What are the tax burdens for companies in France?
In addition to social security contributions, several taxes apply to companies in France. Some of these are proportional to the profits made, while others are calculated on a flat-rate basis. There are also more favourable and very competitive tax brackets for small and medium-sized companies with low turnover.
Determining the tax rate and tax base applicable to your business activity is therefore essential for estimating the taxation of your business or trading company.
How to evaluate more precisely the tax charges linked to a project to set up a business? What services, organisations and firms can assist companies in specific cases of exemption requests? Here is a complete overview with Dunkerque Promotion, the economic development agency for the Maritime Flanders and Hauts-de-France region.
Taxation on profits: It or CT?
All professionals in France are subject to taxation on their profits. However, depending on the status you choose for your business and the nature of your income, you may be subject to either income tax (IR) or corporation tax (CT).
income tax (IT)
Income tax applies by default to the micro enterprise, the sole proprietorship and the EURL. An option is possible for the IS in the last two cases.
The tax base for income tax can be determined in two main ways, depending on the company’s tax regime.
Under the micro-tax regime (reserved for micro-businesses and sole proprietorships not exceeding a turnover ceiling), a flat-rate allowance is applied to take account of all charges. This allowance amounts to :
- 71% of turnover for the activities of purchase-resale or provision of accommodation;
- 50% of the turnover for other activities covered by industrial and commercial profits (ICP);
- 34% of turnover for non-commercial activities (NCA).
If two of these activities are carried out, these figures are applied pro rata.
Under the actual system (compulsory above a certain turnover limit, optional below), no deduction is made. The entrepreneur must include all deductible expenses in his tax return.
Whether the entrepreneur falls under the micro-tax or real regime, the profit is then included in the income of his tax household. It is taxed at the marginal rate applicable according to the other income of the household. As a reminder, the 2021 income tax brackets are as follows:
- 0% up to an annual income of €10,225 per tax unit;
- 11% for the portion of income between €10,226 and €26,070;
- 30% for the part of the income between 26 071 and 74 545 €;
- 41% for the part of the income between 74 546 and 160 336 €;
- 45% for the portion of income exceeding €160,336 per tax unit.
Corporate income tax (CIT)
Corporate income tax is automatically applied to companies with the legal status of a commercial company (limited liability company, simplified joint stock company, public limited company, etc). Some SARLs or SASs may, however, be subject to corporate income tax by option. The profit, as with the actual IR system, is calculated after deduction of expenses.
Directors and partners are only taxed personally on the basis of the remuneration and dividends paid by the company.
From the financial year 2022, the standard rate of corporation tax is reduced to 25% for all companies. A reduced rate of 15% will continue to apply only to the profit bracket below €38,120, where the company’s annual turnover is below €10 million.
Value Added Tax (VAT): several regimes applicable
VAT has the particularity of being a tax collected by businesses from their customers on behalf of the State. After deduction of the VAT paid by the company itself, the sums collected are regularly paid back to the Treasury, according to procedures that may vary according to the applicable regime.
- The basic exemption scheme allows a micro-entrepreneur not to charge VAT to his customers. In return, they cannot recover it either. Eligible individual entrepreneurs must declare a turnover of less than €85,800 in 2022 for purchase-resale activities and €34,400 for service provision activities.
- The micro-ICP and micro-NCA regimes concern companies with a turnover of less than €72,600 for the provision of services or €176,200 for purchase-resale activities. They allow for the payment of a quarterly instalment, followed by an annual regulation.
- The simplified actual regime applies by default to companies with a turnover of between €176,200 and €818,000 for purchase-resale activities, and €72,600 to €247,000 for the provision of services (or by option below these thresholds). This scheme also provides for a quarterly instalment, followed by an annual adjustment.
- The normal actual regime applies by default for companies with a higher turnover. In this case, a monthly return must be filed.
If two activities are carried out, i.e. under two different regimes, the calculations are to be made on a pro rata basis.
Business property tax: how much?
The CFE rate is set by the municipality where the business premises are located. Its amount therefore varies not only according to the surface area to be taxed, but also according to the competent authority.
In all cases, a minimum CFE applies. At the beginning of 2022, this contribution can be between € 224 and € 6,942.
Territorial economic contribution (TEC): a local tax
The territorial economic contribution (TEC) includes both :
- Business property tax (BPT);
- The contribution on the value added of enterprises (CVAE).
The CFE concerns all companies (except for the first year of a micro-enterprise with a turnover of less than €5,000). The tax is based on the rental value of all the company’s professional assets. It can also be applied to a private home if the entrepreneur uses it to carry out his activity.
The CVAE is paid only by companies whose turnover exceeds €500,000. However, all companies are obliged to declare the tax if their annual turnover exceeds €152,500. Its rate is set at 0.75% of turnover. A CVAE rebate is possible if the company’s turnover is less than €50 million.
Tax burdens: what support for companies?
The Directorate General of Public Finances (DGFiP) offers a tax support scheme to all SMEs with fewer than 250 employees who request it and whose annual turnover is less than EUR 50 million or whose balance sheet does not exceed EUR 43 million.
The support enables the company to benefit from a contact person designated by the tax authorities. He helps the company to identify its rights and obligations in tax matters, and can secure the relationship by providing a rescript on a specific question.
The other common solution is to use a company tax consultancy, which will also help to optimise the overall amount of tax to be paid. It is a useful tool for taking advantage of various tax niches such as :
- The research tax credit, which allows a company to deduct up to 30% of its research and development expenditure from its taxable income;
- The profit-sharing tax credit, to deduct up to 30% of profit-sharing premiums paid to employees during the year;
- The apprenticeship tax credit, amounting to €1,600 per year for each apprentice employed in the company.
Have you considered a tax compliance review?
The Tax Compliance Review (TCR) is a business support scheme, available since January 2021. It allows any structure to commission a full tax audit from a provider who can be :
- An auditor;
- An accountant ;
- A tax lawyer ;
- A management and accounting association;
- An approved management body.
A compliance review provides security for the company in its relations with the tax authorities.
Would you like to have a better overview of company taxation before setting up a business? Dunkerque Promotion is a leading economic development agency in the Hauts-de-France and Maritime Flanders region.
The agency can help you study your development project, the establishment of a company or an investment near Dunkirk. We can put you in touch with partner firms and organisations for tax advice.
The three key points to remember:
- Depending on its legal status, a company may be subject to income tax or corporation tax on its profits.
- With some exceptions, it is also subject to the recovery and repayment of VAT, as well as the payment of local taxes.
- French tax legislation includes a large number of tax reduction or exemption schemes. Contact a specialist to find out if you are eligible and benefit from them!
Article written in collaboration with KPMG and KPMG Avocats.