Understanding corporate taxation in 3 questions

Corporate taxation can sometimes be a source of stress for entrepreneurs. It is governed by a complex set of laws, regulations and measures, particularly in France.

Which tax regime applies to your company? What taxes do you have to pay?

To make sure you don't forget anything, and to avoid disappointments with the tax authorities, this article describes the main principles of corporate taxation.

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The main principles of corporate taxation: definition

Corporate taxation is a set of taxes to be paid, determined by laws and tax measures.

Each company is subject to a specific tax regime, with the possibility of opting for another, more appropriate regime depending on :

• legal form,
• the nature of the business,
• forecast sales.

💡 Income tax and VAT regimes are determined when the business is set up.

What taxes must the company pay?

Income tax

This is a direct tax. It is proportional to the results generated by the company, and can take two forms:

• income tax (IR),
• corporate income tax (IS).

Income tax (IR)

The special feature of this tax is that profits are not taxed in the name of the company, but in the name of the entrepreneur or partners.

Which companies are subject to income tax?

• EI (sole proprietorship),
• EIRL (limited liability sole proprietorship),
• EURL (entreprise unipersonnelle à responsabilité limitée) with a single individual partner,
• micro-enterprises,
• SNC (non-trading company),
• non-trading companies (SCI, SCP, SCCV).

💡 Micro-businesses can choose, under certain conditions, to pay their income tax at the same time as their social security contributions throughout the year: this is known as payment in full discharge of income tax.

👉 Good to know: some of these companies may voluntarily opt to pay corporation tax (IS).

Corporate income tax (IS)

In this case, the company pays taxes in its own name, and not in the name of the entrepreneur or partners.

Which companies are subject to corporate income tax?

• EURL (limited liability company) with one legal partner,
• SAS (simplified joint-stock company),
• SARL (limited liability company),
• SA (société anonyme),
• SCA (société en commandite par actions),
• SASU (société par actions simplifiée unipersonnelle).

IR or IS? Summary table

Territorial economic contribution (CET)

Formerly known as the taxe professionnelle, the CET is a tax paid to local authorities.

It is made up of two contributions:

• the CFE (cotisation foncière des entreprises), which is payable by every company or individual (excluding the first year of business) engaged in :
  • a non-salaried professional activity,
  • on a regular basis,
  • generating annual sales in excess of €5,000.

👉 Good to know: its amount varies locally, and certain activities benefit from an exemption.

• and the CVAE (cotisation sur la valeur ajoutée des entreprises), which is payable by companies that :
  • generate annual sales of over €500,000 excluding VAT,
  • and carry on a business that is subject to CFE tax.

VAT (value-added tax)

Value-added tax is payable by all economic operators, although some companies are exempt.

Basic VAT exemption

Under the basic VAT exemption system, businesses are exempt from VAT, regardless of their status (with a few exceptions), as soon as their sales are less than or equal to :

• 85,800 € for commercial activities and sales of goods,
• 34,400 € for service provision activities.

👉 Good to know: newly-created companies benefit from the exemption in their first year of business, if sales do not exceed €91,000 or €35,200.

Simplified real-estate regime

The simplified actual tax regime offers lighter administrative formalities than the normal actual tax regime, with the filing of an annual declaration. It applies to companies with sales between :

• 85,800 and €818,000 for commercial activities and sales of goods,
• 34,400 and €247,000 for service activities.

👉 Good to know: if VAT paid in the previous year exceeded €15,000it automatically switches to the normal system, regardless of the sales generated in the current year.

The normal actual system

Under the normal VAT system, VAT returns must be filed monthly, and the balance (VAT collected - deductible VAT) paid. It applies to companies :

• whose sales exceed €818,000 (for commercial activities and sales of goods),
• whose sales exceed €247,000 (for service provision activities),
• excluded from the simplified scheme,
• automatically subject to the other schemes and who opt for this one.

