{"id":2128913,"date":"2026-09-23T17:04:01","date_gmt":"2026-09-23T15:04:01","guid":{"rendered":"https:\/\/kohenavocats.fr\/2026\/09\/23\/foreign-company-france-shareholder-loan-interest-deductible-withholding-abroad\/"},"modified":"2026-09-23T17:04:01","modified_gmt":"2026-09-23T15:04:01","slug":"foreign-company-france-shareholder-loan-interest-deductible-withholding-abroad","status":"publish","type":"post","link":"https:\/\/kohenavocats.fr\/en\/2026\/09\/23\/foreign-company-france-shareholder-loan-interest-deductible-withholding-abroad\/","title":{"rendered":"Fund Your French Company From Abroad With a Shareholder Loan: Deductible Interest Caps, Thin-Capitalisation Traps, Withholding Tax and the Requalification Risk"},"content":{"rendered":"

Your French subsidiary needs 150,000 euros to fit out its premises, hire its first team and survive its first year, and you would rather lend the money from your foreign parent company than inject it as share capital you cannot easily take back. The shareholder current account, known in France as the compte courant d’associ\u00e9<\/em>, is the everyday tool for this: a loan from a shareholder to the company, repayable, interest-bearing, and far more flexible than a capital increase. Used properly, the interest is deductible for the French company and the principal comes home on demand or at term. Used carelessly, the same advance produces nondeductible interest, a 25 percent French withholding tax on the way out, a surprise three-quarter levy if the payment transits through a blacklisted jurisdiction, taxable-income requalification of undocumented credits, and, if the subsidiary later enters insolvency, interest that simply stops accruing because the advance was repayable on demand. This guide explains how a foreign owner funds a French company by shareholder loan: how to paper the loan, the maximum deductible interest rate, the thin-capitalisation and general interest caps, the withholding tax on interest paid abroad, and the paperwork that keeps the advance a loan instead of taxable income. Where the loan already exists and repayment is blocked, our French-language guide to enforcing a frozen shareholder current account<\/a> covers the recovery side; this article covers the cross-border funding design.<\/p>\n

I. Lend to your French company on solid ground: a written loan, the deductible-rate ceiling and the interest barriers<\/h2>\n

A. Sign a real loan agreement and keep the interest within the deductible ceiling<\/h3>\n

French tax law starts from a generous principle and an immediate ceiling. Article 39 of the General Tax Code (Code g\u00e9n\u00e9ral des imp\u00f4ts, the CGI)<\/a> allows deduction of interest paid to shareholders on sums they leave at the company’s disposal on top of their capital contribution, in any company form: \u00abLes int\u00e9r\u00eats servis aux associ\u00e9s \u00e0 raison des sommes qu’ils laissent ou mettent \u00e0 la disposition de la soci\u00e9t\u00e9, en sus de leur part du capital, quelle que soit la forme de la soci\u00e9t\u00e9, dans la limite de ceux calcul\u00e9s \u00e0 un taux \u00e9gal \u00e0 la moyenne annuelle des taux effectifs moyens pratiqu\u00e9s par les \u00e9tablissements de cr\u00e9dit et les soci\u00e9t\u00e9s de financement pour des pr\u00eats \u00e0 taux variable aux entreprises, d’une dur\u00e9e initiale sup\u00e9rieure \u00e0 deux ans.\u00bb In practice, the deductible rate is capped at a floating average rate published quarterly by the tax administration: interest above that rate is permanently nondeductible for the French borrower. A foreign parent charging its French subsidiary 8 percent when the published average sits near 5 percent simply loses the excess deduction, with no carryforward. Price the loan at or below the published average, reset the comparison each year, and keep the official rate sheet in the tax file. The same article adds a condition founders often miss: \u00abCette d\u00e9duction est subordonn\u00e9e \u00e0 la condition que le capital ait \u00e9t\u00e9 enti\u00e8rement lib\u00e9r\u00e9.\u00bb If the subsidiary’s share capital is not fully paid up, no shareholder-loan interest is deductible at all, however reasonable the rate. Before wiring the loan, check the capital-payment certificate and complete any unpaid balance first.<\/p>\n

