Income tax or corporation tax: what are the differences?

In France, a company may be subject to two types of tax depending on its legal status: income tax or corporation tax.

So :

• So-called “capital” companies (SAS, SASU, SA or even SARL) are automatically subject to corporation tax
• Partnerships and EURLs are automatically subject to income tax (with the possibility of opting for IR in certain cases).

Overall, what are the tax implications of being subject to IR or IS?

 

• Taxation

For companies subject to income tax: the profit will be restated in the appropriate income tax category, subject to the chosen regime and taxed accordingly to the progressive income tax scale.

For companies subject to corporate income tax, there are two levels of taxation:

• A first level of taxation at company level: the tax result is subject to the corporate tax rate (reduced rate for SMEs or normal rate and social contributions in certain cases);
• A 2nd level of taxation at the level of the partner: taxation here will depend on the type of remuneration chosen by the partner (dividends, salaries) and will be subject to the progressive scale of income tax.

 

• Distribution of profits

For companies subject to income tax, the profit is deemed to be distributed to the partner (regardless of the actual treatment of the profit).

For companies subject to corporate income tax, profits must be distributed to the partners in order to be subject to taxation.

 

• Allocation of deficits

For companies subject to income tax, deficits can be deducted from the partner’s overall income in most cases (with some exceptions: property income, non-professional income, etc.)

For companies subject to corporation tax, deficits can only be offset against the company’s profits (carry back mechanism).

 

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