Corporate Tax 2024 Comparisons

There are two main groups of companies in France:

• limited companies (ie, simplified limited liability companies (sociétés par actions simplifiées; SAS), private limited liability companies (sociétés à responsabilité limitée; SARL), public limited companies (sociétés anonymes; SA); and
• partnerships (sociétés en nom collectif, sociétés civiles and sociétés en commandite simple).

Limited companies are subject to corporate income tax (CIT) as separate legal entities, while partnerships are pass-through entities (the tax is calculated at the level of the company but is effectively paid by the shareholders).

Please note that specific structures, such as sole proprietorship (entreprise individuelle),may exist for taxpayers with limited activity.

Sociétés civiles and sociétés en nom collectif are commonly used for property investments. However, depending on the type of rentals, sociétés civiles may be subject to CIT. Such companies may also be incorporated as an alternative to the French tax consolidation regime (régime de l’intégration fiscale) provided for by Article 223 A of the French Tax Code.

The entities commonly adopted for private equity or venture capital firms are fonds de placement en capital investissement (FPCI), fonds commun de placement à risque (FCPR), société de capital-risque (SCR) and sociétés de libre partenariat (SLP), which are not subject to CIT per se.

Usually, the effective place of management and/or the place where the company is liable to tax determine its tax residency. There are no special rules in France governing the tax residency of transparent entities; their tax residency depends on the place where they are effectively managed.

French-resident companies are subject to CIT at a rate of 25%. However, for companies that can qualify as small to medium-sized enterprises, a reduced corporate tax rate of 15% will apply up to the first EUR42,500 of profits. French companies whose CIT liability (standard rate and reduced rate if applicable) exceeds EUR763,000 are also subject to a social surcharge of 3.3% levied on the part of CIT that exceeds EUR763,000.

Shareholders of transparent entities are personally liable to tax on their share of profits – either to personal income tax (individual or company) or to CIT.

When the shareholder is an individual, its profits will be subject to progressive income tax (maximum rate of 45% plus social contributions). The rules applicable for the determination of the amount of taxable profit will depend on the activity of the individual.

The taxable basis corresponds to accounting profits adjusted by tax rules (ie, the non-deductibility of CIT, limitation of deductibility of financial charges as the case may be, partial exemption of taxation of dividends/capital gains subject to certain conditions, etc). In principle, only justified expenses incurred during the relevant tax year and incurred in the direct interest of the company can be tax deducted.

Profits of a corporate entity are tax on an accruals basis.

French companies may benefit from research tax credits, innovative tax credits and tax credits for expenses invoiced by research and knowledge dissemination organisations.

France has also implemented an optional intellectual property (IP) box regime (patent box), which is a preferential tax regime on income from the exploitation of IP assets. Subject to conditions, net income from licences and sales of patents, software and similar intangible assets is subject to a preferential CIT rate of 10% instead of the standard rate of 25%.

There are special incentives for real estate investment entities (sociétés d'investissements immobiliers cotées(SIIC) or société à prépondérance immobilière à capital variable (SPPICAV)), venture capital investment companies (sociétés de capital-risque; SCR) and young innovative enterprises (jeunes entreprises innovantes), which can be exempted from CIT (fully or partially).

Carried-forward losses incurred during a financial year may be deducted from the profits of subsequent financial years without any time limit. There is no need to request carry forward: this system is applied automatically to a loss-making income statement when the income tax return is filed.

There is a ceiling on the amount of the loss that can be carried forward to the following year. It is limited to EUR1 million per year plus 50% of the fraction of the profit in excess of this ceiling.

When the short-term or long-term regimes apply to the sale of the company’s assets, income losses or long-term capital losses could be offset against short-term capital gains/long-term capital gains subject to specific limitations.

In France, complex rules limiting the deductibility of interest payments made by a French borrower to its shareholder or any related party apply.

Interest paid by a company to its direct shareholder is limited to the rate set forth under Article 39-1-3° of the French Tax Code. For FY23, the rate was 5.57%.

For loans granted by related parties, the foregoing rate applies, or a higher rate that the debtor could have obtained from independent financial establishments under similar conditions (in such a case, the maximum allowed interest rate corresponds to the arm’s length interest rate).

