The Tax Consequences of Assigning a French Commercial Lease: Capital Gains, Exemptions and Registration Duties

Capital Gains on the Assignment of a French Commercial Lease: The Basic Framework

The right to a French commercial lease (droit au bail) is an element of the fixed assets of a commercial enterprise. It belongs to the category of intangible fixed assets and forms part of the fonds de commerce. Whether or not it is separately inscribed on the balance sheet, its assignment generates a profit or loss that is treated as a professional capital gain or loss.

The gain is calculated as the difference between the assignment price — net of the costs and taxes strictly inherent to the transaction, such as intermediary commissions — and the acquisition price as recorded in the accounts at the date of assignment. Where the lease right was acquired by the current tenant by paying an entry premium or a transfer price to a previous tenant, that amount forms the acquisition cost to be deducted. Where the right was created by the original grant of the lease, the acquisition cost is typically nil, meaning the entire assignment price is a gain.

French Commercial Lease Assignment Gains: Short-Term vs Long-Term Under the IR Regime

For businesses subject to personal income tax (impôt sur le revenu) — sole traders and partnerships — the capital gains regime distinguishes between short-term and long-term gains depending on how long the asset has been held (CGI Art. 39 duodecies).

A gain on the assignment of a lease right held for less than two years is a plus-value à court terme. It is included in the ordinary taxable results of the business and taxed at the standard progressive income tax rate. An optional spreading mechanism allows the tax to be spread over three years (CGI Art. 39 quaterdecies); where the business ceases, the gain is taxed immediately.

A gain on the assignment of a lease right held for two years or more is a plus-value à long terme. It benefits from a reduced tax rate of 12.8%, to which social contributions of 17.2% are added, giving a total rate of 30% (CGI Art. 39 quindecies 1-1). The holding period is counted day by day from the date of acquisition of the right, not from the date of its recording in the accounts.

French Commercial Lease Assignment Gains Under the Corporate Tax Regime (IS)

For companies subject to corporate tax (impôt sur les sociétés), the short-term/long-term distinction does not apply to the assignment of a commercial lease right, regardless of the duration of holding. The gain is included in the ordinary trading result of the company and taxed at the standard corporate rate. There is no reduced rate for long-term gains on this type of asset.

Companies subject to IS may nonetheless benefit from the branche complète d'activité exemption (discussed below) if they meet the SME conditions.

Main Capital Gains Exemption Regimes for French Commercial Lease Assignments

Petites Entreprises — Article 151 septies CGI

The small enterprise exemption under Article 151 septies of the Code général des impôts provides total or partial relief from tax on professional capital gains for businesses whose annual turnover does not exceed set thresholds, provided the activity has been carried on professionally for at least five years.

The thresholds are: total exemption where turnover does not exceed €250,000 for industrial and commercial businesses engaged in the sale of goods or the provision of accommodation; or €90,000 for service providers. Partial degressive relief applies where turnover is between €250,000 and €350,000 (sales/accommodation) or between €90,000 and €126,000 (services). