In our YouTube videos, we often discuss the implications of capital gains tax when owning property through a corporate tax company. To provide more clarity, we’ve decided to write this detailed article. Investing in real estate through corporate tax companies comes with both unique opportunities and challenges. Let’s dive in!
In France, companies investing in real estate or other capital assets are subject to specific rules regarding capital gains taxation, which vary depending on the company’s legal structure, tax regime, and country of residence.
The vast majority of corporate real estate investments are held under the corporate income tax (IS) regime, either through French companies (such as SAS, SARL, or SCI under IS) or foreign entities operating in France.
What Is a Corporate Tax Company (IS Regime)?
A corporate tax company is a distinct legal entity, separate from its shareholders. Unlike structures taxed under personal income tax (IR), companies subject to corporate tax (IS) are taxed directly on their net profits, which include capital gains. Shareholders are only taxed when those profits are distributed in the form of dividends.
For real estate investments, commonly used corporate structures include the SCI (Société Civile Immobilière) when opted for IS, the SAS (Société par Actions Simplifiée), and the SARL (Société à Responsabilité Limitée). These entities benefit from standard accounting treatment: profits are determined after deducting operating expenses, interest, and depreciation of assets.
Under the IS regime, capital gains are fully taxable in the year of the sale. They are calculated as the difference between the sale price and the net book value of the asset. The standard corporate tax rate is 25%, with a reduced 15% rate applicable to the first €42,500 of annual taxable profit for eligible SMEs.
Individual vs. Corporate Tax Capital Gains Calculations
The calculation of capital gains on real estate for an individual fundamentally differs from that for a CT company:
For Individuals
Capital gains are the difference between the sale and purchase prices, adjusted for costs and ownership duration allowances. After 22 years, individuals gain full exemption from income tax and, after 30 years, from social contributions.
For income tax, the rate is 19%, with social charges at 17.2% (or 7.5% in specific cases).
For Corporate Tax Companies
Real estate is recorded as a company asset. Its value is depreciated annually, reducing taxable profits. The capital gain is calculated as the difference between the sale price and the net book value (purchase price minus accumulated depreciation).
Companies do not receive ownership duration allowances. The entire capital gain is taxed at corporate rates—15% and 25%.
How Capital Gains Are Taxed for Companies
In the corporate tax regime, capital gains are not calculated based on the original purchase price but on the net book value — that is, the acquisition cost minus cumulative depreciation. The gain is the difference between the sale price and this depreciated value.
There is no time-based exemption under the IS regime: capital gains are fully taxable in the financial year of the sale. The applicable rates are:
- 15% on the first €42,500 of annual taxable profit (if eligible)
- 25% for amounts above this threshold
Example of Capital Gains Taxation
A company acquires a property for €500,000 and depreciates it by €50,000 per year over 10 years. After 10 years, the net book value is €0. If the property is sold for €700,000, the taxable capital gain is €700,000.
- 15% on the first €42,500 → €6,375
- 25% on the remaining €657,500 → €164,375
- Total corporate tax liability = €170,750
This amount is due at the company level. If dividends are distributed from the proceeds, additional withholding tax applies at the shareholder level, especially for non-residents.ithholding tax (12.8%) on dividends distributed from the proceeds.
Pros and Cons of Corporate Tax Companies for Real Estate
The decision to invest in real estate through a CT company rather than as an individual depends on several factors, including investment strategy, holding period, and capital gain prospects.
Advantages
- Tax Optimization: Depreciation reduces taxable profits annually.
- Reinvestment Potential: Post-tax profits can fund new acquisitions, increasing the company’s assets without added shareholder tax burdens.
- Management Flexibility: Allows for professional oversight and inclusion of external investors.
Disadvantages
- High Capital Gains Tax: No allowances for holding periods can increase tax liabilities on long-held properties.
- Administrative Complexity: Requires professional accounting and higher costs.
- Dividend Taxation: Double taxation—first on profits, then on shareholder distributions.
- Benefit in Kind: The property must be rented year-round unless accounted for, adding costs.