Moreover, companies subject to CIT that do not belong to a French tax consolidation group may deduct their net financial expenses only up to 30% of their earnings before interest, taxes, depreciation and amortisation (tax-adjusted EBITDA) or EUR3 million per fiscal year if higher. When the company belongs to a consolidated group, from an accounting perspective, it may benefit – under certain conditions – from an additional deduction (ie, a safeguard clause).

Finally, except in some specific cases, the amount of deductible interest is capped to 10% of prorated tax-adjusted EBITDA (in order to exclude debts to non-affiliated companies from the calculation) or EUR1 million prorated, whichever is higher if the company is thin-capitalised (where the average amount of related-party debt exceeds one and a half times the amount of its net equity). Safeguard clauses may also be applicable, allowing escape from such limitation.

Equivalent provisions exist for companies that are members of a French tax-consolidated group.

Specific limitations also apply to companies that are members of a tax-consolidated group (Charasse limitation). Non-deductible interest may be carried forward indefinitely.

French tax law provides for the possibility to set up a vertical or horizontal tax consolidation group. A tax consolidation group must be set up between companies subject to French CIT that open and close their financial years on the same dates and have a 12-month duration. The parent company has to hold, directly or indirectly, 95% of the share capital of the subsidiary, and the parent company must not hold, directly or indirectly, at least 95% of another company subject to French CIT. Elections must be held within specific deadlines.

When no tax consolidation group has been set up, only shareholders of partnerships that have generated losses can offset the share of loss corresponding to their interest in the partnership against their own taxable result subject to CIT (subject to restrictions).

Favourable tax treatments exist for capital gains deriving from the disposal of substantial participation.

The disposal of qualifying participation (as defined by French law) is exempt from capital gain tax, but a lump sum of 12% corresponding to costs and expenses has to be recaptured and taxed at a CIT rate of 25%, corresponding to an effective tax rate of 3%.

Specific provisions apply to capital gains resulting from the disposal of shares of listed real estate companies that have been held for more than two years (taxation at a rate of 19%).

Some exemptions also apply to the sale of venture capital investment entities complying with specific requirements and held for at least five years, and the disposal of certain intellectual rights can be taxed at a reduced rate of 10%.

Incorporated businesses can also be subject to stamp duties on transactions. Stamp duties are due on the transfer of shares and are payable by the buyer. Depending on the kind of shares sold, the applicable rate may vary from 0.1% to 5% (for real estate companies).

VAT (at a rate of 20%) could also be applicable depending on the type of assets sold.

An additional social security surtax of 3.3%, calculated based on the amount of CIT, may be due by companies with a CIT exceeding EUR763,000.

French companies may also be subject to the territorial economic contribution (which includes the business premises contribution (cotisation foncière des entreprises) and the business value-added contribution (contribution sur la valeur ajoutée des entreprises)) property tax and local taxes.

At the time of writing, over the last three months, the rate of incorporation of closely held local businesses operating in non-corporate form has been higher than the rate of incorporation of businesses operating in corporate form (the non-corporate form accounts for 62.4% of the incorporations in the last three months).

The taxation of dividend distributions by a company (at a global rate of 30%), in addition to taxation of the company’s income (at a rate of 25%), could prevent individual professionals from earning income at corporate rates.

The effective tax rate in case of distribution of all the company’s income would be 47.5%.

There is no rule that prevents closely held corporations from accumulating earnings for investment purposes.

Individuals are taxed on dividends at a flat rate of 30% (12.8% of income tax plus 17.2% of social contributions), or at the progressive income tax rate (maximum of 45%) with the application of a tax allowance of 40% – ie, 60% of the dividend may be taxed (plus a potential surtax of 3% or 4%).

Individuals who sell shares of a company are taxed at the flat rate of 30% (plus a potential surtax of 3% or 4%), although in some cases (for shares acquired before 2018) individuals can opt for taxation at the progressive income tax rate, in which case an allowance based on the length of time for which the shares have been held may apply.

The same tax regime described in the foregoing for the sale of shares in closely held corporations by individuals applies to the sale of shares in publicly traded corporations by individuals.

