Taxation of partnership profits

Taxation of partnership profits applies to partnerships whose profits are subject to the IR (Impôt sur le Revenu) French Income tax, unless there is an option for the IS (Incorporation Tax)

1. Companies concerned

1. Liable as of right: in particular, they are automatically subject to the tax system for partnerships:

• General partnerships.
• Civil companies (except commercial or industrial operations carried out).
• Limited partnerships, for the portion allocated to the general partners.
• EURL, if the shareholder is a natural person.
• Joint-ventures.
• De facto companies.

1. Redeemable on option: Family businesses carrying on an industrial, commercial, craft or agricultural activity and operating as LLCs may opt for the partnership regime. The option must be exercised with the agreement of all shareholders. It is effective until revoked.

Small unlisted limited liability companies created less than 5 years ago (SA, SARL, SAS) may exercise a temporary 5-year option for the partnership regime. The agreement of all the partners is required, who can thus offset the losses of the first few years of operation against their own income or income.

1. Option for the IS (Incorporation Tax): Partnerships can opt for corporate income tax. The option must be exercised before the end of the third month of the financial year in respect of which the company wishes to be subject to this plan. It is, in principle, irrevocable. However, these companies may waive this option within 5 years of its exercise. This waiver is then final and has the tax consequences of a business cessation.

2. Determination and allocation of taxable profit: Taxation of partnership profits

Determination of taxable income: