Foreign founders often budget for a first year in which a French company spends before it earns: incorporation costs, product development, recruitment, professional fees, premises and market-entry expenses may precede the first substantial invoices. That accounting loss does not give the founder a personal tax refund. If the French company is subject to corporate income tax, the relevant asset is a tax deficit belonging to the company, and its use is governed by precise French rules. The central rule is a carry-forward against later taxable profits, but annual use is capped at €1 million plus 50% of the taxable profit above €1 million. A separate carry-back election can sometimes create an earlier corporate-tax receivable, but it is limited, time-sensitive and unavailable in several corporate events.
This guide answers the practical question a non-resident shareholder, foreign parent or newly incorporated SAS or SARL must resolve: how can the company preserve, document and use its French tax losses without confusing accounting figures, tax figures, group rules or the founder’s own tax position? It covers the calculation, the €1 million ceiling, carry-back, tax consolidation, cross-border evidence, changes of activity and a defensible file for the French Tax Administration. For the wider legal map, see the French company and international business law hub. The legal references are current as checked during this run, including the applicable provisions of the Code général des impôts (French General Tax Code, or CGI), the Code de commerce (Commercial Code), official tax guidance and verified court decisions.
I. How does a French company use a tax loss after a start-up year?
A. What is the difference between an accounting loss and a French tax deficit?
The starting point is the company, not the founder. A French SAS (simplified joint-stock company), SARL (private limited liability company), SA (public limited company) or another entity that is liable for corporate income tax computes its own taxable result. The shareholder’s nationality, residence and location do not turn that company deficit into a loss that can automatically be deducted from the shareholder’s personal income or from the foreign parent’s domestic tax base.
A company first prepares its accounts. Article L. 123-12 of the Commercial Code requires a merchant legal person to record the movements affecting its assets, perform an inventory at least every twelve months and prepare annual accounts comprising the balance sheet, income statement and notes. The official text states that the accounts are prepared “à la clôture de l’exercice au vu des enregistrements comptables et de l’inventaire” (at the close of the financial year on the basis of the accounting records and inventory). See the current Article L. 123-12 of the French Commercial Code.
The accounting income statement shows a profit or loss under accounting rules. The tax result then starts from that accounting result and applies tax adjustments. Some expenses may be non-deductible or deductible only under conditions. Depreciation may be calculated differently for tax purposes. Provisions, employee benefits, related-party charges, interest, foreign exchange items and exceptional expenses may need specific treatment. The result is not a matter of simply copying the bottom line of the annual accounts into the corporate tax return.
Article L. 123-13 of the Commercial Code describes the difference between income and expenses and requires the income statement to show, after depreciation, impairment and provisions, the profit or loss for the year. Its exact wording explains that the income statement “fait apparaître par différence, après déduction des amortissements, des dépréciations et des provisions, le bénéfice ou la perte de l’exercice.” The official Article L. 123-13 text is therefore a useful reminder: the accounting loss is a starting fact, while the deductible tax deficit must be reconstructed and supported.
For an entity subject to French corporate income tax, the tax deficit is generally shown through the annual results filing, including Form 2065 and its tax package. Article 53 A of the CGI requires taxpayers within its scope to file each year a declaration enabling the taxable result to be determined and checked, within the deadlines provided by the Code. Read the official Article 53 A of the CGI. In practice, the foreign founder should ask the French accountant to preserve both the filed return and the working papers that reconcile accounting loss to tax deficit.
Article 209, I of the CGI gives the ordinary carry-forward rule. It first sets the territorial frame: corporate-tax profits are determined by reference to profits realised in enterprises operated in France, certain income categories and profits allocated to France by an international double-tax treaty. It then provides, in the exact wording verified from Legifrance, that “en cas de déficit subi pendant un exercice, ce déficit est considéré comme une charge de l’exercice suivant et déduit du bénéfice réalisé pendant ledit exercice” (where a deficit is incurred during a financial year, it is treated as a charge of the following year and deducted from that year’s profit).
This point is crucial for an overseas group. A French subsidiary’s deficit is not the same thing as a loss booked by its United States, United Kingdom, Singaporean or other foreign parent. Likewise, a French establishment of a foreign company must be analysed separately from a French subsidiary. The company must identify which enterprise incurred the cost, where the activity was operated, whether the charge is deductible in France and whether a treaty changes the allocation. The complete current Article 209 of the CGI should be read before a cross-border loss is included in a French tax computation.
