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#

Salaries paid to directors (majority manager of a SARL, president of a SAS, and so on) are deductible provided they correspond to actual work performed and are not excessive relative to the services rendered (CGI art. 39-1-1°). Whether pay is excessive is assessed by comparison with remuneration paid for similar duties in businesses of a comparable size and sector. The related employer social contributions are deductible on the same basis.

Financial charges#

Interest on bank borrowings and interest paid to shareholders on current accounts are deductible within the following limits:

• Bank interest: fully deductible, subject to the thin-capitalisation rules of CGI art. 212;
• Shareholder loan interest (compte courant d'associé, CCA): deductible up to the maximum rate published quarterly by the DGFiP on BOFiP (CGI art. 39-1-3°).

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

The benchmark rate is published each quarter on BOFiP. For a non-calendar year-end (31 March, 30 June or 30 September), use the rate applicable at your own closing date. Interest paid above this rate must be added back to taxable income.

Provisions#

Provisions are deductible when they meet the four conditions of CGI art. 39-1-5°:

• They are individualised (a precise, identified risk);
• They arise from events in progress at the closing date;
• The risk is probable, not merely possible;
• They are recorded in the accounts at year-end.

Blanket or flat-rate provisions are systematically challenged by the tax authority: the deduction stands or falls on the documentation of each individual risk (claim file, formal notice, quantified estimate).

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. In practice we recommend fixing the allocation key in writing at year-end (for example 70/30 business versus personal use, based on the mileage log) and applying it consistently to depreciation, insurance, maintenance and fuel: an allocation that changes from one year to the next without justification is a classic red flag for the tax auditor.

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.