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This chapter is not exhaustive and is limited to broadly outline the tax consequences of the main events occurring when doing business in France. It does not constitute a tax advice or a client - attorney relationship. Materials are not suitable for tax analysis. Visitors are invited to consult a tax lawyer before taking any decision.
 Tax rate
Additional contributions
Alternative minimum tax
Tax credit
Corporate tax payment
Rebate for fast growing SME called "Gazelle"
New regime of the last instalment for the large companies
Early reimbursement of tax credit receivables
 Tax rate
See Facts and figures.
Additional contributions
Companies subject to corporate tax must pay additional contributions. There are two additional contributions:
- 1,5% (Rate was 3% in 2004 – No longer applicable for fiscal year starting as of January 1st, 2006) (figures 2005).
- 3,3% only due by companies paying corporate tax in excess of 763 000 €.
Small and medium size businesses are exempt from the 3,3% social contribution should certain conditions be met.
The amount of the additional contributions is equal to 3% and/or 3,3% of the amount of corporate tax due by the company (Applicable to corporate tax at standard rate and reduced rate).
Alternative minimum tax
From 2006 the companies with less than 150 000 € of turnover will be exempt from IFA. Only companies whose turnover exceeds 150 000 € are subject to IFA. The amount of IFA is in the range of 1 125 € to 30 000 €. (See Facts and figures).
Alternative minimum tax or “IFA” is only due by companies subject to corporate tax.
Alternative minimum tax called “IFA” is due even when no profits have been made. It is based on the turnover of the company.
IFA is creditable against corporate tax due for the current FY and the following two years.
As of 2009, IFA is gradually abolished until 2011 when it will be abolished.
On January 1st, 2009, IFA is only due when sales are 1 500 000 € or over.
On January 1st, 2010, IFA is only due when sales are 15 000 000 € or over.
On January 1st, 2011, IFA is no longer due.
Tax credit
R&D tax credit
Continuing education tax credit
Tax credit for movie industry
Tax credit for movie or audio-visual executive production companies
Avoir fiscal
« New technologies » tax credit
Tax credit to canvass foreign markets
Tax credit to hire an apprentice
Tax credit to relocate activities in France
Research and Development Coordination Centres
Tax credit in favour of phonographic recordings
Miscellaneous tax credits
Tax credit for video gales development
R&D tax credit
The Finance Law for 2008 deeply modified the regime of the Research Tax Credit by making it more attractive.
For expenses as from January 1st, 2008, the Research Tax Credit will be equal to 30 % of the eligible expenses up to 100 millions Euros and will be equal to 5 % above this amount.
The 30 % rate is raised to 50 % for companies benefiting from the Research Tax Credit for the first time and for those which did not benefit from it for 5 years (Rate is 40 % the second year).
In addition the yearly 16 millions Euros ceiling is removed and the delay in which the tax authorities have to rule on the eligibility of the company’s expenses is reduced from 6 months to 3 months (procedure of “rescrit fiscal”).
Last all companies may now require an audit whatever the size of their turnover (art L 13C LPF).
In guidelines BOI 4 A-9-07 n° 131 dated December 27, 2007, the French tax authorities detailed how to be immediately reimbursed of research tax credit receivables according to article 199 ter B CGI.
Based on these new rules, fast growing SME and innovative start-up may benefit from immediate reimbursement of their research tax credit receivable for expenses entailed while they are eligible to the regime of fast growing SME or innovative start-up, what ever the year of incorporation.
These rules apply to expenses incurred as of January 1 st, 2006.
A R&D tax credit may be granted to companies bearing R&D expenses. This tax credit may be used to pay income tax and corporate tax. This R&D tax credit is only available to enterprises subject to regular income and corporate tax filing obligations.
Qualifying expenses include depreciation of assets used specifically for research activities, salaries for staff assigned to research department, administrative expenses related to the research department, patents maintenance expenses.
Effective as of 1/1/2006 e xpenses for patents protection qualify up to 120K€ instead of 60K€.
To calculate the R&D tax credit for 2006, the expenses incurred for protecting the patents during the R&D process are eligible without any limitation (Prior limitation was 120 K€).
R&D subcontracted to public institutions will be taken in account for twice their amount. Expenses incurred to register patents and for are now also eligible.
As of January 1st, 2006, the R&D tax credit is equal to 10% of the eligible expenses of the year plus 40% of the excess of eligible expenses of the year over the average expenses incurred during the 2 preceding years.
R&D tax credit ceiling is increased from € 8 millions to € 10 millions by company and per year for the spending made as of January 1st, 2006.
The R&D tax credit ceiling is increased from 10 millions to 16 millions € per year and per company for expenses as of January 1 st, 2007.