The territorial point does not mean that foreign founders are excluded. It means that their French company must be treated as a French taxpayer with a documented French result. An invoice from a foreign parent, a director’s expense incurred abroad, a research cost paid from a foreign bank account or a management fee can be relevant, but each needs a real business purpose, evidence of performance, an appropriate accounting entry and, where relevant, transfer-pricing support. A label such as “group cost” is not a substitute for proof.
The company also needs to distinguish an ordinary operating deficit from a long-term capital loss, a deficit of a foreign establishment or a loss that has already been used under another tax mechanism. The tax package and the accountant’s reconciliation should identify the nature and origin of the amount. This prevents a later review from treating a book loss as an unexplained number or from counting the same amount twice.
A company taxed under an income-tax regime is a different case. In an SARL that has validly opted for income tax, or in another transparent structure, the economic result may be allocated to the partners under the applicable rules. The present guide focuses on a company liable for corporate income tax. Before promising a personal deduction to a founder, the adviser must confirm the tax regime, the election, the date of the election and the company’s actual filing position.
B. How much of a French company tax loss can be carried forward each year?
The ordinary carry-forward is not a five-year right for a modern French corporate-tax company. Article 209, I provides that if the current profit is not sufficient to absorb the deficit, “l’excédent du déficit est reporté dans les mêmes conditions sur les exercices suivants” (the excess deficit is carried forward under the same conditions to subsequent financial years). The important limitation is therefore not a fixed expiry date but the amount that can be used against profit in each year.
For a normal year, the maximum deficit that may be deducted from the taxable profit is:
€1,000,000 + 50% of the portion of taxable profit above €1,000,000.
This formula applies to the relevant taxable profit before use of carried-forward deficits. It does not mean that every company may erase all tax on a high-profit year by presenting a large old deficit. The 50% component leaves a taxable portion of a large profit. The amount that cannot be used remains in the deficit pool, subject to the conditions applicable in later years.
Example one: a French subsidiary has €2.4 million of properly established carried-forward tax losses. In the following year, its taxable profit before those losses is €1.6 million. The annual ceiling is €1 million plus 50% of €600,000, which equals €1.3 million. The company may therefore use €1.3 million of losses, leaving €300,000 of taxable profit and €1.1 million of losses to carry forward.
Example two: the company has €3 million of losses and €2.2 million of taxable profit. The ceiling is €1 million plus 50% of €1.2 million, or €1.6 million. The taxable profit after use of losses is €600,000. The remaining €1.4 million is not lost merely because the company returned to profit; it stays in the pool for later years, but the company must keep proving its origin and must apply the annual limit each time.
Example three: the taxable profit is €800,000 and the carried-forward deficit is €1.5 million. The cap does not create a smaller special percentage in this situation. Since the profit is below €1 million, the available profit can in principle be absorbed, leaving €700,000 to carry forward, assuming the tax result and the deficit are otherwise valid. The figures must still be adjusted for tax rates, exempt items and any special categories.
The rate of corporate income tax is a separate question from the amount of deficit that may be used. Article 219, I of the CGI states that the normal corporate-tax rate is 25%, while special rates may apply to particular income. Read the current Article 219 of the CGI. A foreign founder should not multiply every accounting loss by 25% and call that a tax credit: a carry-forward reduces a later taxable base, and the saving depends on the profit actually taxed and the applicable rate.
The carry-forward is ordinarily automatic in the sense that the company does not need a separate authorisation request merely to carry a properly declared deficit into later years. That does not make it invisible. The amount should be tracked in the tax package, reconciled from one year to the next and reflected in the corporate-tax computation. A mismatch between the deficit schedule, the accounts and the submitted returns is an avoidable risk.
French annual accounts also matter because the company’s governance and filing file may later be examined by the tax authority, a buyer, a bank or a court. For a company subject to the filing obligation, Article L. 232-23 of the Commercial Code requires a company limited by shares to deposit the annual accounts and related documents with the court registry within the statutory period after approval, with a longer period where the deposit is made electronically. The official Article L. 232-23 text connects the tax computation to a broader corporate record. A foreign shareholder approving accounts from abroad should retain the signed resolutions, delegation, electronic signature evidence and final filed documents.
