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Conditions for exemption from business capital gains tax

04.19.2017

Capital gains are extraordinary income realised by a business in the course of its agricultural, artisanal, commercial, industrial, or professional activities, during the disposal of certain fixed assets . In principle, gains of this type are taxable.

However, there are several scenarios in which an exemption may be claimed.

  • Exemption on the basis of receipts

    • Article 151 septies of the French Tax Code

    • This system is applicable to individual enterprises subject to income tax (individual companies or partnerships). It concerns capital gains realized during or at the end of operations. The exemption is total or partial depending on the amount of revenue earned by the company.

    • Conditions for the application of the exemption:

    • The exemption is total when the annual income is less than or equal to:
      - € 250 000 for undertakings whose main trade is the sale of goods, articles, supplies and food to be taken away or consumed on the spot; The provision of housing and farms;
      - € 90,000 for service providers.

    • - The exemption is partial where the revenue exceeds these limits without exceeding € 350 000 in the first case and € 126 000 in the second.

    • - The activity must have been carried out for at least 5 years.

  • Exemption assessed by reference to the value of the items disposed of

    • Article 238 (15) of the French Tax Code

    • This system is applicable to capital gains realized on the occasion of the transfer of a sole proprietorship or a complete branch of activity. The exemption depends on the value of the elements transmitted.

    • Conditions for the application of the exemption:

    • - The exemption is total if the value disposed of is less than €300,000 or partial if it is between €300,000 and €500,000;

    • - If the disposal is made for good consideration, an additional condition must be satisfied, namely, the transferee business must not be controlled by the transferor;

    • - The business activity must have been carried on for at least five years.

  • Deferral of taxation if the disposal is a contribution to a company

    • Article 151 (8) of the French Tax Code

    • This system is applicable to operators who bring their individual business to a company. It allows them to benefit from a tax deferral for the capital gains realized on the occasion of this contribution.

    • Conditions for the application of the deferral:

    • - The taxation of capital gains realised on non-depreciable fixed assets is deferred up to the date of the disposal, buyback or cancellation of the rights in the company received as remuneration for the contribution to the business or until the disposal of these assets by the company, if this is earlier;

    • - The contribution must be remunerated by a share issue.

  • Deferral of taxation in the event of the disposal of a one-person business without consideration

    • Article 41 of the French Tax Code

    • This system is applicable to natural persons who are beneficiaries of a gift or a succession in respect of a sole proprietorship.
      Provided that they continue the activity, they may opt for a tax deferral regime for gains recognized on the day of transmission. This deferral becomes a definitive exemption when the activity is continued for at least five years.

    • Conditions for the application of the deferral:

    • - Disposal of all the fixed assets;

    • - Continuation of the business activity, by one or more beneficiaries of the disposal.

  • Exemption in the event of the taxpayer's retirement

    • Article 151 (7) of the French Tax Code

    • This system is applicable to the capital gains realized on the transfer of an SME for consideration on the occasion of the retirement of its manager. The transfer must relate to a sole proprietorship or to all the shares of a company subject to income tax.

    • Conditions for the application of the exemption:

    • - The business activity must been carried on for at least five years;

    • - The transferee business must not be controlled by the transferor. They must not hold, whether directly or indirectly, more than 50% of the voting rights or rights in the profits of the transferee business;

    • - The transferor must cease to have any function in the business and to claim their pension rights within two years of or prior to the assignment.

  • Allowance for long-term capital gains on real estate

    • Article 151 (7) (B) of the French Tax Code

    • This system applies to capital gains realized on the sale of immovable property allocated by the undertaking to its own holding or rights or shares in companies whose assets consist mainly of such assets. Capital gains are taxed after application of an abatement of 10% per year of detention beyond one fifth. Given this abatement, capital gains realized on property held for more than 15 years are therefore totally exempt.

 
See also
29.11.2016
The letter of the notaries of France in the world / November 2016
25.01.2017
French property market report / N°34
congres_notaires_europe_cnue_2017
22.09.2017
4th Congress of the Notaires of Europe
02.10.2017
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