Tax benefits: what can your small company claim?

In brief

Size matters. A small company under the Code of Companies and Associations can use several favourable regimes. Many founders know them poorly and leave these tax benefits unused. Yet they change the amount due every year.

Who qualifies for SME tax benefits?

The starting point remains Article 1:24 of the Code. It defines a small company through three criteria: turnover, balance sheet total and average headcount. A company must not exceed more than one of these criteria.

The thresholds change from time to time. Check them for your financial year with your accountant. For a company within a group, the test uses consolidated figures. This status opens the door to most of the tax benefits below.

The 20% reduced rate

A small company pays 20% on its first 100,000 euros of taxable profit, instead of 25%. The saving reaches up to 5,000 euros a year.

Three main conditions apply.

• The company meets the small company criteria.
• At least one director receives a salary of at least 45,000 euros, or equal to taxable profit if that figure is lower.
• The company does not fall under the exclusions, such as investment companies.

Take an example. An SRL earns 60,000 euros of taxable profit and pays its manager 45,000 euros. It pays 12,000 euros in corporate levy instead of 15,000 euros. Of all the tax benefits, this one often brings the most. Our guide to the ISOC return shows the calculation.

No surcharge for three financial years

A company normally pays its corporate levy through advance payments. Without them, a surcharge applies. A small company, however, escapes this surcharge during its first three financial years. That breathing space eases cash flow at the start. Still, prepare for the fourth year, when the general rule applies again.

Partial relief on payroll withholding

A young small company that hires staff may keep part of the withholding deducted from salaries. It therefore does not pay the full amount over to the Treasury. The employee loses nothing. This measure lowers the real cost of the first hires, for a limited period. Among employment-related tax benefits, it remains one of the most tangible.

The liquidation reserve

A small company can place part of its profit in a liquidation reserve. It then pays a separate 10% levy on that amount. In exchange, a later distribution carries a reduced withholding rate, after a waiting period. When the company goes into liquidation, no extra withholding applies to that reserve.

This mechanism suits directors who leave profits in the company for several years. Waiting periods and rates have changed before, so check the rules in force when you set up the reserve.

Lower withholding on dividends

The standard withholding on dividends stands at 30%. The VVPRbis regime, however, allows a reduced rate on dividends from certain SME shares, subject to contribution and timing conditions. Our article on dividend taxation explains these rules.

The start-up investment scheme

This regime first helps your private investors. A person who subscribes to the capital of a company under four years old gets a personal income reduction.

• 45% of the amount invested in a micro-company.
• 30% of the amount invested in a small company.
• A ceiling of 100,000 euros per taxable period.

For the company, these tax benefits make fundraising easier. Our start-up investment guide describes the procedure.

Other useful tax benefits

• A 0.5% increase in the rate of the risk capital deduction.
• An investment deduction on certain assets, at rates that change regularly.
• The innovation income deduction, covering 85% of certain income from patents and software.
• The immediate deduction of formation costs, with no obligation to depreciate them.

Conditions to monitor

These regimes require rigour.

Missing a single point can cost you an entire benefit. An accountant checks these conditions before the year end.

In short

Small companies can combine several tax benefits. The reduced rate, advance payment relief, payroll withholding relief, the liquidation reserve and the start-up scheme work together. Each regime comes with its own conditions. Find the current texts on the FPS Finance website. For a broader view, read our guide to legal optimisation levers.