Interest

Any interest payment made by a French company to a foreign entity is exempt from any withholding tax unless the lender is established in a noncooperative state and territory (NCST) regarding the exchange of tax information. In such a case, a 75% withholding tax may apply subject to exceptions.

Dividends

Dividends distributed by French companies to non-resident shareholders are, in principle, subject to a withholding tax in France at a rate of 25% for companies and 12.8% for individuals.

The tax treaties concluded by France may reduce such rates.

Moreover, under the Parent-Subsidiary Directive, dividends distributed to an EU parent company may be exempt from French withholding tax if the recipient is subject to CIT and holds or commits to hold at least 10% of the subsidiary’s share capital for at least two years. The French parent subsidiary regime may be dismissed if it is used abusively (under anti-abuse provisions).

The withholding tax rate is increased to 75% for dividends paid to an entity established in an NCST.

Royalties

Under French tax law, a withholding tax of 25% may apply on outbound royalty payments. Tax treaties concluded by France may reduce this rate.

A 75% withholding tax may apply in case of payment of royalties to a company established in an NCST.

Luxembourg is often used by foreign investors to make investments in local corporate stock of debt.

Indeed, no substantial participation clause is provided in the tax treaty between France and Luxembourg regarding the disposal of shares held by Luxembourg companies. Moreover, Luxembourg thin capitalisation rules are softer.

French tax authorities closely scrutinise the use of treaty country entities by non-treaty country residents, especially when they suspect these entities are being used to avoid French taxation. French authorities typically challenge structures where a non-treaty country resident routes income or profits through an entity in a treaty country, claiming treaty benefits like reduced withholding taxes or exemptions.

The main concern is whether the treaty country entity has substantial activities or is merely a conduit with little to no economic substance. If the French authorities determine that the entity lacks genuine business operations and exists primarily to take advantage of the tax treaty, they may deny treaty benefits and apply domestic tax rules, leading to higher tax liabilities for the non-treaty resident.

Authorities often investigate whether the entity has a sufficient operational presence, such as employees, decision-making capabilities and risk-taking functions, in the treaty country. If these elements are missing, the French tax office may disregard the treaty entity and tax the income as if it were earned directly by the non-treaty resident.

To mitigate risks, companies need to demonstrate that their treaty-based structures are compliant with both local rules and international anti-abuse provisions, such as the OECD’s principal purpose test (PPT).

The biggest transfer pricing issues for inbound investors operating through a local corporation typically include the following.

• The determination of transfer pricing comparables, which consists of identifying appropriate comparables for setting arm’s length prices, is often difficult, especially in industries with few local comparables or in markets that differ significantly from global norms. This can lead to disputes over the appropriate profit levels for the local entity.
• French tax authorities closely scrutinise the allocation of profits between a local corporation and its foreign affiliates. Ensuring that the local entity receives an appropriate share of profits, based on its functions, risks and assets (functional analysis), is a key challenge. Authorities may question whether too much profit is being shifted to low-tax jurisdictions.
• There are transfer pricing documentation requirements that must be fulfilled, especially for companies whose turnover or total gross assets exceeds EUR150 million. For companies whose turnover or total gross assets are equal to or greater than EUR50 million, other limited documentation requirements are to be fulfilled. This documentation burden can be significant, and failure to meet local requirements may result in penalties or adjustments for companies.
• There are tax audits where authorities review intercompany transactions and may impose retroactive adjustments. This can lead to higher tax liabilities and disputes that may be costly to resolve.

Careful planning and alignment with local and international guidelines, such as OECD standards, are crucial to mitigate these risks.

French local tax authorities challenge the use of related-party limited risk distribution (LRD) arrangements, particularly when they suspect that these arrangements are being used to shift profits out of France to lower-tax jurisdictions. The French tax authorities scrutinise whether the local distributor, operating under a limited-risk framework, is receiving an appropriate return given its role, functions and risks (functional analysis).

LRD structures, where a French entity acts as a low-risk distributor for a foreign parent company, are often questioned when the profits attributed to the French entity are perceived as too low relative to its operational activities. The authorities analyse whether the limited-risk distributor is genuinely assuming limited risks and functions, and whether its profit margins align with market comparables. Permanent establishment issues may also arise for the principal. To mitigate challenges, companies must maintain robust documentation, demonstrating that the terms of the LRD arrangement meet the arm’s length principle and comply with both French and international standards.

