Deductible Expenses for French Corporate Tax (IS) 2026: Rules, Limits and Common Traps
Not all expenses are deductible under French corporate income tax (IS). CGI art. 39, luxury costs, interest limitations, gifts, fines: master the 2026 rules to secure your tax return.
Expert note: This article was written by our chartered accountancy firm. Information is current as of 2026. For a personalised review of your situation, contact us.
Under France's corporate income tax (impôt sur les sociétés, IS), the taxable profit is derived from the accounting profit after a series of extra-accounting adjustments — add-backs (réintégrations) and deductions. In 2026, the rules remain strict: article 39 of the Code général des impôts (CGI) sets the general conditions, while specific provisions exclude or cap certain categories of expenditure.
1. Four Conditions for Deductibility (CGI art. 39)#
An expense is deductible only if it simultaneously meets all four conditions:
- Incurred in the company's interest: the expense must serve the business purpose, not the private interests of directors or shareholders.
- Results in a reduction of net assets: capital expenditure (investment in fixed assets) cannot be deducted immediately — it must be depreciated over the useful life.
- Not excluded by a specific legal provision: a number of items are expressly non-deductible (see below).
- Properly recorded and documented: the expense must be entered in the accounts and supported by a valid invoice or contract.
2. Common Deductible Items#
- Director remuneration: deductible if it corresponds to actual work and is not excessive relative to comparable market rates.
- Bank interest: fully deductible (subject to under-capitalisation rules).
- Shareholder loan interest (compte courant d'associé): deductible up to the benchmark rate published by the DGFiP each year (5.84% for 2025 financial years).
- Provisions: deductible if the risk is individualised, probable, measurable and recorded at year-end.
3. Non-Deductible or Capped Items#
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, contractual late-payment penalties, customs fines.
Luxury costs — charges somptuaires (CGI art. 39-4)#
Non-deductible unless they form the company's core business:
- Yachts and pleasure boats (≤ 15 net tons);
- Leisure residences (holiday homes, chalets).
Vehicle depreciation cap#
Depreciation on passenger cars (M1) is capped at €18,300 (or €9,900 for vehicles emitting more than 117 g/km CO₂ from 2022). This is separate from the TVSF annual vehicle tax.
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 rule primarily affects large, highly leveraged groups; most SMEs fall under the €3M safe harbour.
Client gifts#
Deductible up to €73 inc. VAT per beneficiary per year (DGFiP administrative doctrine). Amounts above this threshold must be added back.
4. Mixed-Use Expenses#
Where an expense has both business and personal components (e.g., a car available to a director for private use), only the professional fraction is deductible. The personal fraction either constitutes a taxable benefit-in-kind for the director or a non-deductible gift to a third party.
5. Double Tax Hit on Non-Deductible Expenses#
When the DGFiP reclassifies an expense as a liberality (benefit granted without consideration), two consequences follow simultaneously:
- Add-back to taxable income → additional IS + interest + 40% penalty (if deliberate);
- Taxation in the hands of the recipient → reclassified as distributed income subject to the flat tax (PFU 30%) or income tax scale.
Frequently asked questions
Are Madelin pension contributions deductible from corporate tax?+
No. Madelin contributions (for self-employed/TNS) reduce the personal taxable income of the individual under income tax — not the company's IS base.
Can a provision for litigation be set up before legal proceedings begin?+
Yes, provided the risk is probable and quantifiable at year-end. A formal pre-litigation notice or demand letter can be sufficient grounds.
Are a director's home-to-work commuting costs deductible?+
No. Commuting costs are personal expenses. Business travel (client visits, inter-site travel) is deductible with proper documentation.
Are charitable donations deductible from IS?+
Yes, under CGI art. 238 bis: up to 60% of the donation, capped at 0.5% of revenue (excl. VAT). Amounts above the cap can be carried forward for 5 years.
Should company formation costs be expensed or capitalised?+
Both options are permitted. Immediate expensing (charges) generates an IS saving from year one and is the most common practice.
English practical addendum#
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.
Article written by Samuel HAYOT
Chartered Accountant, registered with the Institute of Chartered Accountants.
Regulated French accounting and audit firm based in Paris 8, built to support companies across France with a digital and decision-oriented approach.
Sources
Official and operational sources cited for this page.
This topic is part of our service Tax accountant in Paris | CIT, VAT & tax audits
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