Capital Gains Tax for Business Owners in France
Thursday 02 July 2015
A distinct set of rules exists concerning the imposition of capital gains tax on business owners in France, although not all businesses are eligible.
The system of plus/moins values professionelles is available for a business in France, provided profits are taxed on the basis of the régime réel.
Under the régime réel tax is paid on the basis of actual net profits or losses, not following deduction of a fixed allowance for costs, as occurs for micro-entrepreneurs.
That being the case micro-entrepreneurs are not eligible for the system of business capital gains tax.
If you are eligible, there are actually two different forms of capital gains taxation:
- Business owners subject to personal income tax (l’impôt sur le revenu);
- Companies subject to corporate tax (l’impôt sur les sociétés).
A summary of the main rules is given below. You will need to take professional advice on your individual circumstances.
Personal Income Tax
In determining the values to be used for assessment of capital gains tax the authorities accept depreciated values in the balance sheet, provided under accounting rules depreciation of the item is permitted.
The system then makes a distinction between short-term capital gains/losses and those that arise longer term.
Short-term gains and losses are those that occur within two years and long-term gains are those over two years. There are important technicalities concerning depreciation, as short-term gains include those on a depreciable asset held over two years, up to the level of the depreciation.
Short-term gains are rolled into the profit and loss account for the business in the year they arise, although it is possible to spread payment of the tax over three years. However, far more painful, social security contributions are payable, around one third of the gain.
Long-term gains are taxed at the rate of 16% plus social charges at the rate of 15.5%, giving a total tax rate of 31.5%.
In respect of capital gains tax on real estate sold as part of the business there exists a reduction in the tax for duration of ownership, with an abatement of 10% after 5 years of ownership, and with complete exemption after 15 years.
There also exists an exemption based on the level of the receipts. Under this exemption a business that has been trading for at least 5 years is exempt from capital gains tax if the receipts do not exceed specific limits:
- For an industrial or commercial business if the receipts are no higher than €250,000;
- For a service based business the limit is €90,000.
The exemption is partial where the receipts do not exceed €350,000 for sales based businesses and €126,000 for service based businesses.
For those businesses taxed through company taxation (l'impôt sur les sociétés), capital gains and losses are taxed as part of the system of company taxation.
For a business with a profit in the year not exceeding €38,120 the rate of company taxation is 15%. Above this level it is 33⅓%.
However, there is a discount for duration of ownership, which is the same that applies for the sale of shares. That is to say, 50% for shares held at least 2 years and less than 8 years, and 65% if the shares have been held at least 8 years.
More generous discounts apply in the following circumstances:
- The business has been held at least 10 years;
- It is a family owned business (but not a business specifically set up for managing the family property);
- The owner is retiring.
In such circumstances the allowance is 50% between 1 and 4 years of ownership, 65% after 4 years, rising to 85% if held at least 8 years.
An owner retiring from a business is also entitled generous concessions on capital gains tax, although conditions apply.
Neither the allowance for duration of ownership nor the tax free allowance for a retiree apply in relation to the social charges (prélèvements sociaux), which are payable on the whole of the gain at the rate of 15.5%. However, 5.1% is deductible against income tax the following year.
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