The Business Property Tax (CFE) often surprises those starting a business in France. Unlike income tax or VAT, it is not linked to net profit or turnover. It is a local tax, levied by the municipality or inter-municipal authority where the business is located, and calculated primarily based on the surface area of the premises it occupies.
This article clearly explains what the CFE is, who is liable for it, how it is calculated, and how to manage it without any unpleasant surprises.
I- WHAT IS THE CFE?
The CFE (Business Property Tax) is an annual tax owed by businesses for their professional activity. The revenue from this tax goes to the local authorities (municipality, inter-municipal body, etc.) where the business is located. These authorities set the tax rate, which explains why two identical businesses can pay very different amounts depending on the city where they are based.
The CFE is one of the two components of the Territorial Economic Contribution (CET). The second is the Business Value Added Tax (CVAE), which only applies to businesses with a turnover exceeding €500,000.
NOTE: For those unfamiliar with French taxation: what does the CFE look like?
The closest British equivalent is the business rates system: a local tax paid by the occupant of business premises, calculated on a theoretical rental value, and whose revenue funds local authorities. In the United States, the equivalent is the local property tax.
However, there are two key differences. First, the CFE is payable by the user of the premises, whether owner or tenant, whereas the American property tax is levied on the owner. Second, and this is the major peculiarity of the French system, a company without any business premises remains liable for a minimum tax.
II- WHO HAS TO PAY FOR IT?
The CFE is payable by any individual or legal entity that regularly carries out a self-employed professional activity on January 1st of the tax year. This includes companies of all types, sole traders, members of the liberal professions (lawyers, doctors, consultants, etc.), micro-entrepreneurs, and, in some cases, landlords of furnished accommodations. The legal structure or tax regime is irrelevant: it is the act of carrying out the activity that triggers the tax.
Main Exemptions
- The year of creation. A business is not taxed in the calendar year of its creation. The following year, its tax base is reduced by half.
- Very low turnover. Businesses with a reference turnover not exceeding €5,000 are exempt from the minimum tax.
- Certain activities. The law exempts, in particular, farmers, artists-painter sculptors and authors, certain self-employed craftspeople, songwriters, non-profit organizations and associations, and teaching activities carried out under certain conditions.
- Local exemptions. Local authorities may, by resolution, grant temporary exemptions: establishment in a rural revitalization zone, in a priority city-district, creation of an innovative business, etc.
NOTE: Many foreign entrepreneurs believe they are not affected because they work from home or are simply registered with a business address provider. This is a common mistake. If the business does not have a physical address, it is taxed at its place of residence or registered address, based on the minimum tax rate described below.
III- HOW IS IT CALCULATED?
The calculation is based on a simple formula: tax base × tax rate voted by the local authority, plus a few additional taxes (notably taxes for chambers of commerce) and administrative fees. Sometimes, this calculation is replaced by the minimum contribution.
- The tax base: This is the cadastral rental value of the real estate (offices, shops, workshops, warehouses, land) used by the company for its business. This is not the actual rent paid, but a theoretical value set by the tax authorities. This base is assessed with a lag: the situation from two years prior is used. Industrial establishments also benefit from a 50% reduction in their rental value.
- The rate: Each municipality or inter-municipal body freely votes on its rate, within limits set by law. Rates vary considerably from one area to another; it is therefore useful to inquire before choosing your location.
- The minimum tax base: A business without premises, or whose premises have a very low rental value, cannot avoid the CFE. In this case, the tax authorities replace the rental value with a flat-rate amount called the minimum tax base. This amount is set by the municipality, choosing a figure within a range defined by law. This range depends on the company’s turnover from two years prior. To calculate the tax due, the rate voted by the municipality is then applied to this base, exactly as for a business with premises.
IV- HOW TO DECLAR AND PAY THE CFE?
- Declarations: A new business must file an initial declaration (form 1447-C) before December 31st of the year it is created. This allows the tax authorities to know the premises used and to apply any start-up exemptions. Thereafter, no annual declaration is required, except in the event of a change: modification of surface area, new premises, or application for an exemption. In this case, an amended declaration (form 1447-M) must be filed no later than the second business day following May 1st.
- The professional account – a mandatory step: Every business must create aprofessional account on the impots.gouv.fr website. This is the only place where the tax assessment notice is available; it is no longer sent by mail. Failure to access this account does not exempt you from paying taxes, and it is one of the most frequent causes of penalties for foreign entrepreneurs.
- Payment Schedule and Methods
- Mid-November: Tax notice available online in your business account.
- December 15th: Deadline for payment of the balance.
- June 15th: 50% advance payment for businesses whose CFE for the previous year was at least €3,000.
- Monthly Payments: Payment can be spread out through monthly direct debits upon request.
Payment must be made electronically: online payment, direct debit on the due date, or monthly direct debit. Checks and bank transfers are not accepted. Any delay or payment by an unauthorized method will incur a 5% surcharge.
V- REDUCE OR CONTEST THE CFE
- Capping based on added value: To prevent excessive taxation on unprofitable activities, the law caps the CET (CFE and CVAE combined) at 1.531% of the added value generated by the company during the tax year. The tax relief can never reduce your CFE below the amount of the minimum municipal tax applicable to you. This mechanism is not automatic: the company must apply to the tax authorities by filing a claim using form no. 1327-CET-SD.
- Tax Relief: Certain situations entitle you to a tax reduction: a decrease in the rental value of the premises used between year N-2 and year N-1, or cessation of business activity during the year. You must notify the tax authorities using form no. 1327-CET-SD if you are subject to the actual profit regime, or form no. 1327S-CET-SD if you are under the micro-enterprise regime. The application must be sent no later than December 31st of the year following the tax year.
- Claiming an error: In this case, the taxpayer can file a claim, preferably via the secure messaging system in his professional account, until December 31st of the year following the year the tax assessment was issued. It is advisable to pay the tax in the meantime, as the claim does not automatically suspend the assessment.
VI- KEY POINTS TO REMEMBER FOR FOREIGN ENTREPRENEURS
Several pitfalls are common:
- The surprise in the second or third year. The initial exemption can sometimes give the impression that you’re not affected. However, all entrepreneurs are liable for the CFE.
- Forgetting to use your business address. Without a paper copy, the notice goes unnoticed, and the 5% surcharge is applied.
- Confusion with other taxes. The CFE is separate from income tax, corporation tax, and property tax which is paid by the property owner.
- The municipality. For a business without premises, the registered address determines the minimum tax base and the applicable rate. Furthermore, the rates vary from one municipality to another.
In conclusion, the logic is simple, even if the specifics vary from one municipality to another. By knowing when it applies, regularly checking your online business account, and paying on time each December, entrepreneurs can make it a predictable expense.
Our chartered accountants can help you better understand and manage this tax.