In France, local transfer pricing rules largely align with OECD standards, but there are a few significant variations in enforcement and application. In this respect, French regulations mandate robust transfer pricing documentation, going beyond OECD guidelines. France has specific requirements for maintaining both master files and local files, which provide detailed information about the global group and the local entity’s activities. Non-compliance can result in substantial penalties, including a percentage of the adjusted taxable income. In addition, in the context of tax disputes, the French tax authorities often place a high burden of proof on the taxpayer to demonstrate that their transfer pricing complies with the arm’s length principle (Article 57 or 238 A of the Federal Trade Commission (FTC) Act). The penalties for non-compliance are more severe compared to OECD recommendations.

It should be noted that French authorities place particular emphasis on transactions involving intangible assets and those perceived as shifting profits to lower-tax jurisdictions. They scrutinise whether French entities receive an appropriate share of profits related to intangibles, often challenging structures that shift intangible-related profits offshore.

While France’s rules adhere closely to OECD guidelines, the enforcement is strict, with a strong focus on ensuring compliance and preventing tax avoidance.

In France, tax authorities have become increasingly aggressive in enforcing transfer pricing rules, particularly in recent years. They are proactive in auditing multinational companies, often using new information – such as data from automatic exchanges, whistle-blowers or new tax filings – to reopen earlier years for review. This retrospective approach allows authorities to adjust past assessments, leading to higher tax liabilities and penalties.

International transfer pricing disputes are frequently resolved through double tax treaties (DTTs) and the mutual agreement procedure (MAP), or under the arbitrary convention. French authorities generally accept the MAP process, as it helps resolve disputes related to double taxation. However, the process can be time-consuming, and France tends to be cautious, particularly if the dispute involves aggressive tax planning or profit-shifting schemes. MAP cases are becoming more common as the number of transfer pricing audits and disputes rises.

In France, compensating adjustments are allowed when a transfer pricing claim is settled. These adjustments help align the tax treatment of the concerned parties based on the final settlement to ensure consistency with arm’s length principles. There are often issues with the tax authorities involved in the transaction, and statute of limitation problems may arise.

Taxation is very similar between local branches and subsidiaries of non-local corporations. It should be noted that a local branch (which is part of a foreign entity) is typically taxed only on the income sourced from France and is considered as a permanent establishment benefiting from a DTT. Depending on the localisation of the parent company, a branch tax may be due on the distribution made to the parent company.

A local subsidiary is considered as a separate legal entity and is subject to taxation on its worldwide passive income provided France has the right to tax such income under relevant tax treaties (with the benefit of tax credits). Regarding its trading activity, a French subsidiary is subject to French corporate tax only on the profits attached to the activity performed in France.

Capital gains realised by non-residents on the sale of shares of a French company can be taxed in France if the seller (company or individual), together with his or her spouse and their ascendants and descendants, directly or indirectly holds more than 25% of the rights to the company’s profits at any time during the five years preceding the sale. Capital gains resulting from the sale of a predominantly French real estate entity pursuant to French tax law are also taxable in France.

The foregoing rules can be dismissed depending on the applicable DTT and the provisions on capital gains.

Tax (capital gain tax or stamp duties) could be due in France in case of transfer of shares of a foreign company directly or indirectly holding French property.

The margin realised by a foreign-owned local affiliate depends on the risks assumed. As an example, an affiliate acting as a distributor could realise a margin between 2% and 4%.

The service rendered by a non-local affiliate must be real and justified, and the management and administrative expenses must not be excessive in relation to the service rendered. Usually, a cost plus method is applied. The cost plus rate depends on the added value of the service rendered.

In some situations, the remuneration paid for services rendered by a company established in a low tax jurisdiction is not deductible from the taxable result of the local company.

Some constraints regarding the deductibility of interest exist for related parties, and anti-hybrid rules also exist. Moreover, net financial expenses can only be deducted up to 30% of the tax-adjusted EBITDA or EUR3 million per fiscal year if higher (for non-thin-capitalised companies). The rules applicable in this regard to thin-capitalised companies are more stringent.

