Finance act for 2020: Main provisions concerning companies

Through this second part of the finance law for 2020, we will see the main measures which concern small and medium-sized enterprises.

This study will focus on:

• The scope of the tax;
• The calculation of the tax result;
• The calculation of corporate tax;
• The capital gains of companies;
• VAT.

We will also briefly present some rules concerning the merger regime, the territorial economic contribution (C.E.T.) and tax control.

I – Scope of tax

1. Young innovative companies scheme (J.E.I.)

This system is extended until December 31^st, 2022. The law also provides for flexibility in the calculation of the 15% threshold for research spending.

2. Professional furnished rental

From January 1^st, 2020, the furnished rental must meet only two conditions to be qualified as a professional rental company:

• The annual receipts from the furnished rental activity by all members of the tax household must exceed € 23,000;
• These revenues must exceed the other professional incomes of the tax household.

II – Calculation of tax result

Over-amortization device:

• Vehicles and other non-road machinery operating exclusively on natural gas, electricity or hydrogen: public works companies, operators of airports or ski lifts in sky stations can deduct from their tax result 40% of the original value of the following materials:
  • Materials and tools used for industrial operations;
  • Material used for handling.

This deduction is applicable from January 1^st, 2020 until December 31^st, 2022.

• Storage facilities and materials for handling and distributing gasoil: small and medium-sized non-road diesel retail businesses can deduct 40% of the original value of the following equipment:
  • Storage facilities and equipment for handling and distributing the diesel fuel identified in index 22 of table B1 of article 265 of the customs code.

This deduction is applicable from January 1^st, 2020 until December 31^st, 2022.

III – Calculation of the corporate tax

1. Change in the schedule for reducing the corporate tax rate for large businesses

For companies with annual turnover of € 250 million or more the following rates will apply:

• For the financial years open from January 1^st, 2020 to December 31^st, 2020, 28% up to € 500,000 in profit and 31% beyond;
• For the financial years open from January 1^st, 2021 to December 31^st, 2021, 27.5% of the total Profit;
• For fiscal years beginning on or after January 1^st, 2022, 25% of the entire Profit for all businesses.

2. Withholding tax applicable to non-resident companies

We will set out a brief summary of these provisions, which mainly consist in bringing French rules of withholding tax into conformity with European law. Readers concerned by this chapter can contact us for more specific information.

• Withholding tax based on a presumption of distribution abroad by a foreign company making profits in France: profits made in France by a foreign company are deemed to be distributed after each financial year unless the company has its headquarters in a member state of the E.E.C. and if it is liable to corporation tax there.

But, now, the company can request that this withholding tax be recalculated when the base that were used for its calculation exceed the amount of the distributions actually made.

• Withholding tax on income distributed abroad: loss-making companies can request the return of the paid withholding tax.

3. Research tax credit

• Modification of the calculation of the operating expenses package: the flat rate for staff costs is lowered to 43%.
• The statement annexed to the research tax credit declaration no longer has to be supplied to the administration by companies which incur an amount of expenditure of less than € 10 million.

IV – Capital gains

Spreading of capital gains resulting from the transfer of a fixed asset to another state of the E.E.C. : this spread was only possible up to now in the case of a transfer of the registered office or establishment. From now on, in all cases of transfer, the company may, on request to the administration, pay the capital gains tax by one fifth per year for five years.

V – VAT

1. Creation of a harmonized European VAT system applicable to stocks

This concerns goods stored under a deposit contract during an intra-European sale.

From now on, the supplier no longer has to register for VAT in the country of destination when the transfer of ownership to the purchaser of the goods takes place within 12 months of their arrival in the country of storage.

2. Additional condition to benefit from the exemption of intra-Community deliveries

In addition to the supplier’s communication of his VAT identification number, he must also deposit the declaration of exchange of goods (D.E.B.).

3. Intra-community VAT on e-commerce

• Intra-community distance sales: from January 1^st, 2021, all French companies must apply the VAT of the member state of destination of an intra-community distance sale when the total amount of these sales has exceeded during the year or during the previous year the sum of € 10,000.
• From January 1^st, 2021, the interfaces which facilitate distance sales will be liable for VAT on these sales.

Thus, these platforms will also be liable for VAT on distance selling operations for imported goods.

Interfaces that facilitate deliveries of goods or services to customers not subject to VAT will have to register these transactions in a register.

VI – Miscellaneous tax measures 

• Mergers between companies: from January 1^st, 2020, the transfer of deficits to the absorbing company is possible without prior approval provided that their cumulative amount is less than € 200,000.

• Certain rural municipalities may grant exemption from C.E.T. and property tax to commercial or craft businesses located on their territory.

• Tax control: tax and customs authorities can now use the information contained on the internet. The strictly necessary data will be kept for a period of one year maximum, the other data will be destroyed within thirty days of their collection.

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