The French tax system is innovation - and investment - friendly
France boasts competitive taxation of research and temporary exemption arrangements for innovative start-ups and new businesses.
The French corporation tax (IS) system contains assessment measures that are comparable with those of our main partners: right to deduct most provisions and depreciation, carrying over losses without a time limit, a wide exemption on allocations of dividends and capital gains on equity shares, favourable tax consolidation regime, etc.
The one-off enhanced depreciation and amortisation measure (dispositif exceptionnel de suramortissement) also provides support for SMEs which invest in the digital transformation and robotics in 2019 and 2020. If they meet certain conditions, businesses can depreciate 140% of the value of investments that are eligible under the measure.
Relief on local direct taxation (local economic contribution, property tax) is also available in certain parts of the country, particularly for setting up or expanding industrial businesses. It should however be verified that the relevant local authorities have approved these measures.
Research Tax Credit
Businesses that spend money on research may be granted a tax credit, which can be offset against the corporation tax they owe.
All industrial, commercial or agricultural businesses taxed on the basis of their actual profits (under both the simplified and normal tax regimes) are eligible for the CIR, regardless of their business structure.
Scientific or technical research eligible for the scheme includes fundamental and applied research, as well as experimental development.
Research expenditure eligible for the tax credit includes :
- depreciation of fixed assets, created or acquired new and used immediately for scientific and technical research operations ;
- personnel expenditure for researchers and research technicians who are directly and exclusively involved in these operations In cases where this expenditure concerns individuals with a doctorate or equivalent degree, they shall count for double for the first 24 months following the individual's hiring (certain conditions apply) ;
- other operating expenditure incurred under the same conditions: this expenditure shall be fixed at 75% of depreciation expenditure and 43% of personnel expenditure (or 200% in the case of newly-hired holders of doctorate degrees) ;
- research expenditure sub-contracted to public research bodies, private research organisations approved by the minister with responsibility for research, or scientific/technical experts who have been approved under the same conditions. The expenditure incurred must be for the purpose of carrying out genuine, clearly-specified R&D projects. If the company and the research body are unrelated, expenditure sub-contracted to public research bodies shall count for double their amount.
Since 2013, the Research Tax Credit has been extended to cover certain innovation investments by SMEs.
These have to do with operations to design prototypes for new products not yet on the market, or which have superior features.
Calculating the CIR
The tax credit rate for R&D expenditure is 30% of outlays up to €100 million per year, and 5% over this limit.
The tax credit rate for innovation expenditure is 20% of the eligible outlays up to a maximum of €400,000 per year.
In certain cases, the tax credit rate may be more than 100% of the research expenditure.
Booking the CIR
The CIR is deducted from taxes due by the business. Any remaining non-deducted CIR can be offset against taxes owed for the subsequent three years. The unused portion of the tax credit is refunded after this period. It is immediately refundable for SMEs (as defined in Community regulations), innovative start-ups (JEIs) and firms subject to amicable settlement or safeguard procedure, court-ordered reorganisation or winding up.
To benefit from the CIR, businesses must complete Declaration 2069 A, available from the impots.gouv.fr website under the heading "Recherches de formulaires" (Search for forms). Businesses must be able to substantiate the items listed in the declaration.
For more information: Accueil > Professionnel > Questions > Puis-je prétendre au crédit impôt recherche ? (in French)
New businesses, created until 31 December 2022, that invest in R&D and that have innovative start-up (JEI) or university start-up (JEU) status are eligible for exemptions from taxes and social security contributions.
To have innovative start-up status, at each financial year-end, a business must meet all the following conditions:
- Be an SME
- Have been set up less than eight years ago
- Be independent (it must be a minimum of 50%-owned either by individuals or by certain firms in the venture capital sector, or by research and education institutions, or by non-profit organisations or scientific public interest foundations, etc.)
- Not to have been created out of a merger, restructuring, spin-off or takeover of pre-existing businesses
- Invest an amount for research representing at least 15% of tax-deductible expenses
To have university start-up status, a business does not have to have to meet the criterion for research expenditure but must fulfil a number of special conditions.
New businesses with innovative start-up status are entitled to exemptions from:
- Personal income tax or corporate income tax:
Total exemption for the first financial year or the first period when they are taxed on profits (this may not be longer than 12 months), followed by a 50% exemption for the next year when they post a profit
- The local economic contribution (CET) and property tax for seven years following a decision by local government
The exemption from tax on profits can be combined with the research tax credit (CIR) and innovative start-ups can also receive an immediate refund of their CIR receivables.
For more information, please consult the official documentation: BOI-BIC-CHAMP-80-20-20-20-20160601
In certain areas, setting up a business provides entitlement to exemption or relief on taxes on profits for the first years of operation.
The purpose of these exemptions for new businesses is to boost employment. Eligible businesses are those set up in :
- Regional assistance zones (ZAFR) by 31 December 2020 at the latest ;
- Rural regeneration zones (ZRR) by 31 December 2020 at the latest
(extension stipulated in the Supplementary Budget Act for 2015)
The businesses’ operations must be commercial, industrial, craft-based or non-commercial (the professions). In the latter case, the business must employ a minimum of three people. These arrangements do not extend to certain specific business activities (agricultural, civil, sea fishing, etc.).
Only businesses subject to an actual assessment regime, and that fulfil certain conditions, are eligible for the benefits, either automatically or by option.
The business activity must be truly new and, as a result, businesses set up as part of a reorganisation or an extension of existing operations are excluded.
The new business’s capital must not be more than 50%-owned by other companies.
The registered office as well as all operations and operating resources must be based in the above-mentioned zones.
Calculating the exemption
In a ZAFR
In theory, full or partial exemption from taxes on profits is granted for five years as from the date when the business is set up. The business calculates the exemption itself and declares it on its return which it files together with a statement detailing the declared profits.
First two years (first 24 months’ operations)
Third year (12 months’ operations)
Fourth year (12 months’ operations)
Fifth year (12 months’ operations)
In a ZRR
Full exemption from taxes on profits is granted for five years, followed by partial exemption for three years, provided the business employs less than eleven people.
First five years’ operations (60 months)
First year following the total exemption period (12 months’ operations)
Second year following the total exemption period (12 months’ operations)
Third year following the total exemption period (12 months’ operations)
The tax breaks are capped under EU’s rules governing de minimis aid.
For the same period and following a decision from the local authorities, businesses benefitting from these arrangements may also be exempted from the local economic contribution (CET) and/or the property tax on developed land (TFPB).
An enhanced tax depreciation and amortisation measure for investments made by industrial SMEs in robotics and the digital transformation:
The government has reintroduced enhanced tax depreciation and amortisation arrangements which allow industrial SMEs to deduct up to 40% of the cost price of goods and software that contribute to their transformation into an industry of the future from their taxable income. The measure applies to all acquisitions made in 2019 and 2020.
The Directorate General for Enterprise (DGE) has issued a handbook for industrial businesses which provides a tangible summary of the guidelines for applying this measure. The handbook is available in French at https://www.entreprises.gouv.fr/files/files/directions_services/politique-et-enjeux/entrepreneuriat/guide-suramortissement-transformation-numerique.pdf)
Updated in March 2020