No withholding tax is levied on interest paid from France unless this interest is excessive and a portion of it is recaptured on the occasion of a tax audit.

In France, pursuant to the territoriality principle, only profits realised by enterprises conducting business in France are liable to CIT.

All expenses that are not in the interest of the local corporation will be non-deductible. Moreover, expenses that are linked to a permanent establishment of the French company outside France shall not be taxable at the level of the French company.

A participation exemption regime (the so-called régime mère-fille) applies to dividends distributed by subsidiaries where at least 5% of their share capital is held by the parent company. Both the parent company and its subsidiary must be subject to CIT at the standard rate, and the parent company must keep the shares of the distributing company for at least two years (or commit to do so).

In this case, dividends are exempt from CIT but a lump-sum amount of 5% of the dividends distributed (including foreign tax credits), or 1% in certain specific cases, must be recaptured and is subject to the standard CIT rate of 25%. The effective CIT rate is therefore 1.25% (or 0.25% in certain cases).

Otherwise, dividends shall be taxable at the standard CIT rate of 25% (for FY24).

If intangibles developed by local corporations are used by non-local subsidiaries, a licence agreement will have to be concluded between the two entities.

The licence agreement will have to provide fair remuneration for the use of the intangible. The remuneration will be taxed in France at a rate of 25% or 10% (if, with regard to the intangibles used, the optional IP box regime can be applied).

The French Tax Code provides for controlled foreign company (CFC) legislation aimed at dissuading French companies from storing their profits in foreign subsidiaries benefitting from a privileged tax regime. Foreign entities that are tax exempt abroad, or that benefit from an effective corporate tax rate 40% lower than the effective French tax rate, are deemed to benefit from a privileged tax regime.

Subject to conditions and the application of French CFC rules, the profits of a foreign entity are subject to French CIT even though they are not distributed.

A safe harbour provision applies to entities established in the EU; in this case, the French tax authorities must prove that the foreign entity is an artificial scheme with a tax avoidance purpose.

When the entity is established outside the EU and benefits from a privileged tax regime, CFC rules will not apply if the French company is able to prove that the main purpose and effect of the establishment of the foreign entity is not to localise profits in a jurisdiction benefiting from a privileged tax regime.

The French parent company is deemed to receive fully taxable dividends from foreign subsidiaries in proportion to its participation in the latter or to direct profits from a foreign branch or establishment.

Safe harbour provisions exist in specific cases.

There is no specific rule with respect to the substance of non-local affiliates, but French tax authorities may try to challenge any abusive schemes based on the abuse of law principle.

Subject to the provisions of tax treaties, local corporations will be taxed on the sale of shares in non-local affiliates.

If the shares correspond to substantial participation, the disposal will be exempt from capital gains tax but a lump sum of 12% corresponding to costs and expenses has to be recaptured and taxed at a CIT rate of 25%, corresponding to an effective tax rate of 3%.

Otherwise, the capital gains linked to the sale will be taxed at a rate of 25%.

France continuously implements measures against tax avoidance, often through EU-driven reforms.

As an example, Article 57 of the French Tax Code provides that profits indirectly transferred abroad to controlled companies must be incorporated into the French company’s results.

Transfer pricing rules, based on the arm’s length principle and following the OECD guidelines, also apply in France.

Moreover, France has introduced anti-hybrid measures derived from the EU Anti-Tax Avoidance Directive (ATAD 2) of the OECD. These rules neutralise the asymmetrical tax effects (deduction/non-inclusion, double deduction) caused by certain so-called hybrid arrangements resulting from differences between French law and the law of other states in relation to the qualification of certain financial instruments and/or entities, or to the attribution of payments.

There is no regular routine audit cycle in France. In practice, French companies are audited every three or four years (more regularly with respect to large groups).

Most base erosion and profit shifting (BEPS) recommended changes have been implemented in the French law system.

VAT on customer digital services (Action 1) was already implemented in domestic law. Action 2 (regarding hybrids) has been implemented through domestic initiatives and European directives. The objectives of Action 3 in relation to CFC were already met by the existing CFC rules. ATAD I has been transposed in France in order to meet the objectives of Action 4 concerning interest deductions.