Do not treat the deficit as a freely transferable asset. In a share sale, the buyer does not automatically receive an unconditional tax benefit disconnected from the company’s activity. The source, continuity and use of the deficit must be reviewed. In a merger or similar transaction, the law provides a specific transfer regime and, in some cases, an approval or an exemption from approval. That is a different operation from simply acquiring shares or changing the company’s shareholder.
Article 209, II expressly deals with deficits of an absorbed or contributing company in a merger or similar transaction placed under the relevant tax regime. It refers to approval under Article 1649 nonies and requires, among other things, an economic justification, motivations other than mainly fiscal motivations, continuity of the activity that generated the deficit and limits on significant changes. The official Article 1649 nonies of the CGI explains the general rule that an approval required for a particular tax regime must normally be requested before the operation that motivates it. Timing is not a detail: a post-closing request may be too late.
For a foreign founder considering a French acquisition or a restructuring, the practical rule is simple: calculate the loss before deciding the transaction. Obtain the last tax packages, the deficit history, notices of assessment, audit correspondence, the business plan, customer and employee continuity evidence, and any prior ruling or approval. If the transaction changes the activity, moves the operating business, closes a site, sells the operating assets or substitutes a holding activity for the original business, obtain a written analysis before signing.
II. Can a foreign founder claim a French tax loss through carry-back?
A. When does the carry-back election create a corporate-tax receivable?
Carry-back is an alternative, not an additional deduction that can be stacked freely on top of carry-forward. Article 220 quinquies, I of the CGI permits a company subject to corporate income tax, on option, to treat the deficit of an eligible year as a deductible charge against the preceding year’s profit. The exact text begins: “Par dérogation aux dispositions du troisième alinéa du I de l’article 209, le déficit constaté au titre d’un exercice ouvert à compter du 1er janvier 1984 par une entreprise soumise à l’impôt sur les sociétés peut, sur option, être considéré comme une charge déductible du bénéfice de l’exercice précédent.” Consult the current Article 220 quinquies of the CGI.
The election is constrained in several ways. The loss may be carried back only against the preceding financial year, not an unlimited series of profitable years. The amount is limited by the lower of the preceding year’s declared profit and €1 million. The preceding profit must also be examined for the exclusions in the text, including the undistributed portion and certain exempt or specially treated profits. The company cannot turn a loss into a cash refund of all corporate tax paid in its history.
The text states that “L’option mentionnée au premier alinéa n’est admise qu’à la condition qu’elle porte sur le déficit constaté au titre de l’exercice, dans la limite du montant le plus faible entre le bénéfice déclaré au titre de l’exercice précédent et un montant de 1 000 000 €.” In plain English, the option must cover the loss of the relevant year, and the elected amount cannot exceed both the preceding declared profit and €1 million. A company with a €700,000 prior-year profit and a €1.2 million current-year loss cannot carry back more than €700,000, before checking the other restrictions.
The carry-back creates a non-taxable receivable equal to the excess corporate tax generated by applying the option. The receivable can be used to pay corporate tax due during the following five years and is, in principle, reimbursed at the end of that five-year period to the extent it has not been used. The receivable is not the same as cash received on the day the election is filed. The company should forecast its future tax payments, solvency and financing need before choosing.
The election is made for the year in which the deficit is incurred and within the period for filing the results declaration for that year. Official guidance on payment of a corporate-tax credit arising from carry-back explains the declaration route and the use of Form 2039-SD. The official Form 2039-SD page identifies the form used to determine the receivable when the company has opted for carry-back. A foreign founder should instruct the accountant in writing before the results filing is submitted and keep proof of the transmission.
A late or silent decision can have a financial cost. If the company does not validly elect carry-back in the prescribed filing route, the deficit ordinarily remains governed by the carry-forward regime. The choice should be documented in the board or shareholder approval file, the accountant’s tax memo and the tax package. The resolution should state the loss year, the amount considered, the preceding year’s profit, the reason the option is allowed and the form filed.
Article 220 quinquies also excludes the option in certain events. The text prevents the election for a year in which there is a total transfer or cessation of the business, a merger or similar transaction, or a judgment opening judicial liquidation. If the company is approaching a sale, merger, dissolution or insolvency filing, carry-back should be analysed before the event. A foreign parent cannot cure an invalid election by describing the receivable as a group asset after the filing date.
There is a further distinction between a tax receivable and a shareholder loan. The carry-back receivable belongs to the company. It is not a dividend, not an immediate repayment of capital and not automatically money that may be sent to the foreign founder. It may be used for the company’s corporate-tax obligations, may later be reimbursed under the statutory timing and can be affected by a merger, insolvency procedure or transfer rules. Any upstream payment needs its own company-law, tax, solvency and withholding analysis.
