Deductible Expenses for French Corporate Tax (IS) 2026: Rules, Limits and Common Traps

Under France's corporate income tax (impôt sur les sociétés, IS), the taxable profit is not simply the accounting profit. It is derived from the accounting result after a series of extra-accounting adjustments — add-backs (réintégrations) and deductions — that can create a significant gap between the two figures. In 2026, the 2026 Social Security Financing Act (LFSS 2026) modified the CSG rate, affecting the flat tax (PFU) on deemed distributions, while vehicle depreciation caps and the shareholder loan interest rate have also been updated.

Direct answer — which expenses are deductible for French IS?

An expense is deductible from French corporate tax if it is incurred in the company's interest, recorded in the accounts, supported by evidence, and not expressly excluded by a specific provision of the CGI. Certain categories (fines, luxury costs, vehicle depreciation above the CO₂-based cap) are always added back.

An expense is deductible only if it simultaneously meets all four conditions set out in article 39-1 of the French Tax Code:

1. Incurred in the company's interest: the expense must serve the company's business purpose, not the private interests of directors or shareholders. A personal expense dressed up as a business cost is systematically challenged during tax audits.
2. Results in a reduction of net assets: capital expenditure on fixed assets cannot be deducted immediately — it must be depreciated over the asset's useful life.
3. Not excluded by a specific legal provision: a number of items are expressly non-deductible or capped (see below).
4. Properly recorded and documented: the expense must be entered in the accounts and supported by a valid invoice or contract.

The taxable result is obtained by starting from the pre-tax accounting profit and applying two types of adjustments:

• Add-backs (réintégrations): expenses booked in the accounts but not fiscally deductible (fines, excess vehicle depreciation, TVSF tax, etc.) — these increase the taxable result.
• Extra-accounting deductions: exempt income or already-taxed items (e.g., dividends under the parent-subsidiary regime) — these reduce the taxable result.

These adjustments are reported on form 2058-A (standard real regime) or form 2033-B (simplified regime). An error in add-backs can trigger a reassessment with a 40% penalty for deliberate omission.

• Director remuneration: deductible if it corresponds to actual work performed and is not excessive relative to comparable market rates (CGI art. 39-1-1°). Related employer social contributions are also deductible.
• Bank interest: fully deductible, subject to thin-capitalisation rules in CGI art. 212.
• Shareholder loan interest (compte courant d'associé, CCA): deductible up to the benchmark rate published quarterly by the DGFiP on BOFiP.
• Provisions: deductible if the risk is individualised, probable, measurable and recorded at year-end (CGI art. 39-1-5°).

Maximum deductible interest rate on shareholder loans (CGI art. 39-1-3°)

Interest paid above this rate must be added back to taxable income.

Summary table#

Fines and penalties (CGI art. 39-2)#

All fines, penalties and confiscations of any nature are expressly non-deductible: criminal fines, tax and social-security penalties (including late-payment interest), contractual penalties imposed on the company, and customs fines. The annual vehicle ownership tax (TVSF) is also non-deductible under CGI art. 1010-II.

Luxury costs — charges somptuaires (CGI art. 39-4)#

Non-deductible unless they form the company's core activity: yachts and pleasure boats (up to 15 net tons); leisure residences (holiday homes, chalets, secondary residences).

Passenger car depreciation cap (CGI art. 39-4)#

Depreciation on passenger cars (category M1) is capped according to CO₂ emissions in a four-band scale:

The cap applies to the purchase price inclusive of VAT (VAT on passenger cars is not recoverable in France). This depreciation cap is entirely separate from the annual TVSF ownership tax.

Worked example — thermal vehicle €45,000 incl. VAT, 165 g/km CO₂

A company acquires a passenger car in January 2025 for €45,000 incl. VAT, emitting 165 g/km CO₂. Straight-line depreciation over 5 years: annual charge of €9,000.

Applicable cap: €9,900 (> 160 g/km band).

Non-deductible fraction = €9,000 × (€45,000 − €9,900) / €45,000 = €7,020 per year.

Only €1,980 is fiscally deductible each year. Over five years, the cumulative add-back amounts to €35,100, representing 78% of the vehicle cost. This add-back is reported annually on form 2058-A (line WQ).

Net financial charges cap — ATAD (CGI art. 212 bis)#

Net financial charges are deductible only up to the higher of: 30% of fiscal EBITDA or €3,000,000. This ATAD rule (transposed from EU Directive 2016/1164 by the 2019 Finance Act) primarily affects large, highly leveraged groups. Most SMEs fall entirely within the €3M safe harbour.

