 5% above this limit (provided certain criteria are met) • Tax reduction on charitable donations that amounts to 66% or even in certain cases to 75% of the payments, provided certain thresholds and criteria are met

Group relief/fiscal unity: France permits a group of companies to opt for consolidated taxation. Members of a group for this purpose consist of a French-resident company and its 95%-subsidiaries, i.e. Companies in which it directly or indirectly holds at least 95% of the share capital and voting rights. Subject to a minor exception, the parent company must not itself be a 95%-subsidiary of another French company but may be wholly foreign-owned. The requirement that the parent company be a French company has prevented French-resident subsidiaries of a foreign company (so-called ‘sister companies’) from forming a group for taxation purposes.

However, the court of justice of the European union has found, in the joined cases c-39/13, c-40/13 and c-41/13 (which concerned the Netherlands), that this type of rule is in breach of the right to free establishment guaranteed under the treaty on the functioning of the European union. Accordingly, the second amending finance bill 2014 contained legislation permitting ‘horizontal’ group taxation for such companies. With effect for accounting periods beginning after 31 December 2014, therefore, the previous requirement that the parent company be a French company, which prevented French-resident subsidiaries of a foreign company from forming a French group for tax purposes, has been dropped. Group taxation is thus now permitted between French-resident companies subject to French corporate tax and owned to the extent of at least 95% by an EEA-resident company directly or indirectly through foreign entities resident in the European union or European economic area.

The foreign parent must itself be subject to a corporate income tax that is comparable to the French corporate income tax. An election for group taxation is made for a minimum of five years if some of the tax advantage obtained is not to be clawed back. Not all eligible subsidiaries need to be included in the tax group. Once an election is effective, each group member must still compute its own taxable profit or loss, before a single consolidated tax return is filed for the group by the parent company, thus allowing for set-off of profits and losses, after eliminating certain intra-group transactions. Once a group member’s loss has been offset in this way, it may not be carried forward by that company. Losses incurred before a company becomes a group member may be set off against that company’s profits only.

Small company/alternative tax regimes: Corporate income tax rate: 25% (1) (2) Capital gains tax rate (withholding tax): 25% (1) a 15% rate is applied for business with income below 42 500 € (2) a 3.3% social surcharge applies to a standard corporate income tax liability exceeding EUR 763,000

Corporate taxation: compliance

Tax year: The tax year is usually the calendar year. A company may choose a different accounting period that deviates from the calendar year. The tax year is generally 12 months.

Consolidated returns: A group of companies may opt to consolidate profits and losses so that tax is assessed at the level of the parent company and only one single tax return is filed based on the group profit or loss (see above group relief). Only subsidiaries that are at least 95% owned, directly or indirectly, by the parent may be included in the tax group but must be subject to French corporate tax.

Filing and payment: For tax years that follow the calendar year (i.e. end on 31st December), annual tax returns must be filed electronically by end of April of the year following the relevant tax year. Payment of tax is made during the fiscal year by way of four instalments equal to 1/4 of the standard taxable income of the preceding year (i.e. by 15th march, 15th June, 15th September, and 15th December for fiscal years that end on 31 December). Regarding fiscal years that end on 31 December, the final payment is due on 15th April of the following year. For tax years that do not follow the calendar year, annual tax returns must be filed electronically at the latest three months following the end of the chosen tax year. In this case, the four instalments have to be paid on different months that those mentioned above.

Penalties: Late payments and late filing are subject to a 10% penalty in the absence of formal notice and 40% when the declaration has not been filed within 30 days of receipt of a formal notice. If additional tax is payable because of a reassessment of tax, interest is charged at 0,2% per month (2.4% per year). A penalty of 40% applies in case of bad faith and is increased to 80% in case of fraud.

Rulings: The French Tax Authorities can provide private ruling on certain issues (permanent establishment for foreign companies, transfer pricing, valuation, abuse of rights, R&D tax credit…).

Taxation of individuals

	Rate (revenues 2022)
Tax Bands (Euro)	Income Tax
0-10,777	0
10,778-27,478	11
27,479-78,570	30
78,571-168,994	41
168,995 and above	45

Residence: An individual is considered to be a tax resident of France if at least one of the following criteria below is met: • Place of residence or normal abode is in France • Professional activities are carried out in France • The centre of economic interest is in France.