If the company has no preceding taxable profit, carry-back usually offers no practical benefit for that year. The founding-year loss remains available for carry-forward if correctly established. If there was a short first financial period with a small profit, the accountant must verify the statutory definition of the preceding exercise and the exact filed result rather than assume that the incorporation date alone determines the answer.
B. What evidence and restructuring checks protect the loss?
The most common cross-border failure is not the formula. It is the evidence. A French company controlled from abroad should build a “deficit file” at each year-end. It should contain the trial balance, general ledger, bank statements, invoices, contracts, payroll records, depreciation schedule, provisions analysis, inventory evidence, intercompany agreements, transfer-pricing support where relevant, tax reconciliation, filed Form 2065, detailed tax package, deficit schedule and notice of assessment. Keep the working papers in a format that a successor accountant can understand.
The foreign founder should also explain unusual features in writing. Why did the French company pay a foreign service provider? Which employees performed the work? Where was the work performed? Why was the launch period loss commercially expected? Which directors approved the contract? Was the charge invoiced at arm’s length? Was withholding tax or VAT considered? Does the cost relate to the French business or to the parent’s wider activity? These questions are easier to answer contemporaneously than during a tax audit several years later.
A verified commercial-chamber decision illustrates the evidential point. In Cour de cassation, Commercial, Financial and Economic Chamber, 16 November 1999, appeal no. 96-22.530, the court stated: “l’imputation des déficits prévue par l’article 209-1 du Code général des impôts suppose que soit justifiée par la comptabilité l’existence des déficits”. The decision concerned an older statutory formulation and a dispute about a liability warranty in a share transfer, but the proposition remains practical: a company cannot rely on a deficit that it cannot establish through its accounting records. The founder’s nationality does not lower that evidential standard.
The same decision is also a warning for an acquisition. A carried-forward deficit is not a guaranteed asset in the same way as cash in a bank account. Its tax use depends on the statutory conditions, a later taxable profit and the company’s continued entitlement to use it. A share-purchase agreement should therefore address the deficit history, tax audits, warranties, cooperation, information delivery and the allocation of a tax adjustment. It should not promise an unconditional tax saving.
A more recent verified decision shows how the annual ceiling can be missed when a group’s calculations are not coordinated. In Cour d’appel de Pau, 2nd Chamber, 24 March 2026, RG no. 24/02171, the court described a group calculation in which a subsidiary’s taxable result of €1,681,717 and the parent’s result of minus €52,157 produced a group result before deficit use of €1,629,560. The reasons record that “le montant du déficit reportable pour la société [O] ayant dépassé le plafond fixé par l’article 209 I du code général des impôts qui limite le montant du déficit reportable à la somme de 1.000.000 euros majorée de 50’% du montant correspondant au bénéfice imposable dudit exercice excédant ce premier montant”. The case involved a claim against accounting professionals, not a general permission to use losses, but it demonstrates the cost of applying the cap at the wrong level or with the wrong data.
Tax consolidation changes the calculation architecture. Under Article 223 A of the CGI, a French parent may in certain conditions become liable for corporate tax on the aggregate results of a group whose companies are held at least 95% continuously during the year. The rule also contains a route involving a non-resident parent in the European Union or European Economic Area where the statutory conditions are met. Read the official Article 223 A text. A foreign group cannot assume that a foreign parent’s worldwide losses are pooled with a French subsidiary; the French tax-consolidation conditions must be met.
Article 223 B provides that the overall result is determined by the parent by algebraically adding the results of the group companies, calculated under ordinary rules or the rules applicable to the group. The official Article 223 B text is relevant when a foreign founder asks why the deficit cap is not calculated from one company’s accounts in isolation. The group’s tax result, the origin of pre-group losses and the distinction between each company’s own deficit and an overall group deficit must be mapped separately.
Article 223 G then provides specific rules for carry-back in a tax group. It states that when the parent opts for the carry-back regime, the overall deficit is carried back under Article 220 quinquies, while a subsidiary cannot exercise that option itself. The official Article 223 G text should be checked before the subsidiary’s directors sign a separate carry-back instruction. A pre-group receivable may also be transferred to the parent at nominal value in the circumstances described by that article; that is not the same as transferring a current subsidiary deficit at will.