Research tax credit – Textile – Clothing – Leather
Cost for the protection of fashion designs and models beard by the textile- clothing and leather companies as from January 1st, 2006 will qualify for the research tax credit up to 60,000 €. The piece of the RTC corresponding to the design of new collections is caped at 100 000 €.
Cash payments made by corporations subject to corporate income tax between March 16, 2005 and December 31, 2005 to public research institutions or university, society dedicated to research, “Innovative SME” give right to a corporate income tax rebate equal to 65% of the payments made.
Similarly, equity infusion in cash in the share capital of “Innovative SME” or in Funds for innovation made between March 16, 2005 and December 31, 2005 give right to a corporate income tax rebate equal to 25% of the payments made.
The tax rebate cannot exceed 2,5% of the corporate income tax owed with respect of the last fiscal year closed before March 16, 2005. The tax rebate is deductible from the corporate income tax owed with respect of the profit of the first fiscal year closed as of December 31, 2005. The amount in excess of this corporate income tax cannot be carried forward nor be reimbursed.
Effective as of 1/1/2005 PhD salary expenses are eligible R&D expenses for 200% of their value during the first 12 month of their engagement without term, when the headcount of the entity is not lower than the previous year. Related operating expenses also qualify for 200% of their value.
On March 10, 2005, the French tax authorities released new regulations stating that spending for protecting patents and spending for technological watch are eligible. It is also indicated that spending for technological watch are eligible only for companies conducting a research.
In addition the guidelines indicate that when the mother company of a tax consolidation makes an election for the RTC, the option will not cover the tax consolidated subsidiaries which did not apply for the RTC for more than 5 years.
Last the new regulations simplify the computation of the tax credit after a reduction of the research expenses eligible for Research Tax Credit.
Tax credit may offset the corporate income tax liability of the current year and the 3 following years. Unused credit is refunded at the end of the 3 years period. The credit may also be discounted with a bank. Bankrupt or liquidated companies will be entitled to an anticipated refund of the credit. Last R&D tax credit may now benefit business benefiting of a tax holiday like new innovative enterprises called "JEI", enterprises working in underdeveloped urban area or in Corsica.
When a fast growing SME benefits from a corporate tax reduction, its R&D tax credit could be reimbursed immediately - No 3 years delay. New rules apply first time in 2007 for available R&D tax credit related to R&D expenses incurred since January 1 st, 2006.
Young innovating SME may also benefit from this early reimbursement of available R&D tax credit. New rules apply first time in 2007 for available R&D tax credit related to R&D expenses incurred since January 1 st, 2006.
As of January 1st, 2005 research expenses for project performed in European Economic Area “EEA” are eligible to the French research tax credit. This provision anticipate the decision of the ECJ which hold that this provision of the French Research Tax Credit, as applicable until the end of 2004, were incompatible with the freedom of cross-border activities within the UE.
However, and effective the same day, outsourced research expenses are eligible only up to a maximum of euros 2 millions per year. Finance Law for 2006 increased this ceiling to € 10 millions with retroactive effect on January 1st, 2005.
IMPORTANT: According to our experience at lot of enterprises which are eligible to the RTC, refrain to apply because they have difficulties to select the eligible expenses. This is particularly true with respect of softwares, buildings and public works. An in depth analysis of the expenses often permits to apply successfully for a material RTC (up to € 8 millions per company and per year) the company is eligible for.
Continuing education tax credit
Continuing education tax credit may be granted to enterprises bearing continuing education expenses. This tax credit may be used to pay income tax and corporate tax.
This tax credit is only granted to small and medium size businesses should certain conditions be met (turnover ceiling, share capital detention).
The continuing education tax credit system is available for the period 2002-2004.
The election is made when filing the income tax return. Election made after 2002 for the rest of the period is only possible for companies which never bore continuing education expenses before.
Tax credit is equal to 35% of the increase of the continuing education expenses compared to the current value of the continuing education expenses of the previous year. The tax credit is capped at 150 000 euros per year and per enterprise .If it remains unused the tax credit is refundable.
Qualifying expenses are continuing education expenses.
Tax credit for movie industry
As of January 1st, 2004, movies shot and produced in France by French or Europeans technicians and after the "Directeur General du centre national de la cinématographie"'s agreement, benefit of a tax credit equal to 20% the production costs.
Since 1st January 2004 the credit tax has unified ceiling of 1M € whatever the kind of movie, for all shooting started at the 1si January 2005 instead of 500 000 € or 750 000 € for the last periods.
New tax credit for Movie or audio-visual executive production companies
Movie or audio-visual executive production companies subject to CIT benefit of a new tax credit subject to numerous conditions.