Where the lender is itself a company related to the borrower, a second ceiling applies on top of the first. Article 212 of the CGI<\/a> provides: \u00abLes int\u00e9r\u00eats aff\u00e9rents aux sommes laiss\u00e9es ou mises \u00e0 disposition d’une entreprise par une entreprise qui est son associ\u00e9e ou par une entreprise li\u00e9e, directement ou indirectement, au sens du 12 de l’article 39, sont d\u00e9ductibles : a) Dans la limite de ceux calcul\u00e9s d’apr\u00e8s le taux pr\u00e9vu au premier alin\u00e9a du 3\u00b0 du 1 du m\u00eame article 39 ou, s’ils sont sup\u00e9rieurs, d’apr\u00e8s le taux que cette entreprise emprunteuse aurait pu obtenir d’\u00e9tablissements ou d’organismes financiers ind\u00e9pendants dans des conditions analogues\u00bb. A foreign parent lending to its French subsidiary therefore deducts interest up to the higher of the published average rate and the arm’s-length bank rate the subsidiary could have obtained alone. Proving that higher rate means obtaining and keeping genuine bank term sheets for a comparable standalone borrower: same amount, same term, same currency, same guarantees. Groups routinely document this with a short transfer-pricing memo prepared when the loan is signed, not reconstructed three years later during a tax audit. Our guide to management fees and transfer-pricing scrutiny<\/a> explains the method the administration expects.<\/p>\n

Paper matters as much as price, and a decision handed down two weeks ago proves it in a cross-border setting. On 9 September 2026 the Commercial Chamber of the Cour de cassation (appeal no. 25-16.955<\/a>) ruled in a dispute between the liquidator of a French SAS and a Swedish shareholder-lender that had funded the company through a cash-pooling agreement topped up by shareholder current-account agreements. The Court restated the governing principle: \u00abSeuls les int\u00e9r\u00eats r\u00e9sultant d’un contrat de pr\u00eat conclu pour une dur\u00e9e \u00e9gale ou sup\u00e9rieure \u00e0 un an ou d’un contrat assorti d’un paiement diff\u00e9r\u00e9 d’un an ou plus \u00e9chappent \u00e0 la r\u00e8gle de l’arr\u00eat du cours des int\u00e9r\u00eats \u00e9dict\u00e9e par le premier de ces textes et rendue applicable au redressement et \u00e0 la liquidation judiciaires par les deuxi\u00e8me et troisi\u00e8me.\u00bb Because the funds had been paid under an agreement fixing no repayment term, later agreements mentioning five years could not retroactively give the advances the status of term loans, and post-insolvency interest was lost. The operational lesson for a foreign lender is direct: sign one loan agreement before wiring, fix a term of at least one year or an explicit deferred payment of at least one year, define the rate, the repayment schedule and the events of default, and have the French borrower approve it under the related-party procedure. Demand-payable advances and undocumented cash-pool sweeps are precisely the instruments that fail when they are needed most.<\/p>\n

B. Pass the two general interest barriers: the related-party add-backs and the 30 percent or 3 million euro cap<\/h3>\n

Even interest that respects the rate ceiling can be partly disallowed when the French company is heavily indebted to its own group. The thin-capitalisation mechanism historically disallowed interest on the fraction of related-party debt exceeding one-and-a-half times the company’s equity, and although successive reforms reshaped the device, the logic survives in the current articles and in audit practice: a French subsidiary financed 90 percent by its foreign parent’s loans and 10 percent by equity will see the administration test every euro of interest, compare the debt-to-equity ratio with an independent financing, and reclassify the excess as a nondeductible distribution. Founders should therefore size the loan against real equity from the start. A common safe pattern is a mixed funding: genuine paid-up capital covering the durable needs, plus a shareholder loan sized to what a bank would have lent the subsidiary standalone, documented with the term sheets mentioned above. Where the subsidiary later needs more cash, prefer a second priced tranche with its own memo over silently letting the current account swell: an ever-growing undocumented balance is the classic audit photograph of disguised equity.<\/p>\n