Client gifts#

Deductible up to €73 incl. VAT per beneficiary per year, in force since 1 January 2021 and still applicable in 2026 (revised every five years by ministerial order; no revaluation order published to date). The all-or-nothing rule applies: if the cumulative annual total per beneficiary exceeds €73 incl. VAT, input VAT is permanently lost on the entire amount for that person. The threshold includes transport, packaging and personalisation costs.

Where an expense serves both business and personal purposes (e.g., a car also used privately by a director), only the business fraction is deductible. The personal fraction either constitutes a taxable benefit in kind for the director or a non-deductible liberality. Documentation of the split (mileage log, allocation key) is essential to withstand scrutiny during a tax audit.

When the DGFiP reclassifies an expense as a liberality (benefit granted without consideration), two consequences follow simultaneously:

1. Add-back to taxable income → additional IS + late-payment interest + 40% penalty for deliberate omission;
2. Taxation in the recipient's hands: if the liberality benefited the director, it is reclassified as distributed income, subject to the flat tax (PFU of 31.4% since LFSS 2026: 12.8% income tax + 18.6% social levies including 10.6% CSG) or, on election, to the progressive income tax scale.

• Fines and penalties of any nature → add back (CGI art. 39-2)
• TVSF vehicle ownership tax → add back (CGI art. 1010-II)
• Luxury costs (yacht, leisure residence) → add back (CGI art. 39-4)
• Vehicle depreciation above applicable CO₂ cap → add back the excess (form 2058-A, line WQ)
• CCA interest above BOFiP rate (4.55% for 31/12/2025 year-end) → add back the excess
• Net financial charges > €3M → apply ATAD cap (CGI art. 212 bis)
• Client gifts > €73 incl. VAT per beneficiary per year → add back the excess; check lost VAT
• Mixed-use expenses → verify documented split or declared benefit in kind
• Provisions without legal basis or overly global → add back
• Deemed distributions → verify consistency with PFU return (31.4% since LFSS 2026)

This article reflects rules in force as at 28 May 2026 and incorporates changes from LFSS 2026 (CSG rate) and the vehicle depreciation schedule. It is intended for information purposes and does not replace personalised advice from a chartered accountant or tax specialist. Rates, caps and conditions are subject to change.

This English section is written for international readers who need to apply the French guidance to a real management decision. The key point for deductible expenses for French corporate tax is not to memorise every technical rule, but to connect the rule to documents, deadlines, cash impact and governance. For SME directors and finance teams closing French corporate-tax accounts, the right approach is to identify the decision to be made, collect reliable evidence, and only then choose the accounting, tax, payroll or legal treatment.

The practical decision is which expenses are deductible, limited, non-deductible or requiring additional documentation before the tax return is filed. That decision should be documented before the year-end close, financing discussion, payroll run, transaction signing or tax filing concerned by the topic. When the matter is material, the file should include who decided, which assumptions were used, and which professional advice was obtained.

Evidence to keep#

• supplier invoices;
• business-purpose notes;
• contracts;
• board approvals where relevant;
• tax add-back schedule;

The danger is to book an expense correctly in accounting but fail the tax evidence test for corporate income tax. A clean file also helps the company answer questions from banks, investors, auditors, tax authorities, employees or buyers. It is usually cheaper to prepare that evidence during the process than to reconstruct it after a dispute, audit or urgent financing request.

Management checklist#

Before acting, management should run a short checklist. First, confirm that the entity, period and perimeter are correct. Second, compare the accounting treatment with the tax, payroll or legal consequence. Third, quantify the cash effect, because a technically valid option may still be unsuitable if it creates a short-term liquidity issue. Fourth, make sure the decision can be explained in plain English to a shareholder, lender, employee or buyer who is not familiar with French terminology.

For French subsidiaries of foreign groups, translation is also a control topic. A term that sounds familiar in English may not have the same legal meaning in France. The safer method is to keep the French source wording in the working file, then add a short English management note explaining the decision, the financial effect and the residual risk.

How Hayot Expertise would frame the work#

In a professional review, the starting point is the business objective. Is the company trying to reduce risk, close the accounts, prepare a filing, obtain financing, retain employees, sell a business or improve reporting? Once the objective is clear, the technical analysis becomes more useful because it is attached to a concrete decision. Hayot Expertise would generally separate the work into three layers: compliance, numbers and management judgement.

The compliance layer answers whether a rule applies and which documents are required. The numbers layer measures the effect on profit, tax, payroll, cash, equity, valuation or working capital. The management layer decides whether the option is consistent with the company's strategy and risk appetite. This separation avoids a common mistake: treating a French technical rule as if it were only an administrative formality.