Corporate taxation is an important factor to consider when choosing the form of your business and management strategy. In France, the tax system includes several key taxes, the main ones being:

• Corporate Income Tax:
  • Applicable under two regimes: Impôt sur le Revenu (IR) and Impôt sur les Sociétés (IS)
  • The choice of regime depends on the type of company and its management strategy
• Value Added Tax (Taxe sur la Valeur Ajoutée, TVA):
  • Standard rate — 20%
  • Reduced rates (10%, 5.5%, 2.1%) apply to certain categories of goods and services, such as food, pharmaceuticals, and cultural events
• Social Contributions (Cotisations Sociales):
  • Mandatory for all employers and self-employed individuals
  • Cover pension insurance, healthcare, and other social needs
  • The amount of contributions depends on the type of business activity and income

Taxes in France depend on how your business is structured, how much it earns, and which tax regime you choose. Corporate income tax can be calculated under one of two regimes: Impôt sur le Revenu (IR) or Impôt sur les Sociétés (IS).

• Under IR, the tax is paid by the entrepreneur in their own name, or by the partners as individuals, in proportion to their share in the company
• Under IS, the tax is paid by the company as a legal entity

Understanding the difference between corporate tax (IS) and income tax (IR) is crucial, as it directly impacts your expenses, business structure, and financial management. Your choice will depend on how you plan to grow your company: reinvest profits, minimize taxes, or focus on personal income.

Main Aspects of IR (Impôt sur le Revenu)

Impôt sur le Revenu (IR) is an income tax that applies to individuals' income, including profits from certain types of businesses. For companies, IR applies if the business selects this tax regime or if it is the default regime.

• Application to companies:
  • Individual enterprises (EI, EIRL) and partnerships (SNC, SCI) are subject to IR by default, as their profits are passed on directly to the owners or partners, who then pay tax on it in their personal tax returns
  • Companies like SARL de famille and SAS can choose IR in certain cases, such as for new businesses
• Progressive rates:
  • The tax is calculated using a progressive scale from 0% to 45%, applied to the income of an individual after deductions for expenses and tax credits
• Considerations for business:
  • Unlike IS, with IR, the company’s profits are included in the owners' income and taxed at the individual level. This can be advantageous for small profits, but the progressive rates of IR may be more burdensome with higher income

Main Aspects of IS (Impôt sur les Sociétés)

Impôt sur les Sociétés (IS) is a corporate tax applied to certain companies, including SARL/EURL and SAS/SASU, depending on the chosen tax regime.

• SARL:
  • By default, subject to IS
  • SARL de famille can opt for IR under certain conditions
• SAS:
  • By default, subject to IS
  • IR can be chosen temporarily, for up to 5 years, for new companies meeting specific criteria (e.g., the majority of shareholders are individuals, and the company does not have public operations)
• IS Rates:
  • As of 2022, the standard IS rate is 25%
  • For small businesses with profits up to €42,500, a reduced rate of 15% applies

Let’s consider a scenario where you’ve launched a startup as a SASU or SAS. Which tax system is more advantageous from the perspective of personal income?

Scenario 1: IR (Impôt sur le Revenu)

• The company’s profits are automatically considered your personal income
• You can transfer the amount to your personal account without additional taxes, as the tax will be paid by you personally based on the progressive IR scale
• The company’s profits are fully merged with your personal income, and no separate taxation at the company level occurs

Scenario 2: IS (Impôt sur les Sociétés)

• First stage: The company pays corporate income tax (15% or 25%)
• Second stage: If you transfer the remaining funds to your personal account, they will be treated as dividends. A 30% combined tax (12.8% dividend tax + 17.2% social contributions) applies to the dividends

Tax Calculation Example

Let’s break it down using the following data:

• Revenue: €100,000
• Expenses: €100,000 × 60% = €60,000
• Pre-tax profit: €100,000 - €60,000 = €40,000

Scenario with IS (Impôt sur les Sociétés)

• Profit: €40,000
• IS rate: 15% on the first €42,500 of profit
• Tax: €40,000 × 15% = €6,000
• Remaining profit after tax: €34,000
• If you pay yourself dividends, tax will also be withheld at source (12.8% + 17.2% social contributions)
• Net profit after taxes: €23,800

Scenario with IR (Impôt sur le Revenu)

• Profit: €40,000 is included in your personal income
• Example (2024, for one person with no other income):
• First part (up to €10,777): 0% tax
• Next part (up to €27,478): 11%
• Remaining: 30%
• Calculation:
• (€27,478 − €10,777) × 11% = €1,837
• (€40,000 − €27,478) × 30% = €3,757
• Total tax: €1,837 + €3,757 = €5,594
• Net personal income: €34,406

Which to Choose?

IR may be more favorable in the early stages of your business, when profits are small, as you can distribute profits as personal income and avoid dividend tax.

IS may be more advantageous with higher profits, especially if you want to reinvest earnings into the business or build a holding structure.

For a detailed analysis of your situation when choosing the right tax system, we recommend contacting Matthew Fiscalis to make the right decision at the stage of company formation.