1. VAT on acquisitions

In France, value-added tax (VAT) is generally 20% on most transactions, but in M&A deals the applicability of VAT depends on what is being acquired.

• Share deals are exempt from VAT (financial transactions are outside the VAT scope).
• Asset deals can attract VAT unless the transaction qualifies as a transfer of a going concern.

French tax law provides that the sale of an entire business (fonds de commerce or a complete branch of activity) can be treated as outside the scope of VAT (no VAT charged) provided the buyer continues the operations. If the conditions are met, this avoids a large upfront VAT outlay, improving the buyer’s cash flow.

VAT optimisation tips

• Structure asset acquisitions, when possible, so they qualify as a going-concern transfer (e.g. transmission universelle de patrimoine or business carve-out), to avoid VAT.
• If VAT must be charged (for example when buying individual assets that do not constitute a whole business), ensure the foreign buyer is registered for VAT in France (or uses a fiscal representative) so input VAT can be reclaimed.
• From the seller’s perspective, plan in advance so that any required VAT is properly invoiced and recovery is not delayed.

2. Transfer taxes and stamp duties

France imposes registration duties on the transfer of company shares or business assets, which can be a substantial cost in acquisitions.

Typical rates in share deals

• Purchasing shares of an SAS or SA (standard French corporation forms) incurs only 0.1% duty on the sale price.
• Buying shares of a SARL triggers a 3% duty (after a small deduction per share).
• Partnerships and certain other entities can be taxed up to 5%.
• If the target company owns mostly French real estate (over 50% of assets), the share transfer duty is 5% – treating it like a property sale.

Typical rates in asset deals

• Sale of a fonds de commerce (business goodwill) or other tangible business assets:
  • 0% on the portion of price up to €23,000;
  • 3% on the portion between €23,000 and €200,000;
  • 5% on the portion above €200,000.
• Real estate assets in an asset deal usually incur transfer duties around 5%, plus notary fees.

Transfer tax optimisation tips

• Prefer share deals over asset deals when liability and commercial considerations allow, since share deals in non-real-estate companies carry minimal duty.
• If you must acquire a SARL (3% duty), consider having the seller convert it to an SAS before closing. Properly implemented, this can reduce duty to 0.1% on the sale.
• When the target owns significant real estate, accept that the 5% duty may be unavoidable, but:
  • negotiate a purchase price reduction; and/or
  • evaluate whether separating the real estate into a different vehicle makes sense.
• Always model transfer taxes in your acquisition budget and remember they are typically paid by the buyer under French market practice.

3. Depreciation and amortisation benefits

One tax advantage of structuring an acquisition as an asset deal (or via a French acquisition vehicle) is the ability to step up the tax basis of assets and amortise goodwill.

In a share deal, the existing company’s assets maintain their historical tax book values. There is no uplift to reflect the price you paid, and no additional depreciation or amortisation on goodwill for tax purposes.

By contrast, when you buy assets directly, or have a French Newco buy shares and then merge with the target, French tax rules may allow:

• A step-up in asset values to the acquisition price; and
• Recognition of goodwill (fonds commercial) on the balance sheet.

Temporary goodwill amortisation regime

France introduced a temporary measure allowing amortisation of goodwill acquired between 1 January 2022 and 31 December 2025. Under this regime, goodwill – normally non-amortisable for tax – can be deducted over a period (often 10 or 20 years) for qualifying deals.

Depreciation optimisation tips

• For acquisitions with substantial goodwill (customer relationships, brand value, IP), consider structures that allow you to benefit from the temporary goodwill amortisation regime.
• Even outside this window, asset purchases may allow accelerated or additional amortisation on intangibles (e.g. intellectual property) and tangible fixed assets, reducing future taxable profits.
• Bear in mind that sellers often prefer share deals because an asset sale may trigger immediate corporate tax on gains and follow-on taxation on distributions. A buyer may compensate by offering a higher price where ongoing tax deductions are available.
• Coordinate with French tax advisors to balance buyer and seller interests and optimise the overall after-tax outcome.

4. Using holding companies and financing structure

Non-resident investors frequently use holding company structures to optimise international tax outcomes. A common approach is to establish a French acquisition SPV (holding company) to purchase the target.

Benefits of a French acquisition vehicle

• It facilitates interest deduction via leveraged financing (subject to French interest limitation rules).
• It allows tax consolidation (intégration fiscale) with the target, so that profits and losses can offset each other.
• It can enable a more tax-efficient exit, especially under the French participation exemption regime.

