Overview of French VAT and corporate income tax: tax system and policy implications

As a core member of the EU, France has a complete tax system and its population ranks second in the EU. The country’s tax system is based on a comprehensive income tax system, which mainly divides taxes into direct taxes and indirect taxes, of which indirect taxes, such as value-added tax (VAT), are the main component. This article will outline the basic framework of France’s value-added tax and corporate income tax, including applicable tax rates, collection methods and related policies.

1. Value-added tax (VAT)

In France, VAT is an important indirect tax that generally applies to the sale of goods and the provision of services. Its general tax rate is 20%. France also has a variety of preferential tax rates based on different types of goods and services, including:

• Priority tax rate (10%): Applicable to movie tickets and art transfers;
• Reduced tax rate (5.5%): Applicable to certain imported artworks, antiques, etc.;
• Special preferential tax rate (2.1%): Applicable to drugs covered by national medical insurance, distribution of newspapers and magazines, concerts and concert tickets, etc.

The value-added tax is calculated as follows:

• Import tariff = declared value of goods x tariff rate
• Import VAT = (Declared value of goods + first-leg freight + tariff) x import VAT rate
• Sales value-added tax = platform sales price x sales value-added tax rate.

2. Corporate income tax (Impôt sur les Sociétés)

Corporate income tax (corporate tax) applies to resident and non-resident companies that obtain income from production and operations in France. Non-resident companies are taxed only on their income generated in France, and foreign income is not included in their taxable income. The French government has gradually reduced corporate income tax since 2017, and the current tax rate is 25%.

Applicable scope of corporate income tax

The company’s income sources include:

1. Income from sales of goods
2. Provide labor income
3. Income from transfer of property
4. Equity investment income such as dividends and dividends
5. Interest income
6. Rental Income
7. Royalty Income
8. Accept donation income
9. Other income.

Policies for small and low-profit enterprises

In order to support small and low-profit enterprises, France has also established some preferential policies. If the annual taxable income of a small and low-profit enterprise does not exceed 1 million yuan, it can be included in the taxable income at a reduced rate of 12.5% ​​and pay corporate income tax at a rate of 20%. For enterprises with an annual taxable income between 1 million yuan and 3 million yuan, the relevant part can be included in the taxable income at a reduced rate of 25%, and the tax is still paid at a tax rate of 20%.

The French tax system helps enterprises better adapt to the market environment and further promote economic development through multi-level design and preferential policies. In the context of globalization, understanding France’s tax structure provides important guidance for companies doing business in France.