Operating leases, tax credits: how can you reduce the tax paid by your company?
Corporation tax and the various local taxes (corporate land rental value tax, companies' value-added contribution, property tax) weigh heavily on your finances. But it is possible to reduce the amount of tax your company pays. In particular, there are a number of optimisation strategies, such as deducting expenses, which include operating leases. To explain…
What taxes are paid by which companies?
Companies are subject to different taxes. This taxation is often heavy, affecting competitiveness, and can impact their profitability or even put them in a fragile situation, particularly at this time of health crisis when activity has slowed sharply in certain sectors.
The main tax for companies in France is corporation tax, levied on profits. This is the third most important resource for the State after income tax and VAT (value added tax). Corporation tax currently varies between 15 and 31% of net profit, depending on profits and turnover generated. However, with the 2018 Finance Act, the maximum rate will be reduced to 25% from 2022.
This tax applies to most companies: those with a traditional legal status such as SARLs (sociétés à responsabilité limitée - limited liability companies), SASs (sociétés par actions simplifiées - simplified joint stock companies), SAs (sociétés anonymes - public limited companies) and SCAs (sociétés en commandite par actions - partnerships limited by shares). However, some forms of company are subject to income tax rather than corporation tax. This is the case for EIRLs (entreprises individuelles à responsabilité limitée - limited liability sole proprietorships) and EURLs (entreprises unipersonnelles à responsabilité limitée - single-owner limited liability company) - relatively small structures.
Companies are also subject to various local taxes. In particular, the corporate land rental value tax (CFE - cotisation foncière des entreprises), whose rate is set each year by municipalities, as well as companies' value-added contribution (CVAE - cotisation sur la valeur ajoutée des entreprises), paid only by organisations with turnover of more than €152,500. On top of this, companies also have to pay a property tax on industrial or commercial facilities as well as on land for commercial and industrial use.
Finally, Vat is a consumption tax, the rate of which is generally 20%. However, this can be lowered to 10%, or even 5.5% for certain sectors.
How can you reduce corporation tax?
While corporation tax weighs heavily in company accounts, there are a number of ways to reduce it. To benefit from the best tax optimization strategies, it is essential to consult your accountant, who will know the various provisions in force better than anyone. Here are some ways to reduce your company's tax.
Increasing your provisions means setting money aside in anticipation of leaner periods. This is a strategy that makes complete sense in these troubled times. You place a portion of your profits in provisions and thus reduce your taxable profit.
Set tax loss carryforwards against profit
Have you made a loss in previous years? It's worth making the most of it! You then have a stock of deficits that can be carried forward to set against the company's future profits. They thus constitute expenses that can be deducted from taxable profit.
Use corporation tax credits and reductions
Deductions can be made from corporation tax under several tax measures. To find out which ones, you need to ask a chartered accountant.
The most common are:
- research tax credit;
- innovation tax credit;
- employment competitiveness tax credit;
- apprenticeship tax credit;
- family tax credit;
- commercial prospecting tax credit;
- tax reduction on patronage expenses, etc.
Establish yourself in certain geographical areas
You can reduce tax on your profits by setting up your business in certain areas that receive government assistance. The exemption is sometimes total in the first few years.
This is particularly the case in:
- Regional assistance areas (ZAFR - zones d'aide à finalité régionale);
- Urban tax-free areas (ZFU - zones franches urbaines);
- Rural redevelopment areas (ZRR = zones de redynamisation rurale).
Reward your staff and increase your executive compensation
To pay less corporation tax, you can pay bonuses to your staff, or even increase your executive compensation. This is because these are expenses deductible from your taxable income. However, you will pay more social security contributions.
Use operating leases
To finance your investments, you can choose to take out operating leases. This system lets you lease the use of equipment over a long period of time, rather than borrow from a bank. The benefit is that the monthly payments are counted as expenses, in the same way as purchases of raw materials for production activity or your professional expenses, and are therefore deductible from your profits.
Deductible expenses are those made in the interest of the company. As a result, you report less profit and therefore pay less corporation tax. An interesting solution for your company's cash flow!
👉 Also read: How operating leases can help you stabilise your cash flow.
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