Basis: All resident individuals are taxed on their worldwide income. Non-resident individuals are taxed (usually by withholding) on French-source income only.

Taxable income: Taxable income covers employment income, business income, real estate income, investment income and capital gains. The total income after deductions in each category, which may be further reduced by lump-sum deductions or, within limits, by actual payment for special expenses defined by tax law, represents the taxable income.

Capital gains: Capital gains from financial investments are subject to a flat tax rate of 30% that covers an income tax of 12.8% and a social contribution of 17.2%, with a possibility to opt for the progressive income tax scale. Capital gains from the disposal of immovable property are taxed at a special flat rate of 19%, plus special social security surcharges that may vary.

Deductions and allowances: Various deductions may apply, notably regarding employment (commuting, meals, professional documentation…), personal deductions (limited tax credit available for certain expenses, general deductions for child support and alimony payments) and personal allowances (total taxable income is divided into the number of shares that reflects the taxpayer’s marital status and the number of dependants).

Foreign tax relief: French domestic law does not provide for a credit for foreign taxes but if a double tax treaty is applicable, double taxation is usually avoided by exempting the foreign income with a tax credit.

Taxation of individuals: compliance

Tax year: The French tax years runs from the 1st of January to 31st December (i.e. the calendar year).

Filing and payment: A pay as you earn system applies, under which tax is withheld at source by employers from employee’s remuneration, including pensions and replacement income. However, individuals must still file an income tax return, generally by 31st may after the end of the tax year . Individuals which are not employees (e.g. liberal professions) pay a monthly or quarterly instalment.

Penalties: Late payments and late filing are subject to a 10% penalty in the absence of formal notice and 40% when the declaration has not been filed within 30 days of receipt of a formal notice. If additional tax is payable because of a reassessment of tax, interest is charged at 0,2% per month (2.4% per year). A penalty of 40% applies in case of bad faith and is increased to 80% in case of fraud.

Rulings: See above under ‘corporate taxation’

Withholding taxes

Type of Payment	Resident recipients		Non-residents recipients
	Company	Individual	Company	Individual
	Rate (%)	Rate (%)	Rate (%)	Rate (%)
Dividends	0	0	25	25
Interest	0	0	0	0
Royalties	0	0	25	25
Fees for technical services	0	0	25	25

Branch remittance tax: After-tax profits of a French branch of a foreign company are deemed to be distributed to non-residents and are subject to a 25% branch tax. However, since 2020, the branch can prove that the profits are not invested elsewhere but that they stay in France. The presumption is therefore no longer irrefutable, and companies can ask for a refund of the branch remittance tax. Tax treaties may reduce or eliminate this tax, the latter being not due if the foreign company is located in another EU member state or a member state of the European economic area.

Anti-avoidance legislation

Transfer pricing: Transfer pricing is now one of the most important issues for multinational companies with cross-border group transactions. The tax authorities have the power to adjust for transactions between related parties that are not at arm’s length rates. French entities controlled by, or controlling, entities established outside France are taxable in France on any profits transferred directly or indirectly to the entity located abroad through an increase or decrease in purchase or sale prices or by any other means.

In France, documentation rules generally follow the OECD guidelines, but require more detailed documentation and are more specific. Large enterprises are required to submit abridged versions of their transfer-pricing documentation annually, within six months of the due date for the corporate tax return. Failure to do so may result in a penalty of the greater of EUR 10 000 and 5% of the adjusted profits (or 0.5% of the amount of the transactions concerned by the documents or supplements which have not been made available to the administration after formal notice (whether or not there is a correction)). It is possible for taxpayers to obtain advance pricing agreements.

Interest restriction: Interest deduction limitations rules apply in line with the EU anti-tax avoidance directive (ATAD 1). The net financial expenses incurred in a given year are deductible only if they do not exceed the higher of the two following threshold: • EUR 3 million. • 30% of the adjusted taxable income of the taxpayer (i.e., Ebitda). Where a company is thinly capitalized (i.e., the debt-to-equity ratio is greater than 1.5:1), these limits are reduced to 1 million euros or 10% of adjusted taxable income.