👉 Good to know: VAT declarations can be made quarterly if the annual amount due is less than €4,000.

Other taxes for businesses

• Property tax, payable by the company or self-employed person owning the real estate or land on which it operates. It can take several forms:
  • TFPB (property tax on built-up properties),
  • TFPNB (property tax on non-built properties),
  • TaSCom (tax on commercial surfaces).
    
• Company vehicle tax (TVS), if the company uses or owns a vehicle to transport people in France.
  
• Apprenticeship tax, payable by all companies with one or more employees (with some exceptions).
  
• Payroll tax, payable by all companies not subject to VAT in the year of payment of remuneration, or on less than 10% of sales.
  
• Contribution à l'audiovisuel public, if the establishment owns television sets.

What are the different tax regimes?

Now that you know what type of corporate income tax you have to pay, you also have to choose the tax regime.

If you are automatically subject to a tax regime, due to the nature of your company and the sales you generate, there are a few options available to you.

Micro-enterprise scheme

This is an ultra-simplified system that allows small businesses to lighten their accounting and tax obligations.

Under this system, you declare your revenues on an annual basis, which are then taxed after a flat-rate allowance of :

• 71% for sales and trading businesses (micro-BIC regime),
• 50% for services,
• 34% for liberal professions (micro-BNC regime).

The existence of the flat-rate allowance is due to the fact that you are taxed on your sales, and cannot deduct any professional expenses.

→ Which companies can opt for this system?

• micro-entrepreneurs are automatically subject to this system,
• EI and EIRL by option,
• and EURLs by option.

To take advantage of this tax regime, annual sales excluding VAT must not exceed :

• 176,200 € for sales and trading activities,
• 72,600 € for BIC (industrial and commercial profits) or BNC (non-commercial profits) services.

👉 Good to know: if a company generates sales higher than these thresholds for two consecutive years, it will have to switch to a simplified or normal actual tax regime, depending on its situation.

Simplified actual tax regime (RSI)

Companies subject to this system pay tax based on their actual profits, i.e. actual expenses are deducted from sales.

Compared with the actual system, this system offers simpler administrative formalities and accounting obligations, such as simple cash accounting.

→ Which companies can opt for this system?

• EI, EIRL, EURL, partnerships and limited companies are automatically subject to this regime,
• micro-entrepreneurs may opt in.

Companies are automatically subject to this system when their sales (excluding VAT) are between :

• 176,200 and €818,000 for sales and trading activities,
• 72,500 and €247,000 for service provision activities.

👉 Good to know : companies subject to the micro-enterprise scheme can opt for the RSI system. This request, which must be expressly made before February 1 of the year concerned, is valid and definitive for two years.

Régime réel normal

Like the simplified actual system, tax is calculated on actual profits. However, this system imposes a number of specific accounting obligations, such as the production of all accounting documents.

→ Which companies can opt for this system?

• EI, EIRL, EURL, partnerships and joint-stock companies are automatically subject to this system if their sales (excluding VAT) exceed :
  • 818,000 € for sales and trading activities,
  • 247,000 € for services.
• EI, EIRL, EURL, partnerships and limited companies that do not exceed these thresholds by option,
• micro-entrepreneurs by option.

Zoom: which tax system is right for my business?

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Covid-19: what measures can be taken to improve business taxation?

Small businesses are bearing the full brunt of the Covid-19 crisis, and are finding it difficult to meet their tax obligations.

In addition to the solidarity fund, the government has put in place a number of support measures to help companies get organized, including :

• VAT exemption for medical equipment imports,
• tax deferrals for direct taxes (excluding VAT and withholding tax) for companies in difficulty or affected by an interruption or restriction of their activity linked to a closure measure in curfew zones,
• a specific payment plan for business taxes,
• staggering of IS and CVAE advance payments,
• deferral of BIC and BNC advance payments to the next due date for self-employed workers,
• accelerated payment of the tax credit without waiting for the income tax return.