Corporate tax (IS) vs income tax (IR): which tax regime should you choose for your business?
Choosing between income tax (IR) and corporate tax (IS) is one of the most far-reaching tax decisions for a business owner in France. This choice directly affects your tax level, your social charges, your pay and even the valuation of your company. Yet many entrepreneurs simply accept the default regime without evaluating the alternatives. In this article, we explain the differences between corporate tax and income tax, their respective advantages and drawbacks, and how to determine the regime best suited to your situation.
What is income tax (IR)?
Under income tax, it is not the company that is taxed, but the business owner or partners directly, on their personal income. The business’s profits are added to the household’s overall income and taxed under the progressive income tax scale, which ranges from 0% to 45% depending on the bracket.
The following are subject to income tax by default: sole proprietorships (EI), micro-enterprises and certain partnerships such as SNCs, EURLs (single shareholder who is an individual) or non-trading companies (sociétés civiles), unless they opt otherwise.
In practice, whether or not you withdraw all the profit, it is taxed in full in the year it is made. There is no tax distinction between profit reinvested in the business and profit actually paid to the owner.
What is corporate tax (IS)?
Under corporate tax, it is the company itself that pays tax on its profits, regardless of the partners’ personal situation. In 2026, the standard corporate tax rate is 25%, with a reduced rate of 15% on the first €42,500 of profit for SMEs that meet certain conditions (revenue below €10 million, at least 75% of the capital held by individuals).
The following are automatically subject to corporate tax: SAS, SASU and SA companies, as well as SARLs (except where they opt for income tax in certain limited cases). The owner, for their part, is only taxed personally on the pay and dividends they actually receive.
This mechanism allows a form of control: profit that is not distributed stays in the company and is only taxed at corporate tax level, with no immediate additional tax for the owner.
Corporate tax or income tax: the comparison table
Criterion | Income tax (IR) | Corporate tax (IS) |
Who is taxed? | The owner, on their personal income | The company, on its profits |
Tax rate | Progressive income tax scale (0 to 45%) | 15% up to €42,500, then 25% |
Owner’s pay | Not deductible from profit | Deductible from taxable profit |
Losses | Can be offset against overall income | Can only be carried forward against future profits |
Social charges | Calculated on the whole profit | Calculated only on the pay received |
Formalities | Simplified (micro, EI, certain partnerships) | Accrual accounting, full tax return |
The advantages and drawbacks of income tax
Advantages:
- Lighter accounting and reporting formalities, especially for micro-enterprises.
- A loss can be offset against the household’s overall income, which can reduce personal tax from the first year, which is often loss-making.
- No double taxation: profit is taxed only once, at the owner’s level.
Drawbacks:
- The progressive scale can quickly become penalising as profits rise, with marginal rates of up to 45%.
- Social charges are calculated on the whole profit, even if it is not distributed.
- Less flexibility to manage your pay and optimise your taxation over time.
The advantages and drawbacks of corporate tax
Advantages:
- A potentially lower tax rate than the income tax scale, particularly for high profits.
- The owner can balance pay and dividends to optimise their personal taxation and social charges.
- The owner’s pay is deductible from the company’s taxable profit.
- Undistributed profit can be reinvested in the business with no immediate personal tax.
Drawbacks:
- Heavier accounting formalities: accrual accounting, full tax return, stricter reporting obligations.
- Distributed dividends are taxed a second time (30% flat tax, or the progressive scale by option).
- Losses can only be carried forward against the company’s future profits, not against personal income.
Which regime to choose for your situation?
The choice between corporate tax and income tax depends above all on your level of profit, your personal cash needs and your growth strategy.
- If your business is just starting and you expect losses in the first few years, income tax lets you offset the loss against your other income and reduce your personal tax.
- If your profits are modest and you need to take out the whole result to live on, income tax avoids double taxation.
- If your business makes significant profits that you do not need to take out in full, corporate tax helps smooth the tax burden and makes reinvestment easier.
- If you want to optimise the balance between pay and dividends to reduce your social charges, corporate tax offers more flexibility.
There is no universal answer: every situation deserves a costed simulation that takes into account your projected revenue, your expenses, your pay needs and your growth horizon.
How and when to opt for corporate tax or income tax
Companies normally subject to income tax (EURL, SNC, non-trading companies) can opt for corporate tax by simply notifying their business tax office. Note: since the 2019 Finance Act, this option is in principle irrevocable, although it can be renounced within the five financial years following the option, under strict conditions.
Conversely, SARLs and certain young capital companies can, under conditions (less than 5 years old, operational activity, fewer than 50 employees, etc.), temporarily opt for income tax for a maximum of 5 financial years.
Given the often irreversible consequences of this choice, it is strongly recommended to carry out a precise simulation before making any decision, and to get support from a chartered accountant or tax advisor.
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External reference (in French): Le Coin des Entrepreneurs