France

Foreign tax credit

Under DTTs signed by France, several methods have been established to avoid double taxation. The main one is the traditional deduction of a tax credit from tax effectively paid. However, some treaties establish a tax exemption or the exclusive right to tax. Also, a tax-sparing clause is included in some treaties, which allows for the deduction of not only the tax actually paid but a higher amount of tax.

Decrease of payroll charges paid by employers (former tax credit to boost competitiveness and employment [CICE])

For wages paid on or after 1 January 2019, the CICE tax credit is repealed and replaced by a permanent decrease in payroll charges paid by employers to finance the French social security system.

R&D tax credit

The R&D tax credit is determined on the basis of the eligible R&D expenses incurred during the calendar year.

The R&D tax credit is determined on the basis of R&D projects qualified as eligible due to compliance with criteria set by the French Ministry of Research (so-called 'Ministère de l’Enseignement Supérieur, de la Recherche et de l’Innovation' or MESRI) and is equal to 30% of the sum of qualifying R&D expenses, up to EUR 100 million, and 5% above. The R&D tax credit includes technical and scientific research operations in three areas: fundamental research, applied research, and experimental development.

The qualifying expenses are the following:

• Depreciation of assets entirely or partially dedicated to R&D, including patents acquired.
• Researchers' salaries, with a doubling of the expenses for ‘young graduate doctors’ during the 24 months following their hiring in an open-ended contract by the company.
• Purchases of qualified subcontracted research towards public or private subcontractors in the European Economic Area, approved by the French Ministry of Research.
• Operating costs equal to 75% of R&D tax credit eligible depreciation and 43% of R&D tax credit eligible researchers' salaries (50% before FY20) and 100% of ‘young graduate doctors’.
• Miscellaneous amounts, such as costs related to patents (filing, maintenance, and defense), standardisation, and technological monitoring.
• The amounts of subsidies for R&D tax credit eligible R&D projects.

Regarding the subcontracting expenses, they are subjected to multiple ceilings:

• The total amount of expenditure sub-contracted is capped at EUR 10 million in cases where sub-contractors are unrelated and to EUR 2 million in the contrary case.
• In addition, they are to be included within the limit of three times the total amount of other research expenses.

The 2021 Finance Bill provides that:

• the R&D expenditures sub-contracted by a company to public research bodies shall no longer be doubled
• the public research bodies are to be accredited by the French Ministry of Research
• the increase of EUR 2 million applicable on expenditure sub-contracted to public research bodies shall be removed, and
• the expenses related to public research bodies are subjected to the ceiling of three times the total of other research expenses alongside the expenses to private research bodies.

These measures may apply to R&D expenditures incurred as of 1 January 2022.

The tax credit can be offset against the CIT liability payable by the taxpayer with respect to the calendar year during which the wages are paid. Any excess credit can be carried forward and offset against the tax liability of the taxpayer during the next three years.

Credits unused after three years will be refunded to the taxpayer. The 'receivable' (unused credits) can be transferred or sold only to credit institutions. Finally, special provisions apply in the case of mergers and assimilated restructuring operations.

Research collaboration tax credit

The 2022 Finance Bill introduced a tax credit for collaborative research for eligible expenses incurred between 1 January 2022 and 31 December 2025 within the European Union or European Economic Area (EEA) as part of collaborative contracts with Research and Knowledge Dissemination Organisations (i.e. mainly universities) (hereafter ORDC). 

An ORDC is considered to be an entity, regardless of its legal status or method of financing, whose primary objective is to carry out, in complete independence, fundamental research, industrial research or experimental development activities or to widely disseminate the results of these activities by means of teaching, publications or knowledge transfer. ORDCs must be approved by the French Ministry of Research. 

The  tax credit includes technical and scientific research operations in three areas : fundamental research, applied research, and experimental development. 

This tax credit is equal to 40% (50% for EU small- and medium-sized enterprises [SMEs]) of the expenses invoiced by these organisations, up to a cap of EUR 6 million per year. Expenses invoiced by ORDCs in excess of the EUR 6 million limit may be included in the basis for calculating R&D tax credit. 

The tax credit can be offset against the CIT liability payable by the taxpayer with respect to the calendar year during which the wages are paid. Any excess credit can be carried forward and offset against the tax liability of the taxpayer during the next three years. 

Credits unused after three years will be refunded to the taxpayer. 

New "green industry tax credit" ("crédit d'impôt pour l'industrie verte" or "C3IV")

The 2024 Finance Bill introduced a tax credit for green industry, equal to 20% (or 25% to 40% depending on the geographic area of investment) of the amount of eligible expenses incurred. The tax credit could amount to a maximum of €150 million per company (or €200 million to €350 million in the case of investments in specific areas). 

Are eligible investment expenditures incurred in connection with activities contributing to the production of batteries, solar panels, wind turbines and heat pumps. 

This tax credit would apply to applications filed as from September 27, 2023 and would apply to accredited investments until December 31, 2025. 

Patent Box regime

The Patent Box regime resulting from the Finance Law for 2019 provides for a CIT rate reduced to 10% (instead of the current standard rate of 25%) on the net income derived from the disposal (to unrelated parties) / licensing of patents and related IP rights.

This legislation implements the 'nexus' approach, according to which a company may only be granted the reduced tax rate when it has carried out the R&D activities from which the patent/related IP right derives.

Eligible assets must qualify as fixed assets for French GAAP purposes:

• Patents.
• Industrial manufacturing processes.
• Proprietary Variety Protection Certificates.
• Copyrighted software.

A formal election must be made in the yearly tax return.

Tax reduction on charitable donations 

For charitable donations made over a financial year ending as of 31 December 2020, the tax reduction amounts to 60% of the amount of the payments. The fraction of the payments exceeding EUR 2 million is entitled to a tax reduction at a rate of 40%. For the calculation of the reduction, the amount of the payments is taken into account within the limit of EUR 20,000 or 5 per thousand of turnover, whichever is higher.

The tax reduction on charitable donation can be offset against the CIT liability payable by the taxpayer with respect to the financial year during which the donations were granted. Any excess reduction can be offset against the tax liability of the taxpayer during the next five financial years.

Inbound investment incentives

No particular incentives are available to foreign investors in France. However, the government offers a comprehensive programme of tax incentives and development subsidies to encourage investment in underdeveloped areas.

Capital investment is encouraged through the declining-balance method of depreciation as well as through exceptional depreciation for certain capital expenditures.