Every year, thousands of small and medium-sized enterprise (SME) owners pay more tax than they should, simply because they don't deduct all the expenses to which they are legally entitled. According to an INSEE study published in September 2025, French SMEs bear an implicit tax rate of 21,4% of their net operating profit, compared to only 14,3% for large companies, which have more resources to optimize their tax situation.
However, French tax law offers all businesses, regardless of size, a range of legally deductible expenses. It's essential to understand them, document them correctly, and comply with the conditions set out in the General Tax Code (CGI). This guide aims to provide you with a clear, practical, and actionable overview of what you can deduct, how to do so, and, most importantly, what to avoid.
Deductible expenses: the 3 conditions to meet
Before listing what you can deduct, it's essential to understand the rules. Article 39 of the French General Tax Code (CGI) establishes a fundamental principle: an expense is only tax-deductible if it meets several cumulative conditions. In practice, three key conditions apply to very small businesses (TPEs) and small and medium-sized enterprises (SMEs).
1. The expense must be incurred in the interest of the company
This is the condition most closely scrutinized by the tax authorities. The expense must have a direct and demonstrable link to your business activity: it must contribute to generating revenue, maintaining your clientele, or preserving your business assets. An expense that primarily benefits the manager personally, or that has no connection to the company's purpose, will be reclassified and included in taxable income.
In practical terms: a lunch with a potential client is in the company's interest. A family meal claimed as a business expense is not.
2. The charge must be supported by evidence.
No deduction without supporting documentation. Invoice, contract, receipt, expense report Each deducted expense must be verifiable in the event of an audit. The tax authorities have a six-year statute of limitations to audit your tax returns. Therefore, your documents must be kept for at least six years from the date of the transaction, in accordance with Article L.102 B of the French Tax Procedures Code.
3. The expense must be allocated to the financial year in which it was incurred.
This is the principle of independent accounting periods. An invoice received in December 2025 for a service performed in 2025 must be recorded in the 2025 fiscal year, even if you pay it in January 2026. You cannot defer an expense to a previous or subsequent fiscal year for tax reasons.
The main categories of deductible expenses
Once the substantive conditions are met, a wide range of spending can reduce your taxable income. Here are the main categories.
Purchasing and supplies
Purchases of raw materials, goods for resale, supplies, and consumables are deductible as long as they are related to your business activity. This is the most obvious category, but also the one that requires rigorous accounting, particularly for inventory management.
Rents and rental charges
The rent for your business premises is fully deductible, provided the amount is not excessive compared to market rates. Condominium fees, routine maintenance costs, and insurance premiums for business premises are also deductible. If you register your business at your home address, a portion of your rent or other expenses may be deductible (see the dedicated section).
Consulting fees and expenses
Fees paid to third parties for intellectual services are tax-deductible: accountant, lawyer, consultant, communications agency, IT provider. These expenses must be supported by proper invoices and correspond to services actually rendered.
Wages and social security contributions
The salaries paid to your employees, as well as the corresponding employer contributions, are fully deductible, provided they correspond to actual work performed and are not excessive. For directors of companies subject to corporate income tax, their own remuneration is also deductible if it is proportionate to their duties and actually paid.
Financial charges
Interest on loans taken out in the interest of the company (purchase of equipment, financing of working capital requirements, acquisition of premises) is deductible. Note: for companies subject to corporate income tax whose net financial expenses exceed €3 million, a cap of 30% of taxable EBITDA applies under Article 212 bis of the French General Tax Code (CGI). This rarely affects very small businesses (TPEs) and small and medium-sized enterprises (SMEs).
SaaS subscriptions and professional software
All your subscriptions to professional digital tools are tax-deductible (recorded in account 6156): office suite, project management tools, CRM, invoicing software, communication tools. These expenses are 100% deductible if the use is exclusively professional.
Deductible taxes and duties
Certain taxes are deductible expenses: the Business Property Tax (CFE), the Business Value Added Tax (CVAE), and property tax on business premises recorded as assets. However, corporation tax itself is never deductible (Article 213 of the French General Tax Code).