Concerning Action 5 against harmful tax practices, the OECD considers no harmful regime to exist. Also, in compliance with Action 5, France already exchanges information on tax rulings. The prevention of treaty abuse clause (Action 6) is implemented through a multilateral instrument (MLI). Permanent establishment status (Action 7) is implemented as part of the MLI. The objectives of Actions 8, 9, 10 and 13 concerning transfer pricing have been met. The objectives of Action 12 have also been met now that the DAC 6 directive has been transposed. Regarding the effective dispute resolution mechanism (Action 14), stage 2 thereof is being reviewed, and recommendations are being made. Finally, the BEPS MLI (Action 15) is in force.

The general attitude of the French government is to comply with the BEPS project.

France actively supports Pillar One. Pilar Two has been transposed and is in force.

France is very vigilant with regard to international taxation (tax evasion) and very attentive to the BEPS recommendations to avoid tax evasion.

France is pushing for the harmonisation of the corporate tax rate to 25%. France is not seeking to be aggressive, instead being in line with other European countries like Germany, Luxembourg and England. Generally, France does not intend to implement a highly competitive tax policy, except to attract newcomers moving to France or to favour certain regions or industries.

For France, it is important that BEPS rules apply. France has agreed on a 15% minimum CIT rate.

Provisions regarding research tax credit might be more vulnerable than other areas of the French tax regime insofar as it is highly supervised, and many conditions have to be met.

Research tax credit is often subject to a tax audit. There are no incentive rules in France that derogate from EU rules.

The anti-hybrid provisions (ATAD 2) apply to financial years beginning on or after 1 January 2020. From now on, tax deduction in France of the payments, charges and losses of companies will be refused in the presence of a hybrid arrangement.

France has a territorial tax regime with tailored interest deductibility restrictions.

The French CFC rules, which are an exception to the territoriality principle, are not considered potentially defective.

As a general rule, Article L64 of the French Tax Procedural Code (FTPC) provides for the abuse of law theory, which allows the French tax authorities to disregard fictitious acts and acts seeking the literal application of texts or decisions for the purpose of avoiding or reducing the amount of taxes that the taxpayer would have normally paid. In this respect, in case of the “abuse of law” qualification, a tax penalty ranging from 40% to 80% of the avoided taxes may apply.

This anti-avoidance rule is frequently used by the French tax authorities in the case of foreign holding companies in order to disregard them from a tax point of view, where the Finance Law of 2019 introduced a new anti-abuse mechanism equivalent to the common abuse of law procedure. According to this new mechanism, the French tax authorities would be entitled to deny, as not opposable, arrangements mainly motivated by tax considerations (and not exclusively as provided by Article L64 of the FTPC). At this stage, it cannot be entirely ruled out that the French tax authorities will try to make extensive use of this new anti-avoidance rule in the future.

Insofar as French transfer pricing rules already referred to the OECD guidelines, some actions of BEPS have already been implemented into French tax law (Actions 8 to 10 and 13 regarding transfer pricing documentation).

Taxation of profits from IP at the preferential corporate tax rate of 10% requires French companies to be very rigorous and to prepare specific documentation.

The principle of tax transparency is the cornerstone of a degree of tax equality between countries, and helps to avoid tax dumping to the detriment of countries such as France. In this sense, promoting tax transparency seems to the authors to be a good thing.

Nevertheless, in the firm’s view, particular care should be taken to ensure that the tax arrangements put in place to encourage greater tax transparency (such as country-by-country reporting (CBCR), for example – a direct application) do not result in an excessive administrative burden on companies, and the costs of implementation should also be considered.

In France, a tax on digital services has been introduced. The tax on digital services is a contribution payable by digital companies carrying out three types of activities in France: targeted online advertising, the sale of personal data for advertising purposes and intermediation platform activities.

This tax is levied at a rate of 3% on the sales relating to these activities.

A tax on digital services has already been introduced in France.

France has provisions for taxing offshore IP used within the country. Under Article 155 A of the General Tax Code, these take the form of direct assessments on the IP owner rather than withholding taxes. France distinguishes between IP owners in tax havens and those in countries with DTTs, often applying stricter rules and higher tax rates to IP owners based in tax havens.