Non-deductible interest may be carried forward with no time limit. Unused deduction capacity may also be carried forward for 5 years. In addition, the deduction of interest payments is limited to interest paid at a rate not exceeding the average annual interest rate applied by financial institutions to variable rate loans to companies with a term of more than two years (as an example, the interest rate published by the Bank of France for companies that close their tax year on December 31, 2022 is 2.21%). Different rules apply when dealing with a group tax consolidation.

Controlled foreign companies: France has CFC rules, under which the profits of a controlled company resident in a low-tax jurisdiction may be attributed pro rata to and taxable on its French-resident corporate shareholders. The rules apply to French-resident companies that have a direct or indirect holding of more than 50% in a foreign company or permanent establishment incorporated or resident in a jurisdiction in which the effective rate of corporate tax is at least 40% less than that in France.

However, an interest of as little as 5% in the foreign entity may be sufficient to bring the CFC rules into play where more than 50% of the shares in that entity are directly or indirectly held by French or foreign entities directly or indirectly controlled by a French company, and those companies are shown to be acting in concert. The attribution under the CFC rules of the profits of a foreign permanent establishment are an exception to the territoriality principle of taxation. Such attributed profits are regarded as business profits.

Thus, where the foreign jurisdiction concerned has a double tax treaty with France, the attributed profits are taxable in France only where the treaty expressly allows France to apply its CFC legislation or relief from double taxation is granted by the credit method. Attributed CFC profits from a legal entity are treated by the French tax authorities as ‘other income’ in respect of France’s tax treaties so taxable only in the state of residence of the recipient (i.e., France). The CFC rules do not apply to entities within the European union unless they are judged to be purely artificial and established for the sole purpose of avoiding French tax. They also do not apply if it can be demonstrated that the entity is primarily engaged in commercial or industrial activities and its main purpose is not tax driven.

Hybrid mismatches: As from January 1, 2020, France has implemented the EU directive “ATAD 2” on hybrid mismatches which aims at neutralizing the effects of arrangements that exploit differences in the tax treatment of an entity or instrument under the laws of two or more countries resulting in a deduction without inclusion or in a double deduction without compensation of this mismatch effect by a dual inclusion.

The neutralization of the effect of the arrangement generally results in the denial of the tax deduction of the expense incurred in France. Safe harbour clauses apply under certain conditions.

Disclosure requirements: • The DAC6 declaration is aimed at declaring potentially tax-aggressive cross-border devices containing certain characteristics . • Dividends, interest, royalties, and payments for services made to companies located in a noncooperative country may be subject to a 75% withholding tax. Rules regarding participation exemption cannot be applied for dividends received from entities located in noncooperative countries. In addition, the Court of Justice of the European Union (December 8, 2022, case C-694/20) has just ruled that the obligation imposed on the lawyer, as provided for in Article 8 bis ter paragraph 5 of the Directive, to inform the other intermediaries involved is not necessary and violates the right to respect for communications with his client. This decision should therefore also be taken into account by the national courts/French legislator. In this context, a lawyer, not released from his professional secrecy by his client, cannot be criticized for not having notified another intermediary of his obligation to declare.

Exit taxes: Individuals who transfer their tax residence outside of France, and who had their tax domicile in France for six years during the ten years before the transfer, are taxed on the unrealized capital gains on shares and rights held directly by tax household member when these rights either exceed 50% of the shareholding or represent a total value exceeding EUR 800,000. Any tax due on the unrealised gains must be paid within two months following the transfer, either in full or in five equal annual instalments.

General anti-avoidance rule: • Exclusive tax purpose: French tax authorities are entitled to disregard, as not being enforceable against it, acts that constitute an abuse of law (i) either because these acts are fictitious, or (ii) because, by seeking to benefit from a literal application of the laws or decisions against the objectives sought by their authors, these acts could not have been inspired by any other purpose than avoiding or mitigating the tax burden that the party concerned would normally have borne, given its actual situation or activities, had these acts not been executed or committed. • Principal tax purpose: French tax authorities may disregard an arrangement or series of arrangements put into place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the object or purpose of French tax law and which is not genuine (i.e., does not rely on an economic rationale).

Digital services tax and Other significant anti-avoidance legislation: A DST was introduced by Law 2019-759 of 24 July 2019, with effect from 1 January 2019. The DST applies to resident and non-resident companies with a worldwide turnover (at a consolidated level) exceeding EUR 750 million and a French turnover exceeding EUR 25 million. The rate of the tax is 3%. The tax applies retroactively with effect from 1 January 2019 and until an agreement on the taxation of the digital economy is concluded at OECD level.