Vehicle and travel expenses: mileage allowance vs. actual costs
Business travel expenses often represent a significant expense for managers of very small businesses and freelancers. Two methods are available, and the choice between them can make a considerable difference to your taxable income.
The mileage scale
If you use your personal vehicle for business travel, you can apply the mileage allowance published annually by the tax authorities. This allowance, which has remained stable since 2023 (the last increase of 5,4% was in April 2023), takes into account the vehicle's tax horsepower and the distance traveled. It provides a fixed allowance for fuel, wear and tear, insurance, and maintenance.
For a combustion engine car in 2025 (same scale as 2024 and 2026):
| Fiscal power | Up to 5,000 km | From 5,001 to 20,000 km | Beyond 20,000 km |
|---|---|---|---|
| 3 hp and less | d × 0,529 | (d × 0,316) + 1515 | d × 0,370 |
| 5 CV | d × 0,636 | (d × 0,357) + 1515 | d × 0,427 |
| 7 hp and more | d × 0,697 | (d × 0,394) + 1515 | d × 0,470 |
d = distance travelled in km. 20% surcharge for 100% electric vehicles.
Concrete example : An executive driving 10,000 km per year with a 5 CV vehicle can deduct (10,000 × 0,357) + 1,395 = € 4.
In addition to the scale, you can deduct, upon presentation of receipts, toll costs, parking fees and loan interest related to the purchase of the vehicle (pro rata to professional use).
Actual costs
If your vehicle is listed as a business asset, you can deduct the actual expenses: fuel, maintenance, insurance, amortizationNote: For passenger vehicles, deductible depreciation is capped based on CO₂ emission rates. These caps vary depending on the vehicle's emissions. To find the exact cap applicable to your vehicle, consult the [link/document/etc.]. BOFiP (BOI-BIC-AMT-20-40-10) or your accountant.
Which method to choose?
The mileage allowance is generally more advantageous for low mileage or polluting vehicles. Actual expenses become more beneficial for high mileage with a low-emission vehicle. In all cases, keep a detailed logbook (date, destination, purpose, mileage) to justify your journeys in case of inspection.
Meals, receptions and client gifts: the limits you need to know
Business meals
When you invite a client, prospect, or business partner to a restaurant, the expense is fully deductible, without a fixed limit, provided it remains proportionate to your business activity and the reality of the business relationship. VAT on these meals is also 100% recoverable.
Always note the following information on your invoice or the back of your receipt: the date, the name and company of the guests, and the business purpose of the meal. This information is essential in case of an audit.
Meals eaten alone
If you are required to eat lunch away from home due to distance or your work schedule, your meal expenses are partially deductible. The tax authorities set two thresholds each year:
Example: You have lunch alone for €18 including tax. The deductible portion is 18 – 5,45 = 12,55 €If your meal costs €35, the deduction is capped at 21,10 – 5,45 = 15,65 €.
Customer gifts
Gifts given to your clients, prospects, or partners (wine, chocolates, theater tickets, books, quality pens) are tax-deductible if their value is proportionate to the actual business relationship. Beyond a certain amount deemed excessive, the tax authorities may challenge the deduction.
A specific threshold applies to the VAT The tax is only refundable if the value of the gift does not exceed €73 including VAT per beneficiary per year ( ). Beyond that, VAT is not deductible, even if the expense itself may be.
If the total of your gifts exceeds €3,000 per fiscal yearYou must declare them on the general expenses statement (form no. 2067). For entertainment expenses, this mandatory reporting threshold is € 6.
Home office and teleworking: what you can deduce
Working from home has become commonplace for freelancers and managers of small businesses. According to INSEE, 21% of self-employed workers in France conduct their entire business from home. This situation entitles them to tax deductions, provided they comply with specific rules.
Who can deduce this?
Actual expenses deductions are reserved for businesses operating under the actual tax regime (sole proprietorships subject to BIC/BNC tax, EURL, SARL, SAS). Micro-entrepreneurs cannot deduct additional expenses, as their standard allowance is intended to cover all their costs.
The calculation method: the surface area pro rata
The most common and robust method is to calculate the professional share in proportion to the surface area:
Share = Office space ÷ Total living space
This proportion is then applied to all the charges concerned.
Example: Your office is 12 m² in a 75 m² apartment, representing a 16% share. Your rent is €1,000/month. You can deduct €160/month, or 1 920 € / year, plus 16% of your energy bills, home insurance and condominium fees.
Deductible expenses are calculated proportionally to the surface area:
Deductible expenses based on actual usage:
Please note: In practice, the tax authorities consider a tax-deductible share exceeding 30% difficult to justify for a self-employed individual working alone. Remain realistic and consistent with your actual situation. The room must be genuinely dedicated to your business activity, not simply a corner of the living room used occasionally.
For owners, two options exist: deduct their share of property expenses, or (in the case of a company) have the company rent the room at market price, with this rent then being deductible for the company and taxable as rental income for the manager. This arrangement should be analyzed by an accountant before implementation.
Depreciation: deducting your investments over several years
When you buy an item whose value exceeds 500 € HTYou generally cannot deduct it in full in the year of purchase. This asset must be recorded as an asset of your company and depreciated over its normal useful life: this is the depreciation mechanism.
Why amortize?
Depreciation reflects the gradual loss of value of an asset over time. Each year, you deduct a portion of the acquisition cost, which reduces your taxable income over several fiscal years. It's a powerful tax tool for significant investments.
Typical depreciation periods ():
| Kind of good | Depreciation period |
|---|---|
| Computer equipment (computer) | 3 years |
| Software | 1 to 3 year-olds |
| Office furniture | 10 years |
| Passenger vehicle | 4 to 5 year-olds |
| Layouts and fittings | 10 to 20 year-olds |
| Commercial buildings | 20 to 50 year-olds |
Concrete example : You buy a computer for €1,200 excluding VAT. You depreciate it over 3 years using the straight-line method: you deduct €400 per year for 3 years, rather than €1,200 all at once.
The threshold of €500 excluding VAT
Goods whose unit value is less than 500 € HT These expenses can be directly expensed in the year of purchase, without depreciation. This is a valuable simplification for small equipment.
Special case of passenger vehicles
The depreciation of passenger vehicles is capped based on their CO₂ emission rate. The portion of depreciation exceeding this cap is a non-deductible expense that must be added back to your taxable income each year. For electric vehicles, the cap is higher. See the [link/reference]. BOFiP (article 39, 4 of the CGI) or your accountant to find out the exact limit applicable to your vehicle.
SMEs benefit from simplification: Small businesses (turnover less than 15 million euros, balance sheet total less than 7,5 million euros, workforce less than 50 employees) can directly use tax useful lives without having to calculate deferred depreciation.
Non-deductible expenses (and pitfalls to avoid)
Knowing which expenses are deductible is useful. Knowing which ones aren't is essential to avoid a tax audit. Here are the main categories to watch out for.
The corporate tax itself
The corporate income tax you pay on your profits is never deductible from your taxable income (Article 213 of the French General Tax Code). This is the most systematic reinstatement in a tax return, and the one that most surprises business owners who are discovering this principle.
Fines and penalties
Any financial penalty imposed by an administrative authority (URSSAF, DGFIP, customs) is not deductible (Article 39, 2 of the French General Tax Code). This includes late payment surcharges, tax penalties, and fines.
Lavish spending
The law expressly excludes certain expenses deemed luxurious or recreational, even if they are recorded as expenses:
The executive's personal expenses
This is the most delicate and closely monitored area. An expense that primarily benefits the executive personally cannot be deducted by the company. Typical examples include vacation expenses disguised as business trips, family entertainment expenses, and renovations to the primary residence paid for by the company.
In the event of an adjustment, these expenses are reinstated in taxable income and may be reclassified as distributed income, with the tax and social consequences that this entails.