Above these targeted rules sits a general ceiling that catches large borrowers regardless of the lender’s identity. Article 212 bis of the CGI<\/a> provides: \u00abLes charges financi\u00e8res nettes support\u00e9es par une entreprise non membre d’un groupe, au sens des articles 223 A ou 223 A bis , sont d\u00e9ductibles du r\u00e9sultat fiscal soumis \u00e0 l’imp\u00f4t sur les soci\u00e9t\u00e9s dans la limite du plus \u00e9lev\u00e9 des deux montants suivants : 1\u00b0 Trois millions d’euros ; 2\u00b0 30 % de son r\u00e9sultat d\u00e9termin\u00e9 dans les conditions du II.\u00bb Net financial expenses, essentially interest paid minus interest received, are deductible only up to 3 million euros or 30 percent of a tax-adjusted operating result, whichever is higher, with the excess carried forward under defined conditions. A French subsidiary paying 4 million euros of annual interest to its foreign parent on acquisition debt will therefore lose part of the deduction even at a perfectly arm’s-length rate, and must model the cap before choosing between debt and equity. Note the asymmetry that matters to foreign groups: members of a French tax-consolidated group compute the cap at group level with specific adjustments, while a standalone subsidiary owned directly from abroad faces the cap alone. Debt-push structures, where the foreign parent borrows to buy France and pushes the debt down, must be sized against this ceiling from the term sheet stage, because the disallowed fraction increases the effective cost of the deal every year it persists.<\/p>\n

Treat these three layers as a single annual computation in the subsidiary’s tax return: first, cut interest above the deductible rate; second, test the related-party debt ratio and reclassify excess financing; third, apply the general net-expense cap to what remains. Each layer has its own carryforward and documentation logic, and errors compound: interest disallowed at one layer cannot be rescued at the next. Keep one funding file per loan holding the signed agreement, the board and shareholder approvals, the rate benchmark for the year, the bank comparables, the equity computation and the cap calculation. When the French tax auditor opens the funding file three years later, that binder is the difference between a five-minute discussion and a reassessment covering the whole period with late-payment interest.<\/p>\n

II. Bring the return home safely and keep the advance a loan: withholding tax, undocumented credits and insolvency<\/h2>\n

A. Pay interest across the border without overpaying French tax at the exit<\/h3>\n

Interest paid by the French subsidiary to its foreign parent is French-source income, and France taxes it at the border unless a treaty or an EU directive removes the charge. Article 119 bis of the CGI<\/a> provides: \u00abLes revenus de capitaux mobiliers entrant dans les pr\u00e9visions des articles 118,119, 238 septies B et 1678 bis donnent lieu \u00e0 l’application d’une retenue \u00e0 la source dont le taux est fix\u00e9 par le 1 de l’article 187 , lorsqu’ils b\u00e9n\u00e9ficient \u00e0 des personnes qui ont leur si\u00e8ge en France ou \u00e0 l’\u00e9tranger ou qui n’ont pas leur domicile fiscal en France.\u00bb The rate, set by article 187<\/a> (\u00able taux de la retenue \u00e0 la source pr\u00e9vue \u00e0 l’article 119 bis est fix\u00e9 \u00e0\u00bb), is for most interest paid to foreign companies the standard corporate rate, currently 25 percent: \u00abCelui pr\u00e9vu au deuxi\u00e8me alin\u00e9a du I de l’article 219 pour tous les autres revenus.\u00bb The French subsidiary must withhold, declare and pay this amount itself; the foreign parent receives the net. In practice the 25 percent is very often reduced to 15, 10, 5 or zero by the applicable double-tax treaty, and eliminated entirely within the EU between associated companies under the Interest-Royalties Directive for qualifying 25 percent holdings, provided the lender is the beneficial owner and the treaty or directive claim file is complete before payment. The claim file is the operational key: certificate of residence of the lender, lender’s declaration of beneficial ownership, computation of the holding period and percentage, and, for directive relief, proof that both companies take one of the qualifying legal forms and are subject to corporate tax without exemption. Build this file when the loan is signed and refresh the residence certificate every year, because a treaty claim presented for the first time during an audit, with stale certificates, is routinely rejected and the 25 percent becomes final.<\/p>\n