Restructuring is another danger point. Article 209, II is concerned with the transfer of prior deficits in a merger or similar operation, subject to conditions involving the economic justification of the transaction and the continuation of the activity that generated the deficits. The provision includes a three-year continuation period for the transferred activity in the stated circumstances and an approval route. The tax file should therefore contain the pre-transaction business plan, activity description, customers, staff, operating assets, contracts and post-transaction continuity evidence.
Changing a company’s trade name, shareholder or registered office is not automatically the same as transferring a deficit in a merger. Conversely, a restructuring described as a “simple change” may in substance close one business and start another. A substantial change of activity, a cessation, the sale of the operating business or a change of tax regime can affect the right to use old deficits. Service Public’s official explanation of corporate-tax deficit carry-forward and carry-back expressly warns that a change of tax regime and a change of activity can cause the right to carry-forward to be lost. That warning deserves a pre-transaction written opinion.
The approval process itself has a deadline. Article 1649 nonies provides that, unless a specific rule says otherwise, an application for approval required for a special tax regime must be filed before the operation that motivates it. If the foreign parent has already signed the merger documents, moved the activity or transferred the assets, the group may have lost the opportunity to secure the required approval. The correct sequence is: identify the deficit, identify the transaction, check whether Article 209, II applies, determine whether approval or an exemption is available, file in time and then complete the operation.
When the administration challenges a deficit, the response should be organised around the exact adjustment, not a general statement that the business made a loss. Reconcile each challenged line to the ledger. Produce the contract and invoice. Explain the commercial benefit to the French entity. Establish payment and performance. Show the relevant tax treatment. If the issue concerns a group charge, provide the allocation method and supporting documents. If the issue concerns continuity, produce the activity timeline and corporate approvals. If a tax adjustment has already been notified, record the response deadline and the available administrative and judicial remedies.
Before a foreign founder approves the next French corporate-tax return, the following internal checklist is proportionate:
- Confirm that the French entity is liable for corporate income tax for the relevant period and identify whether it is a subsidiary, branch or tax-group member.
- Reconcile the accounting loss to the tax deficit, line by line, and preserve the final tax package.
- Update the deficit schedule from every previous year and check that no amount has already been used, carried back or transferred.
- Calculate the current-year carry-forward ceiling: €1 million plus 50% of taxable profit above €1 million.
- Check whether the preceding year had eligible taxable profit and whether a carry-back election is financially and legally available.
- If carry-back is chosen, instruct the accountant before the results filing deadline and retain the Form 2039-SD and transmission evidence.
- Check for a merger, cessation, major activity change, sale of operating assets, change of tax regime or group entry and obtain a pre-operation analysis.
- Keep the corporate approvals, accounting records, contracts and cross-border evidence in a single indexed file.
The foreign founder should never solve a corporate deficit by paying personal expenses from the company account or by booking an unsupported parent-company charge. That conduct may create a separate issue involving prohibited distributions, director liability, transfer pricing, withholding tax, VAT or an accounting irregularity. The clean route is to preserve the company’s real deficit, calculate it under the CGI and use the statutory mechanism that fits the company’s actual facts.
Conclusion
A French company’s tax loss is a corporate tax position, not an automatic personal deduction for a foreign founder and not a free-standing asset that can be moved across a group. The ordinary route is carry-forward against later French taxable profits, with use limited each year to €1 million plus 50% of the profit above €1 million. Carry-back can create a corporate-tax receivable against the preceding year, but the €1 million and prior-profit limits, exclusions and filing deadline make it a deliberate election.
The defensible approach is to separate accounting loss from tax deficit, preserve the reconciliation and evidence, distinguish a subsidiary from a branch, apply group rules at the correct level and review any change of activity or restructuring before it occurs. For a non-resident founder, a well-indexed French tax file is as important as the incorporation documents: it protects the loss, supports the corporate-tax return and gives the company a credible response if the administration, a buyer or a lender asks how the figure was calculated.
Need a quick opinion on your case
A telephone consultation within 48 hours with a lawyer from our firm can help you assess a French company’s tax deficit, carry-forward calculation, carry-back election or cross-border restructuring risk.
We can review the tax package, deficit schedule, group structure and transaction timetable so that you know which documents and deadlines matter before the next filing or corporate decision.
Call +33 6 46 60 58 22 or use our contact page to request an appointment with Maître Reda Kohen.