Corporate income tax: calculation, returns and tax optimization

What is corporate income tax?

Corporate income tax (impôt sur les sociétés or IS) is a flat-rate tax that companies operating in France must pay each year. It is calculated on the basis of each company's annual profits. This social contribution, also known as income tax, must be paid on a specific date, and is subject to a compulsory tax declaration. According to Article 209 of the French Tax Code, corporate income tax applies only to profits generated exclusively in France.

So, if your company has a foreign branch, the profit it makes is not subject to corporate income tax. On the other hand, a legal entity operating in France and making a profit is liable for corporate income tax if it is a joint-stock company or has opted for this type of taxation. In addition, not all companies are subject to the same corporate income tax obligations: for some, the tax is compulsory, while for others it is optional.

Companies subject to compulsory corporation tax are :

• limited liability companies (SARL),
• public limited companies (SA),
• simplified joint-stock companies (SAS),
• partnerships limited by shares (SCA),
• liberal practice companies (SEL or SELARL),
• professional unions whose activities focus on defending the interests of their members.

Companies for whichcorporate income tax is optional include joint ventures (SEP), general partnerships (SNC) and non-trading companies carrying on an industrial or commercial activity. The same applies to one-person limited liability companies (EURL) and sole proprietorships (EIRL).

How to calculate your company's corporation tax?

To calculate your company's corporate income tax, you need to know the tax rate to be applied to your taxable profits. With the exception of SMEs, which may be eligible for the reduced rate below certain thresholds, companies are generally subject to the standard corporate income tax rate. This rate will be 25% in 2023 for all companies concerned, regardless of sales level.

The reduced corporate income tax rate of 15% applies to SMEs with sales of less than €10 million excluding tax. These companies must also have fully paid-up capital, at least 75% of which is held by individuals. In addition, from January 1, 2023, the reduced rate of corporation tax applies to the portion of profits up to 42,500 euros. Above this limit, the standard corporate income tax rate applies.

To calculate the gross amount of corporate income tax, you need to multiply the taxable income for your last financial year by the appropriate tax rate. You can also use payroll software to automate these calculations. Each year, you must pay a quarterly installment (March 15, June 15, September 15, December 15) representing a quarter of the forecast tax calculated. The balance remaining after payment of the instalments is paid by the 15th of the month following the end of the financial year.

How to declare your corporate income tax?

For companies that have opted for the corporate income tax system, tax returns must be accompanied by tax forms. The forms to be submitted depend on whether your company is subject to the normal or simplified tax regime. If you are subject to the standard income tax regime, your income tax return must be filed electronically in EDI-TDFC mode via an EDI partner.

You must provide :

• income tax return form 2065-SD,
• tax forms 2050-SD to 2059-G-SD,
• regulatory accounts,
• additional information on provisions for liabilities and charges.

If you are a simplified taxpayer (régime réel simplifié), you can file your income tax return electronically using EDI-TDFC or EFI (directly from your subscriber account on the impôts.gouv.fr website). The documents to be provided here are the income tax return number 2065-SD and the tax package number 2033-A-SD to 2033-G-SD.

Non-compliance with the obligation to file online is penalized by a 0.2% surcharge on the fee for filing by other means, with a minimum of €15 per document. The deadline for filing your tax return depends on your fiscal year-end. There are specific tax and income tax rules for companies in the process of being set up, those that have ceased trading and those that have been struck off the Register of Commerce and Companies (RCS).

The changes are as follows:

• The minimum increase has been raised from €10 to €15 in 2023.
• It is specified that the surcharge applies per document, which can be important for companies that have to declare numerous appendices.
• Special rules apply to companies in the process of being set up, those that have ceased trading and those that have been struck off the register.

These clarifications are important for companies to understand their tax obligations.

How can I optimize my corporation tax?

As companies are heavily taxed on their profits, they have the option of using certain methods authorized by law to optimize their tax situation. The first is the deduction of expenses and loss carryforwards. Before carrying forward the amount of your profit for the year, you can deduct certain expenses such as :

• purchases of supplies for sale,
• professional training costs,
• invoices for clothing,
• costs incurred through litigation,
• business travel expenses, etc.

You can also deposit your stock of losses carried forward of up to a maximum of one million euros against profits, so that they can be written off as deductible expenses and reduce taxable profit. Another way of paying less corporation tax is to reward staff or management through employee savings schemes or the financing of supplementary health insurance.

Provided you have valid proof, you can also anticipate an increase in provisions to reduce your corporate income tax. You can also optimize your company's tax situation by making donations, for which the tax authorities apply a 60% tax reduction.

By implementing a research development strategy, you can also qualify for tax credits. The CIR research tax reduction takes into account 30% of the amount spent on technology watch, meetings and professional interventions.