Fictions and cartoons refering to the French culture, French estate or French territory are eligible. For fictions, shooting must be located in France for at least 5 days. Fictions must be also approved by the “Centre National Cinématographique or CNC” and must not benefit of French state aids.
Eligible expenses include compensation of artists and technicians for making and producing the movie as well as expenses for supply of services.
Tax credit only applies as from one million Euros of eligible expenses.
Eligible expenses cannot exceed 80% of the production cost of the work.
The tax credit is computed per Fiscal Year and is equal to 20% of the eligible expenses made as of the reception date of the tentative validation request by the CNC.
Tax credit cannot exceed 4 M € per film or cartoon.
Come into force: Expenses made between January 1st, 2009 and December 31, 2012. The new tax credit will come into force after notification of by the French authorities to the EU Commission.
Avoir fiscal
See Dividends.
« New technologies » tax credit
SME owned by individuals investing in new communication tools (High speed internet, Internet, Externet, Firewall, Antispanus, etc.) are eligible for a 20% NT tax credit.
The credit tax is liable to the European limit of "minimis" which imposes that all minor assistance given to company does not exceed 100 000 € by period of 3 years. Unused excess tax credit is restituted.
Tax credit to canvass foreign markets
As of January 1st, 2005, SME hiring an employee to canvass foreign markets outside EU are eligible for a canvassing tax credit equal to 50% of the spending up to a maximum of 40 000, this amount may be up to 80 000 € for association subject to company tax and GIE owned by SME.
Tax credit to hire an apprentice
The apprentice tax credit is 1 600 € or 2 200 € for handicapped apprentices or when the apprentice belongs to special program providing individual care.
Presence test is reduced from 6 months to 1 month.
Tax credit to relocate activities in France
Companies with an eligible activity which moved their activity outside European Economic Area “EEA” between January 1st, 2004 and December 31, 2004 and which relocate this activity in France between January 1st 2005 and December 31, 2006 will benefit from a relocation tax credit up to 100 000 euros over 3 years related to the salary cost of the newly created jobs. This tax credit may be increased by 5% to 75% depending the size of the company and the location of the transferred activity.
Research and Development Coordination Centers
Corporations liable for French corporate income tax which coordinate R&D activities within a Group of companies are now allowed to calculate their benefit on a cost plus basis or any relevant method. The percentage of margin may benefit of an advance pricing agreement for a period of 3 to 5 years. If applicable, a corporation benefiting of this R&D coordination center regime remains eligible to the benefit of the head quarter tax regime and/or logistic center tax regime with respect of its other activities.
Tax credit in favour of phonographic recordings
A tax credit has been voted in view to encourage the French and European musical production (Law n° 2006-961dated August 1er, 2006 Article 36). The tax credit is equal to 20% of the sums engaged in the production of phonographic arts (CD or DVD).
Two administrative agreements from the Minister of Culture must be obtained for benefiting from this tax credit.
In addition only phonographic arts companies subject to corporation tax and established for at least 3 years may benefit from the tax credit. They must not be owned directly or indirectly by TV broadcasting or radio broadcasting companies.
The phonographic pieces must produce new French or European artists meaning artists who did not sold more that 100.000 copies of their two previous albums.
The expenses eligible for the tax credit are the production of the recording but also any expenses connected to the development of the production. Yearly expenses from third suppliers are limited to 2.300.000 € per enterprise and per fiscal year.
The tax credit is equal to 20% of eligible expenses limited to 350.000 € per recording. The whole tax credit may not exceed 500.000 € per year and per company, i.e. 2.000.000 € over the period (January 1st, 2006 to December 31, 2009).
When conditions are met, the tax credit could be transferred to a financial establishment.
Miscellaneous tax credits
Amendment law for 2006 implemented the following tax credits:
- Tax credit for phonographic recordings (200 000€ maximum over the period January 1st, 2006 to December 31, 2009).
- Tax credit for Master Chief Restaurant (15 000€ over 3 years).
- Tax credit for the modernization of Tobacco shop.
Tax credit for video gales development
As of January 1st, 2008 at the latest, but subject to the approval of EU commission because this credit may be considered as a prohibited state incentive, the development of video games by companies subject to corporate income tax, would benefit from a tax credit equal to 20% of the following expenses (Article 224 quater S CGI):
- Depreciation of the assets dedicated to the conception of video games,
- Salary expenses of employees developing video games,
- Operating expenses forfeit to 75% of the employee’s expenses.
In order to benefit of the tax credit, the video games must have a development cost of at least 150 000 €, must be commercialized to the public and at least 50% of the expenses must be allocated to the artistic production.
The tax credit would be limited to 3 millions € per fiscal year and would be deductible from the corporate tax due. The excess will be reimbursed.
