What are the deductible expenses for a company?
For a company, deductible expenses are expenses incurred in the production of goods and services that can be deducted from taxable income. On the contrary, other expenses can be added back to the result, so it is important for the manager to identify these expenses.
List of deductible expenses for companies
A company can deduct some of its expenses including the following:
Purchases of materials and goods or similar products.
The current expenses during the fiscal year that the General Tax Code qualifies as “general expenses”.
Depreciation of the company’s investments.
Future expenses and losses: provisions.
Conditions for deduction of expenses for a company
In order to be deducted from the taxable income of a company, expenses must meet certain conditions, i.e. they must be incurred in the direct interest of the company, they must be deducted from the company’s net assets and they must be properly accounted for in the current financial year with sufficient supporting documentation.
For example, a company can deduct meal expenses, travel expenses, advertising expenses, etc. from its income.
Caution: in the absence of sufficient supporting documents, the tax authorities are entitled to reinstate (in the taxable income) the amount of the expenses in question(CE, decision of July 7, 1958, req. n° 36425).
The exercise of the deduction
Not all expenses deductible by companies are subject to the same tax regime, for example overheads are deducted directly and in full in the current year, whereas depreciation is deducted over several years. In addition, overhead expenses are subject to special measures, which are intended to ensure the control of certain expenses and to prohibit the deduction of excessive or unjustified expenses.
Limited deduction and control of certain expenses
A certain number of conditions are required for the deductibility of overhead expenses by the legislator and even by case law. This is done in order to fight against the abuse of the deduction of certain expenses which often benefit the managers more than the company itself. This is the case, for example, of sumptuary expenses (art 39-4 CGI), financial penalties (art 39-2 CGI), and certain taxes that directly affect the company’s profit (income tax, CRDS, etc.)
In principle, the tax law states that sumptuary expenses are not deductible because they are deemed to be extraneous to business. This may include boats and residences for pleasure, non-professional fishing or hunting activities. But some expenses may be deductible if they are related to the management of the business.
The Council of State admitted the expenses related to the maintenance and depreciation of a yacht because the company had proved that it constituted professional offices(Council of State, 7 / 8 SSR, of November 8, 1978, 04233.”The expenses incurred in order to obtain the disposal and to ensure the maintenance of a yacht are excluded from the deductible expenses, unless justified. This justification is provided by the company which establishes that this yacht was only used to house its local agency located in a coastal city.”)
The tax authorities reserve the right to add back expenses deemed excessive and unlawful to the taxable income of the audited years. So don’t hesitate to ask for advice from a tax lawyer like Altertax Avocats before receiving a tax adjustment proposal with the corresponding adjustments. Altertax will advise you on the appropriateness of a deduction or during your tax audit.
Legal entities that own real estate in France are subject to a tax of 3% on the value of their properties. This tax on the fair market value of real estate was introduced by the 1983 Finance Law with the objective of ensuring visibility of the chains of ownership of properties by French and foreign entities, allowing the identification of shareholders and thereby verifying the proper application of the Wealth Tax (ISF), now replaced by the Real Estate Wealth Tax (IFI).
As a sole trader or company director, it is essential that you optimize your company’s tax situation by using deductions on your taxable income.
Depreciation allows you to reduce your taxes by taking into account the loss in value of some of your assets and investments.