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Value-added tax/Goods and services tax

Type of tax: Value-added tax (VAT) on EU model. VAT applies to supplies of most goods and services and to imports. There is a broad range of exempt supplies.

Standard rate: 20%

Reduced rates: 10%, 5.5% or 2.1%

Registration: When the gross taxable turnover of a business supplying services does not exceed: • EUR 34 400 for businesses supplying services (other than those mentioned below) or • EUR 85 800 for businesses supplying goods or accommodation or food for consumption on the premises in the previous year, the business is not required to register for VAT and is consequently not obliged to charge VAT or file VAT returns. Nor may it, therefore, deduct input VAT. This exemption scheme is voluntary, in the sense that such businesses may nevertheless register if they choose to do so. The registration threshold for distance sales (mail-order and other supplies to French end-consumers from outside France) is EUR 10 000 . There is a zero threshold for non-established businesses, so a business from outside France making a supply taxable in France is obliged to register for French VAT immediately, no matter what the value of the supply unless the reverse charge system (with the recipient of the supply being obliged to account for VAT on the supply) is applicable.

Filing and payment: VAT can be reported and paid monthly, quarterly, or annually depending on different factors. VAT grouping will be implemented in France for the first time starting January 1st, 2023.

Social security contributions

For the employee social security contributions and surcharges are deducted at source from salary payments and are approximately 20% of the gross pay.

For the employer, the rate varies greatly. Depending on the size, the type of business and location it can reach 50% of the gross pay.

Self-employed

Self-employed workers’ social security contributions are calculated based on their self-employed, non-agricultural earnings that are taken into account for their income tax calculation. These contributions are paid to the general security system (“Urssaf”) or to career-specific funds.

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Other taxes

Capital duty: N/A

Immovable property taxes: Capital gains from the disposal of immovable property are taxed at a special flat rate of 19%, plus special social security surcharges (with a number of tax exemptions apply, e.g. principal residence exemption, specific holding period).

Transfer tax: • The sale of real property is subject to a transfer tax at a maximum rate of 5.8% • The sale of shares of an SARL or SNC is subject to a transfer tax equal to 3% of the sale price, minus a rebate depending on the number of shares sold. • The sale of shares of an SA, SAS or SCA is subject to a flat rate of 0.1%

Stamp duty: Stamp duties must be paid in order to obtain administrative documents, for example residence permits or registration certificates for cars. The sale of goodwill is also subject to stamp duty, with progressive rates from 0%, 3% and 5%.

Net wealth/worth tax: Households pay wealth tax on real estate assets only if the net worth of their real estate exceeds EUR 1.3 million. Rates are progressive, ranging from 0.5% to 1.5% (one is subject to tax when the net worth of the real estate is EUR 1.3 million but the rate starts at EUR 800 000): Net taxable asset value (eur) Rate of tax (%) Up to 800,000 : 0% Between 800,001 and 1,300,000: 0.50% Between 1,300,001 and 2,570,000 : 0.70% Between 2 570 001 and 5 000 000 : 1.00% Between 5 000 001 and 10 000 000 : 1.25% Beyond 10 000 000 : 1.50 %

Inheritance/gift taxes: No inheritance tax is due for inheritance between spouses. Progressive tax rates are applicable (from 5% to 45%) after a rebate of EUR 100,000 when beneficiaries are direct dependants. Between non-related parties, the rate is 60% after an allowance of EUR 1,594 granted to each beneficiary.

Other: Property tax: Local authorities impose an annual property tax on the owners of both developed and undeveloped immovable property located in their area on 1 January of the tax year. The property tax applies on the notional rental value of the property. Developed immovable property is taxed only on 50% of this value (50% allowance) whereas undeveloped immovable property benefits only of a 20% allowance on this value. The tax rate applying on this basis is set by the local authority. Newly developed properties may benefit from a 2-year exemption from the beginning of the year following the end of the works. Custom duties: customs duties are levied under a common system on imports into the EU and the rates depend on various criteria.

Tax treaties

France has one of the most extensive tax treaty networks in the world with around 120 tax treaties.