One routing mistake turns the cost from significant to punitive. Article 125 A of the CGI<\/a> does not concern this standard case, but its paragraph III warns against exotic payment chains: \u00abUn pr\u00e9l\u00e8vement est obligatoirement applicable aux revenus et produits mentionn\u00e9s aux I et II, dont le d\u00e9biteur est \u00e9tabli ou domicili\u00e9 en France et qui sont pay\u00e9s hors de France, dans un Etat ou territoire non coop\u00e9ratif au sens de l’article 238-0 A\u00bb (\u00abnon-cooperative state or territory\u00bb, the French blacklist updated yearly, known as ETNC), unless the debtor proves the arrangement has a genuine non-tax purpose. Interest routed through a blacklisted jurisdiction suffers a 75 percent levy, and the burden of proving commercial substance falls on the French payer. Foreign groups sometimes inherit such chains from acquisition structures or cash-pooling hubs; map every payment leg before the first interest date and relocate any hub sitting in a listed territory. The same vigilance applies to the lender’s residence under the treaty: a brass-plate company with no substance in a treaty jurisdiction invites the administration to deny treaty benefits under the principal-purpose and beneficial-ownership doctrines, keeping the full domestic withholding. Substance at the lender level, an office, staff, decision-making, is part of the funding design, not an afterthought.<\/p>\n

Symmetrically, undocumented money moving the other way, from France to the shareholder’s account, is presumed to be taxable income in the shareholder’s hands. The First Civil Chamber of the Cour de cassation held on 9 September 2020 (appeal no. 19-16.047<\/a>): \u00abil r\u00e9sulte de l’article 109 du code g\u00e9n\u00e9ral des imp\u00f4ts que les sommes inscrites au cr\u00e9dit d’un compte courant d’associ\u00e9 ont, sauf preuve contraire apport\u00e9e par l’associ\u00e9 titulaire du compte, le caract\u00e8re de revenus imposables dans la cat\u00e9gorie des revenus de capitaux mobiliers.\u00bb Every unexplained credit to the shareholder’s current account is presumed a distributed taxable gain unless the holder proves it repays a genuine advance. For the foreign parent this means each transfer must be labeled at inception, loan disbursement, interest payment, dividend voted by the meeting, capital repayment, with the supporting resolution attached. A current account used as a loose cash drawer between the subsidiary and its owner, with netted unexplained postings, hands the auditor a ready-made income reassessment on both sides of the border. If the company is profitable, compare the loan route with the dividend route before distributing: our guide to voting dividends and repatriating profits<\/a> sets out the withholding, timing and treaty mechanics of that alternative.<\/p>\n

B. What destroys the loan: requalification as equity, interest frozen by insolvency, and the annual checklist run from abroad<\/h3>\n

Beyond the rate and the caps, the tax administration holds a structural weapon: recharacterising the loan itself. An advance with no agreement, no term, no rate and no repayment, especially one that grows while the company makes losses and no bank would have lent a euro, is treated as disguised equity or as an abnormal act of management benefiting the foreign parent. The consequences stack: interest reclassified as a nondeductible distribution, withholding on the deemed distribution, late-payment interest, and, for the portion deemed a gift of the company’s assets to its shareholder, a full reassessment of the advantage. The defence is the funding file described above, plus economic coherence: lend amounts a business of this size could plausibly service, charge a rate a bank would recognise, enforce covenants when breached, and convert to equity by formal capital increase when the loan has plainly become permanent. A shareholder loan that behaves exactly like capital will be taxed exactly like capital, with penalties on top.<\/p>\n

If the subsidiary tips into safeguard, administration or liquidation, a second guillotine falls on demand-payable advances. Article L622-28 of the Commercial Code<\/a> provides: \u00abLe jugement d’ouverture arr\u00eate le cours des int\u00e9r\u00eats l\u00e9gaux et conventionnels, ainsi que de tous int\u00e9r\u00eats de retard et majorations, \u00e0 moins qu’il ne s’agisse des int\u00e9r\u00eats r\u00e9sultant de contrats de pr\u00eat conclus pour une dur\u00e9e \u00e9gale ou sup\u00e9rieure \u00e0 un an ou de contrats assortis d’un paiement diff\u00e9r\u00e9 d’un an ou plus.\u00bb Only term loans of at least one year keep accruing interest after the opening judgment; everything else freezes on day one. The September 2026 Swedish-lender decision examined above applied exactly this: advances paid under a cash agreement with no repayment term lost their post-opening interest despite later documents mentioning five years, because the funds had been disbursed under the termless agreement. Had the parent signed a single five-year loan agreement before wiring, the interest would have survived. Foreign parents should also declare the claim on time in the insolvency, in the correct rank, with the agreement and the account statements attached: shareholder loans are unsecured by default, and a late or misranked declaration compounds the interest freeze with a principal loss. Negotiating a security, a pledge over stock, an assignment of receivables, a parent-level guarantee fee, belongs to the funding design phase, when the subsidiary still has bargaining power, not to the insolvency phase, when it has none.<\/p>\n