What Happens When the Company Is Liquidated or Moved Abroad? (Exit Tax)
When a company ceases to be tax-resident in France, either through liquidation or relocation abroad, it may trigger an exit tax under Article 221-2 of the French Tax Code. In this case, the company is considered to have sold its assets at market value, leading to immediate taxation of unrealised capital gains.
A payment deferral may be granted if the new country of residence is within the EU or EEA and has an administrative assistance agreement with France, provided adequate guarantees are offered. If conditions are not met or the assets are later sold, the tax becomes due immediately.
For transparent entities (such as SCIs under income tax), exit tax consequences may also apply to shareholders, particularly if they change tax residence. In liquidation cases, capital gains and any liquidation surplus are taxed in France, with possible withholding tax for non-resident shareholders.
Foreign investors should evaluate the combined impact of French corporate tax, exit tax, and their domestic tax obligations before transferring or winding up operations.
Capital Gains Tax in France on Shares
French Corporate Sellers
Companies subject to corporate tax (IS) must include capital gains on shares in their taxable profits. If the shares qualify as participation shares (held for at least two years and representing a significant interest), the gain is exempt, except for a 12% add-back. Otherwise, gains are taxed at the standard corporate rates: 15% up to €42,500, then 25%.
Foreign Corporate Sellers
Foreign companies are generally not taxed in France, except when:
- The company sold is primarily a real estate entity, or
- The shares relate to a French permanent establishment
In these cases, capital gains may be taxed at 25%, unless reduced by a tax treaty.
Reporting & Withholding
In certain situations—such as substantial holdings or non-cooperative jurisdictions—withholding taxes or additional reporting may apply.
Is It Worth It?
Using a corporate tax company can be beneficial for experienced investors with specific goals, such as reinvestment or estate planning. However, the complexities require careful management and expert guidance.
At French Tax Online, we specialize in helping investors navigate these challenges. Contact us for personalized advice tailored to your investment plans.
FAQ – Capital Gains Tax for Companies in France
1. How are capital gains calculated for corporate owners in France?
In France, companies subject to corporate income tax (Impôt sur les sociétés) calculate capital gains as the difference between the sale price and the net book value of the asset. The net book value includes the original purchase price minus any accumulated depreciation. This method applies to real estate, shares, and other capital assets recorded in the balance sheet.
Unlike individuals, corporate structures do not benefit from time-based tax relief. The entire gain is immediately taxable in the financial year of the sale.
2. What are the tax rates applied to companies in France for capital gains?
Capital gains realized by companies are included in the taxable profit and subject to the standard corporate tax rate, which is currently 25%. A reduced rate of 15% may apply to the first €42,500 of taxable profit for small and medium-sized enterprises (SMEs) under certain conditions.
In some cases, additional levies or withholding taxes may apply when profits are distributed to shareholders.
3. Does the exit tax apply to corporate structures in France?
Yes, but with nuances. When a company transfers its tax residency outside of France, unrealized capital gains on its assets may be taxed under Article 221-2 of the French Tax Code, often referred to as the corporate exit tax. This tax aims to prevent tax avoidance through cross-border relocations.
In addition, shareholders relocating abroad may be personally subject to individual exit tax rules (Articles 167 bis and 244 bis B), especially if the company is not liquidated but its shares are transferred.
4. Are there legal ways to reduce corporate capital gains tax in France?
Yes. While companies cannot benefit from holding-period exemptions like individuals, some tax deferral mechanisms and exemptions are available:
- Article 210 B CGI allows capital gains to be rolled over if reinvested in qualifying assets.
- Group tax consolidation may offset gains against group-level losses.
- SMEs selling certain fixed assets may benefit from exemptions under specific turnover and activity conditions.
It is essential to review eligibility criteria and maintain accurate accounting to secure these advantages.
5. What are the reporting obligations for foreign companies investing in France?
- Appointment of a fiscal representative in France is mandatory for non-EU entities (including UK, USA, etc.).
- Filing of corporate income tax returns with details of the capital gain.
- Payment of tax due through a French bank account or via a notary if real estate is involved.
- Declaration of cross-border transfers, if applicable, under anti-abuse and transparency rules.