How does corporate income tax work and am I subject to it?

Corporate income tax is a kind of income tax, but for companies that are legal entities. It's a tax that exists in most countries, but at a different rate. It is levied on annual profits. Let's find out how this tax works and who is subject to it.

Company tax: for whom?

SAs, SASs, SARLs, SCAs, SELs and SELARLs whose usual place of business is in France are subject to this tax. It is the company itself that is liable for the tax, not the partners or other individuals.

SCIs, SCPs and SCMs are not taxable as companies. It is the partners, in this case, who will pay tax on profits in proportion to the number of shares they own.

Furnished-rental property owners may be subject to corporation tax when the revenue from this activity exceeds 10% of the company's total revenue.

The partners of an SNC and the sole partner of an EURL, who are normally subject to personal income tax, can opt to pay corporate income tax. The advantages for these partners are that they can deduct their remuneration from their taxable profits, and that they can pay themselves dividends.

Profits made by a French company abroad, through its branches, are not subject to corporation tax in France.

Income tax return

There are two declaration systems:

  • simplified reporting
  • standard real estate

Companies whose sales (excluding VAT) do not exceed €789,000 (trading activities and provision of accommodation) or €238,000 (provision of services), and whose annual VAT liability does not exceed €15,000, are automatically subject to the simplified actual taxation system.

Companies whose sales (excluding VAT) exceed the above-mentioned amounts are automatically subject to the normal sales tax regime.

Regardless of the tax regime chosen by the company, income tax returns and payments must be made electronically.

The declaration must be filed no later than the 2nd working day following May 1st of the following year, for a financial year ending at the end of December, or within three months of the year-end, for a financial year ending on another date.

Payment is made in two or four instalments. The amount of the instalments is calculated on the basis of the previous year's results. The payment schedule will differ according to the closing date of the financial year.

Calculating corporate income tax

It is calculated on the company's profit. Once the tax has been deducted, the net profit remains.

In France, since 2022, the tax rate has fallen to 25%. It was previously 33.33%.

Certain companies benefit from a reduced rate of 15% on profits up to €38120. These are SMEs with sales (excluding VAT) of less than €10 million, at least 75% of whose capital is held by individuals.

New businesses and companies located in tax-free zones may be exempt from this tax, subject to certain conditions.

Advantages of corporate income tax

Taxing profits under the corporate income tax regime enables company directors to anticipate the amount of tax they will have to pay. With the first 38,120 euros subject to the 15% rate and the remainder to the flat 25% rate, there are no surprises, unlike for sole traders.

In fact, the income tax rate varies not only according to the profits made, but also according to the resources and composition of the household. When profits are very high, the entrepreneur runs the risk of being heavily taxed, sometimes up to 45%. No distinction is made between the remuneration actually taken by the entrepreneur for his personal needs and what he may have had to reinvest in his business to sustain it.

Another advantage is that corporate income tax is paid by the company, while the directors receive salaries and possibly dividends. They pay income tax personally, like any other employee. What's more, salaries are considered as expenses, and therefore reduce taxable profit.