Business Taxation: Taxes, Deductions and Optimisation

Introduction

Business taxation constitutes one of the major strategic levers for an organisation's financial performance. In France, the tax framework applicable to businesses rests on a complex set of rules stemming from the General Tax Code (CGI), the Monetary and Financial Code, and European directives. Between Corporation Income Tax (CIT), Value Added Tax (VAT), social contributions and the Territorial Economic Contribution (CET), managers must master a dense tax ecosystem to optimise their tax burden whilst scrupulously respecting legislation. This article provides a comprehensive overview of the main taxes, available tax deductions, applicable special regimes, and legal optimisation strategies for 2024.

Corporation Income Tax (CIT): Mechanisms and Rates

Corporation Income Tax applies by default to capital companies (SA, SAS, SARL) and, optionally, to certain structures such as SCIs or EURLs. Since the progressive reform initiated by the 2018 Finance Act, the standard CIT rate has been reduced to 25% for all financial years commencing from 1 January 2022, in accordance with article 219 of the CGI.

SMEs benefit from a reduced rate of 15% on the first tranche of €42,500 of profits, subject to conditions: turnover below €10 million and capital fully paid up and held at least 75% by individuals. Beyond this tranche, the standard rate applies.

The calculation of taxable profit differs from accounting profit: certain expenses must be added back (fines, non-deductible taxes, excessive gifts), whilst other income may benefit from preferential regimes (long-term capital gains taxed at 0% on shareholdings, parent-subsidiary regime exempting 95% of dividends received).

VAT: Collection, Deduction and Applicable Regimes

VAT, an indirect tax on consumption, represents the largest source of tax revenue for the French State. The applicable rates are: 20% (standard rate), 10% (catering, renovation works), 5.5% (essential goods, books) and 2.1% (reimbursable medicines, press).

The VAT mechanism allows the business to deduct VAT incurred on its purchases (deductible VAT) from that collected from its customers (collected VAT). The balance is paid to the tax authority according to variable frequency: monthly, quarterly or annually depending on the tax regime.

Three regimes coexist: VAT exemption (VAT exemption up to €91,900 turnover for commercial activities), the simplified regime (annual CA12 declaration with half-yearly instalments) and the normal real regime (monthly CA3 declaration).

Tax Deductions and Strategic Tax Credits

Legal tax optimisation largely rests on the judicious use of deductions and tax credits. The Research Tax Credit (CIR), codified in article 244 quater B of the CGI, allows deduction of 30% of R&D expenses up to €100 million, and 5% beyond. The Innovation Tax Credit (CII) extends this scheme to SMEs at 20% of innovation expenses.

Other levers exist: productive accelerated depreciation, corporate sponsorship (reduction of 60% of contributions within the limit of 0.5% of turnover), deduction of loan interest (capped at 30% of tax EBITDA under the ATAD directive), and loss carry-forward (indefinitely forward, backwards over one financial year within a limit of €1 million).

Legal Tax Optimisation Strategies

Effective tax optimisation combines several approaches: choice of suitable legal structure, arbitrage between salary/dividends for the manager, strategic activity location, and use of international tax conventions to avoid double taxation. Tax consolidation (article 223 A of the CGI) allows groups held 95% to consolidate their tax results, offsetting profits and losses of subsidiaries.