Non-deductible taxes
In addition to corporate income tax, certain taxes are not deductible for companies subject to corporate income tax: the annual tax on CO₂ emissions and the annual tax on atmospheric pollutant emissions (which replaced the TVS in 2023), as well as the annual tax on offices in Île-de-France.
Excessive salaries
Compensation paid to a manager or employee may be partially rejected if it is deemed disproportionate to the duties performed, the size of the company, and its performance. The tax authorities compare this with industry practices.
The trap of poorly ventilated mixed loads
Expenses used for both business and personal purposes (telephone, internet, vehicle, home office) are only deductible up to the amount related to business use. Deducting 100% of a mixed expense without proper documentation is a common mistake that can be costly in the event of an audit.
Properly document your deductions: receipts and expense reports
The best tax strategy is worthless without impeccable documentation. In the event of a tax or social security audit, it is up to you to prove the legitimacy and professional nature of each deducted expense.
Essential supporting documents
For each deducted expense, you must have a compliant supporting document:
What should be included on a meal expense report
For a business meal, it is essential to note the following on the invoice or the back of the receipt: the date, the name and position of the guests, their company, and the professional purpose of the meal (prospecting, negotiation, follow-up to a project). Without this information, the tax deduction may be challenged.
The digitization of supporting documents
Since July 1, 2019, paper supporting documents can be scanned and destroyed after scanning, provided that the digital copy is a true replica of the original, saved as a PDF or PDF/A-3, and includes a reliable timestamp. This provision is governed by the decree of May 23, 2019 (URSSAF) and Article A102 B-2 of the French Tax Procedures Code (DGFIP).
Shelf life
Your accounting documents (invoices, expense reports, contracts) must be kept. 10 years from the close of the financial year, in accordance with Article L123-22 of the French Commercial Code. From a tax perspective, the limitation period is 6 years (Article L.102 B of the LPF). In practice, keep everything for a minimum of 10 years.
The statement of overhead expenses (form no. 2067)
If certain categories of expenses exceed thresholds set by the administration, you must declare them on this form attached to your income statement:
Failure to produce this statement is punishable by a fine of 5% of undeclared sums.
Implement an expense report policy
For businesses with employees or partners, establish clear rules: spending limits per type of expense, submission deadlines, and required supporting documentation. A structured process reduces errors, speeds up reimbursements, and protects your deductions in case of an audit.
FAQ: Your questions about tax deductions
Can I deduct an expense for which I don't have a receipt?
In principle, no. Every deducted expense must be supported by documentation. The tax authorities may, in very rare cases and for very small amounts, show some leniency if the business purpose is clear. But this is the exception, not the rule. Always ask for an invoice or receipt, even for small expenses.
Can my company pay me rent for using a room in my home as an office?
Yes, this is possible if your business is incorporated (SARL, SAS, EURL). The company pays you rent corresponding to the market rental value of the business premises. This rent is a deductible expense for the company, but you must declare it as taxable rental income on your personal tax return. The amount must reflect market rates, and a lease agreement must be drawn up. This arrangement warrants prior review with your accountant.
Is the VAT on my business purchases still recoverable?
No. Deductible VAT and expense deduction are two separate mechanisms. Some expenses are deductible as business expenses but without VAT recovery: train and plane tickets, hotel expenses for employees, and passenger vehicles. Others allow VAT recovery under certain conditions: business meals, client gifts under €73 including VAT per recipient, and fuel for commercial vehicles. For complex cases, consult the [relevant document/section/etc.]. BOFiP or your accountant.
What are the risks of improper deduction?
In the event of a tax audit, improperly deducted expenses are added back to taxable income, resulting in additional tax plus late payment interest of 0,20% per month. In cases of proven bad faith, a 40% penalty applies, which can reach up to 80% in cases of fraudulent activity. Certain personal expenses improperly deducted may be reclassified as distributed income, with additional tax and social security consequences. Therefore, caution and meticulous documentation are your best protection.
Manage your deductible expenses with Djaboo
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