Run from abroad, the discipline reduces to an annual checklist executed with the French accountant before each year-end. First, confirm the capital is fully paid up and the loan agreement, term of at least one year, rate, schedule and approvals are signed and filed. Second, refresh the rate benchmark against the published quarterly average and the bank comparables, and minute any rate reset. Third, recompute the debt-to-equity position and the general net-expense cap against the forecast result, and decide in advance whether the coming year’s interest will be fully deductible. Fourth, refresh the lender’s residence certificate and beneficial-ownership file so the reduced treaty or directive withholding applies on each interest date. Fifth, reconcile every intercompany posting with its label and resolution, leaving no unexplained credit on either current account. Sixth, if the subsidiary’s situation deteriorates, stop increasing the demand-payable balance, convert or secure the exposure early, and calendar the insolvency declaration deadlines. Each step takes an hour with a prepared file and costs a reassessment without one. A foreign owner who treats the shareholder loan as a living instrument, priced, papered and monitored yearly, gets deductible interest, net cross-border payments and a recoverable principal; one who treats it as informal family money discovers, years later and all at once, the rate cap, the withholding, the presumption of income and the interest freeze.<\/p>\n

Conclusion<\/h2>\n

Lending to your French company from abroad instead of injecting capital is sound finance when each layer is handled: a signed term loan of at least one year, interest at or below the deductible average with bank comparables for any premium, equity thick enough to survive the debt-ratio test, modelled headroom under the 3 million euro or 30 percent cap, treaty-ready paperwork so interest exits at the reduced withholding rather than 25 percent, no payment leg through a blacklisted jurisdiction, and every posting labeled so no credit becomes presumed income. Miss one layer and the instrument turns against its maker: nondeductible interest, final withholding, requalification as a distribution, or interest frozen by insolvency. Price it, paper it, monitor it yearly, and the shareholder loan remains what it should be: the cheapest flexible bridge between your capital abroad and your growth in France.<\/p>\n

Need a quick opinion on your case.<\/h2>\n

You are funding a French company from abroad, or the tax administration is already questioning the interest. Phone consultation: 80 EUR incl. VAT, with a lawyer of the firm within 48 hours. Call +33 6 46 60 58 22<\/a> or write via our contact page<\/a>. We review your loan agreement, your rate benchmark, your withholding file and your account postings, and set the regularization and defence strategy with you.<\/p>\n","protected":false},"excerpt":{"rendered":"

Lending from your foreign parent to your French subsidiary beats a capital increase only if the loan is priced, papered and monitored: deductible rate cap, interest barriers, withholding on exit, and the paperwork that keeps the advance a loan.<\/p>\n","protected":false},"author":251031309,"featured_media":16387,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_kj_source_type":"","_kj_official_id":"","_kj_official_url":"","_kj_judilibre_id":"","_kj_jur":"","_kj_lieu":"","_kj_chambre":"","_kj_rg":"","_kj_date":"","activitypub_content_warning":"","activitypub_content_visibility":"","activitypub_max_image_attachments":4,"activitypub_interaction_policy_quote":"anyone","activitypub_status":"federated","footnotes":""},"categories":[80314,80313],"tags":[],"class_list":["post-2128913","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-decryptage","category-doing-business-in-france"],"yoast_head":"\nFund Your French Company From Abroad With a Shareholder Loan: Deductible Interest Caps, Thin-Capitalisation Traps, Withholding Tax and the Requalification Risk - 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