Participation exemption on capital gains

Under France’s participation exemption, after at least two years of holding qualifying shares, capital gains realised by a French company on the sale of those shares are 88% exempt. Only 12% of the gain is taxed at the normal corporate rate, resulting in an effective tax rate of around 3–4% on such gains.

A foreign investor can potentially benefit by interposing a French holding company:

• The foreign parent owns 100% of a French SAS (holding).
• The French SAS acquires the French target.
• After two or more years, the SAS sells the target and benefits from the participation exemption, then can distribute dividends up the chain (subject to treaty and withholding tax analysis).

Holding and financing optimisation tips

• Evaluate creating a French acquisition vehicle, especially if you plan to hold the business for several years before exit.
• Ensure the holding has sufficient substance (people, functions, decision-making) and that the group meets French tax consolidation requirements (e.g. 95% ownership, eligible entities).
• Consider thin capitalisation rules and interest deduction limits (EBITDA-based limitation and related-party rules). Structures that push down excessive debt may be challenged.
• Be cautious with post-deal mergers aimed solely at using the target’s cash flows for debt service; French tax authorities may deny interest deductions where there is no genuine business purpose.
• Seek advice from French tax attorneys before implementing any leveraged holding structure.

5. Corporate tax rate and structuring profits

France’s corporate income tax (Impôt sur les Sociétés – IS) rate is now 25% for both domestic and foreign-owned companies. While 25% is the nominal rate, the effective tax rate can be significantly reduced using:

• Depreciation and amortisation of assets and intangibles;
• Deduction of financing costs (within applicable limits);
• Use of loss carryforwards and tax credits.

Tax losses and acquisition planning

France allows tax loss carryforward indefinitely, but with an annual utilisation limit (up to €1 million plus 50% of profits above that threshold). A change of ownership does not automatically reset losses, unlike in some jurisdictions, so the target’s existing tax losses can often remain usable after acquisition.

However, when integrating the target into or out of a tax group, restrictions may apply to loss usage.

Profit structuring optimisation tips

• Identify and value the target’s tax attributes (losses, credits, incentives) during due diligence and reflect them in the purchase price.
• Structure post-closing operations to maximise the use of available losses within French tax rules.
• Align accounting policies and group structure to enhance the effective use of depreciation, amortisation and interest.

6. Capital gains on exit: plan ahead

Non-resident investors should consider exit taxation at the time of acquisition, not only when they sell. France can tax capital gains realised by non-resident sellers in several scenarios.

Corporate non-resident shareholders

Under Article 244 bis B of the French Tax Code, if a foreign company has owned more than 25% of a French company’s share capital at any time in the preceding five years, the sale of those shares can be taxable in France at the corporate tax rate (currently 25%).

Double tax treaties often reduce or eliminate this French taxing right, especially where the company is not real estate–heavy. EU-resident companies have also obtained relief under EU law in some circumstances.

Individual non-resident shareholders

Non-resident individuals may also be taxed in France on gains if they held a substantial participation (>25%), or if the company is real estate-rich, under Article 244 bis A. For instance, a non-resident selling shares of a company whose assets are mainly French real estate can be taxed at 19% on the gain (plus social charges).

Exit optimisation tips

• Design your holding structure and exit route upfront to minimise French capital gains tax, while respecting anti-abuse rules.
• Use treaty-protected jurisdictions with real substance where appropriate, avoiding blacklisted or low-substance holding companies that may be challenged.
• Consider the French participation exemption via a French holding company, as well as applicable treaty provisions on capital gains.
• If you are an individual investor, be aware of France’s exit tax rules if you become French tax resident and later depart; pure foreign investors not becoming resident are generally outside this regime.

Conclusion: structuring tax-efficient acquisitions in France

By paying attention to VAT structuring, minimising transfer taxes, leveraging depreciation and interest deductions, and carefully planning holding structures and exits, non-resident investors can significantly reduce the tax burden of acquiring a French business.

Tax optimisation should always respect legal frameworks – aggressive schemes are increasingly challenged by French anti-abuse provisions – but with thoughtful planning aligned with French law, an investment can be structured in a fiscally efficient manner.

Always engage professional tax advisors in France, such as specialised tax attorneys, to validate strategies against the latest laws and regulations and to adapt them to your specific circumstances.

Disclaimer

This article is provided for general information purposes only. Tax and legal rules may change, and their application depends on your particular situation. You should not rely on this article as legal or tax advice.

Before making any decision, please consult qualified French tax and legal advisors to confirm the latest applicable provisions and obtain tailored advice.