Corporate tax
The corporate tax (IS) is a tax applied to profits made by companies in France. The IS rate is 25% for fiscal years starting from January 1, 2022.
Summary
However, there is a reduced rate of 15% for companies with a turnover less than or equal to 10 million euros and profits below 42,500 euros.
Who is concerned by IS?
- Capital companies (SA, SAS, SARL...): They are subject to IS by default.
- Other legal entities: Groups, foundations, and profit-making associations are also subject to IS.
- Partnerships (SARL U, EURL, SNC, GAEC, EARL...): They can opt for IS at any time. Otherwise, they are considered fiscally transparent and their partners are taxed on their share of the result under personal income tax.
- Sole proprietorships (EI): They can also opt for IS since 2022.
How does IS work?
- The tax is paid directly by the company itself.
- If the company distributes dividends, these will also be taxed at the shareholder level.
- Individual shareholders can choose to be taxed on their dividends under the flat tax (PFU) of 30% or under the progressive personal income tax scale.
- Taxation under the progressive scale allows benefiting from a 40% allowance on dividends and deducting the CSG.
Key points to remember:
- The reduced IS rate of 15% can be advantageous for business owners who would be taxed at a higher rate under personal income tax.
- Business owners may consider splitting their activities to benefit from IS taxation on one side and personal income tax on the other.
For further reading:
- You can consult article 205 and following of the General Tax Code.
- The BOI-IS on the tax authority's website provides detailed information on IS.
- You can contact a specialized advisor at your chambre d'agriculture for more information.
Context
Corporate tax (IS) concerns all profits or income made by companies. The company is taxed in its own name. Shareholders are only taxable if the company distributes dividends or pays its executives. Depending on the company form, profits are taxed by default under IS or optionally.
By exception, some company forms are fiscally transparent and not subject to IS; the shareholders pay their share of tax under their personal income tax.
Scope
Territoriality
A company is taxable under IS on its profits only if it operates in France, if it carries out habitual activity in France.
Legal entities subject by default
Capital companies are subject to IS by default, from their creation:
- SA, public limited companies
- SAS, simplified joint-stock companies
- Partnerships limited by shares
- SARL, limited liability companies
IS also concerns other taxable legal entities, such as groups, foundations, profit-making associations. But non-profit organizations are exempt from commercial taxes (IS, VAT, CET) when income from their ancillary profit-making activities does not exceed €76,679 for fiscal year 2023.
Legal entities subject optionally
May be subject to IS optionally at any time:
- SARL U, single-member and EURL, single-member limited liability companies
- SNC, general partnerships
- Civil companies such as GAEC, EARL, SCEA, SCI, GFA, GFR, GF…
These companies are generally considered fiscally transparent. Their result is taxed under IRPP (personal income tax) in the name of each partner according to their participation. But the company can opt for IS.
Sole proprietorships subject optionally
Since 2022, a sole proprietorship can also be subject to corporate tax optionally (NB: the EIRL status no longer exists since February 2022).
NB: The option is now reversible. Renunciation of the option can occur after 5 fiscal years under the IS regime. This renunciation will then be definitive and will entail the consequences of a fiscal cessation of activity under IS.
Principles
Taxable profit
The company is taxable on profits made in France during the fiscal year.
Normal corporate tax rate
The normal corporate tax rate, absent specific provisions, is set by article 219 of the CGI. The corporate tax rate is 25% for fiscal years starting from January 1, 2022 (for reference: it was 28% and 26.5% for fiscal years starting January 1, 2020 and January 1, 2021 respectively, and previously 33⅓%).
The corporate tax rate is:
| Profits between | Turnover ≤ €10M | Turnover > €10M |
|---|---|---|
| Between €0 and €42,500 (1) | 15% | 25% |
| Above €42,500 | 25% | 25% |
(1) The ceiling of €42,500 (previously €38,120) applies for taxation of results for fiscal years closed from December 31, 2022, subject to conditions to benefit from the reduced rate (notably full payment of share capital).
Corporate tax due at the normal rate is calculated by applying this rate to the taxable profit rounded to the nearest euro without any base allowance or discount for low tax amounts.
Taxation of dividend distribution
After paying corporate tax (IS), companies have two options for the allocation of the remaining balance: retain it as reserves or distribute it to shareholders as dividends.
The distributable profit consists of the fiscal year profit minus previous losses and amounts to be reserved (legal or statutory) and increased, if applicable, by retained earnings. The general meeting of shareholders meets once a year to approve the accounts of the past fiscal year and decide on the allocation of the result. It may decide to pay dividends to shareholders in proportion to their capital participation or according to another distribution key provided by the statutes. The tax due differs depending on whether the shareholders receiving dividends are individuals or legal entities.
Individual shareholders have two options for taxing their dividends: the flat tax (PFU) or taxation under the progressive scale of personal income tax (IR).
The PFU, also called flat tax, has been in effect since 2018. Its flat rate is 30% (including tax and social contributions). Although PFU applies by default, individual shareholders can opt for taxation of their dividends under the progressive personal income tax scale.
To do so, the taxpayer must check box 2OP when completing the income tax return the year following the distribution of profits by the company.
This taxation allows benefiting from several advantages to reduce tax burden:
- Benefit from a 40% allowance on the amount of dividends received;
- Deduct the CSG at 6.8% of income;
- Take into account expenses incurred for acquisition and holding of shares, such as custody fees.
Note: Social regime of dividends
In addition to social contributions, dividends received by self-employed executives are subject to social security contributions on the portion exceeding 10% of share capital, share premiums, and current account advances held by the shareholder.
References
La version initiale de cet article a été rédigée par Aurélie Brunet.
Article 205 and following of the General Tax Code
Pursuant to article 205 of the General Tax Code (CGI), corporate tax is established on all profits or income made by companies and other legal entities designated in article 206 of the CGI.
with 12 divisions:
- scope and territoriality (division CHAMP, BOI-IS-CHAMP);
- tax base (division BASE, BOI-IS-BASE);
- deficits and long-term net capital losses (division DEF, BOI-IS-DEF);
- liquidation and rates (division LIQ, BOI-IS-LIQ);
- reductions and tax credits (division RICI, BOI-IS-RICI);
- declaration and payment obligations (division DECLA, BOI-IS-DECLA);
- contributions and taxes related to IS (division AUT, BOI-IS-AUT);
- collection, control and litigation (division PROCD, BOI-IS-PROCD);
- territorial and sectoral regimes (division GEO, BOI-IS-GEO);
- transfer, cessation, transformation of companies, transfer of headquarters and related operations (division CESS, BOI-IS-CESS);
- mergers and related operations (division FUS, BOI-IS-FUS);
- tax regime of corporate groups (division GPE, BOI-IS-GPE).
__FORCERSOMMAIRE__
