Easy Guide to French corporation tax
What income is taxable?
Companies liable to corporation tax must pay this tax based on a taxable income. Taxable income is calculated during the preparation of the tax return (sheet number 2058) and is equal to the net accounting result and non-deductible expenses minus non-taxable revenue.
Taxable income is not the same as the net accounting result (accounting result before tax – (Tax result x tax rate)).
- Taxable income = Net accounting result + non-deductible expenses – non-taxable revenue
- Corporation tax = Taxable income x tax rate
Non-deductible costs and expenses
These represent costs and expenses excluded for tax purposes because they are not in the direct interest of the business and are not connected with the normal operations of the company.
The non-deductible costs and expenses are reintegrated into the accounting result (non-exhaustive list):
- Corporation tax itself is not deductible
- Tax on company cars (TVS)
- Only for touring cars, the amortization, leasing and rental of the car are subject to adjustments to calculate the taxable income. In fact, according to the cost of the car, its CO2 emissions, and its year of purchase, a part of amortization or a part of leasing cost is reintegrated.
- Write-offs of a financial nature and non-commercial receivables are non-deductible expenses (renouncing a loan or current account with a subsidiary)
- Fines or penalties paid by the company
- Donations to public interest organizations or recognized as being in the public interest are not deductible because they already benefit from a tax reduction of 60% of the value of the donation attributable to the amount of the corporation tax
- Provision for retirement benefits
- Unrealized foreign exchange gains on foreign currency transactions are taxable and must be reinstated. In French GAAP the unrealized foreign exchange gains are not recorded but they must be taxed so they are reintegrated
Non taxable revenue
They concern products, which benefit from a preferential regime or sometimes a spreading of taxation. They are therefore deducted from the accounting result.
These main products reintegrated into accounting result (non-exhaustive list):
- The French parent which receives dividends from French or foreign affiliates can be excluded if the French parent companies hold at least 5% of the share capital from their taxable profit, except for a portion of costs and expenses equal to 5% (or 1% for members of a corporate group) of the total amount of income.
- Reversal of provisions that were non-deductible
- Long-term capital gains are taxed separately at the reduced rates of 0% ,15% or 19%, so it is necessary to reintegrate them
The temporary differences
The temporary differences are another type of difference between accounting result and taxable income. This is an expense that has been booked in the accounts, but not yet recognized for taxable income. As a result, the charge is reinstated in the first year and deducted the next year.
The main accounting expenses concerned by temporary difference (non-exhaustive list):
- Employee profit sharing
- Corporate social solidarity contribution (C3S)
- Provision for paid holidays
After these adjustments, the taxable income may show:
- Either a profit, on which any deficit will be used to calculate corporate income tax
- Or a loss: the deficit may:
- Either be set off against any profits for subsequent years, up to a limit of €1 million, plus 50% of the amount of profit over and above this limit
- On the other hand, under certain conditions, a carry back which represents an expense for the next year up to a limit of €1 million.