Corporate tax payment
Corporate tax is payable by installments every trimester to the tax collector. The installments are calculated by the company by reference to the amount of corporate tax paid during the previous FY and must be equal to ¼ of the total amount tax due.
The balance is due by the 15th of the month following the filing of the tax return. When the amount of the installments exceed the amount of tax due, the excess is refunded.
The company may decide to not pay installments when the forecasts show that the profits will be lower than those of the previous year.
However, if the installments are lower than they should have been, a 10% late payment penalty applies.
Rebate for fast growing SME called "Gazelle"
TARGETS:
To create a new corporate tax credit to neutralize the increase of the global corporate tax charge (corporate income tax and alternative minimum corporate tax) during the growing period of the SME when payroll increases by more than 15% over the past 2 tax years prior the filing.
TESTS:
- To be subject to corporate tax,
- To be a SME (Less than 250 employees and sales ≤ 50 M€ or a balance
sheet ≤ 43 M€),
- Headcount between 20 and 249
- Minimum 15% growth of the payroll during the past 2 tax years prior the filing
CORPORATE TAX RATE REDUCTION (T):
The corporate tax rate reduction is equal to 100% for a total payroll growth of at least 15% and between 0% and 100% for a growth less than 15% (Yearly growth % divided by 15%).
INCREASE OF CORPORATE TAX (A):
(Corporate tax + alternative minimum corporate tax) – (average corporate tax + alternative minimum tax over the past 2 years)
CORPORATE TAX REDUCTION (R):
R = T * A
The corporate tax reduction cannot exceed 100 000 € over 3 years (EC de minimis rule as provided by EC regulation n° 69/2001 dated January 12, 2001)
Should a SME may benefit from such corporate tax reduction, its R&D tax credit will be immediately refundable - No 3 years delay. First R&D tax credit will be available in 2007 with respect of R&D expenses incurred since January 1st, 2006.
The new tax credit applies to tax years open between 01/01/2006 and 01/01/2009.
New regime for the last instalment of large companies
Prior RULES applicable until December 31, 2006: Turnover exceeding 1 billion €
For companies which have a turnover between 1 and 5 billion €, the last installment was equal to 2/3 of the estimated corporate tax less the previous installments already paid when the estimated corporate tax base increased by more 50% compared to the prior tax year.
For companies with a turnover exceeding 5 billion €, the last installment was equal to 80% of the estimated corporate tax minus the previous installments already paid when the estimated corporate tax base increased by more than 25%.
Interest for late payment of 0.4% per month and 5% penalty applied when the difference between 2/3 (resp. 80%) of the corporate tax due and 2/3 (resp. 80%) of the estimated corporate tax exceeded 10% of the corporate tax due and 15 millions €. Penalty did not apply when the estimated corporate tax was calculated by reference to the provisional result as provided by the Art L 232-2 of the French commercial code.
New rules applicable as of January 1st, 2007: Turnover exceeding 500 millions €
The prior regime is now extended to companies with a turnover between 500 M€ and 1 billion €. These companies must pay a last installment equal to 2/3 of the estimated corporate tax minus previous installments paid when the estimated corporate tax base increased by more than 50% compared to the prior tax year.
This rule applies to any 4th installment due as from January 1, 2007. Companies closing between February 20 , 2007 and May 19, 2007 must calculate their last installment (the 4th) due on March 15, 2007 according to the new rules.
Interest for late payment of 0.4 % per month and 5% penalty applies when the difference between the corporate tax due and the estimated corporate tax is higher than 20% and exceeds 2 millions € (500 M€ <turnover < 1 billion €) or 8 millions € (turnover > 1 billion €). As before penalty did not apply when the estimated corporate tax is calculated by reference to the provisional result as provided by the Art L 232-2 of the French commercial code.
Early reimbursement of tax credit receivables
According to amended tax law for 2008 companies may apply for an early reimbursement of overpaid corporate income tax instalments, of carry back CIT receivables and of R&D tax credit.
Overpaid Corporate Income Tax “CIT” instalments
Companies which anticipate an over payment of CIT instalments for a Financial Year “FY” closed on or before September 30, 2009, may request the reimbursement of this over payment as of the very next day of the closing of this FY.
Carry back CIT receivables
Exceptionally, companies may request in 2009 an early reimbursement of CIT carry back receivables generated in FY closed on September 30, 2009 or earlier.
R&D tax credit
The R&D tax credits calculated on eligible expenses engaged in the years 2005, 2006 and 2007 are immediately refundable. For FY 2008, companies may request the immediate reimbursement of their estimated R&D tax credit calculated on provisional figures.
Guidelines 4 A-1-09 provides additional comments.
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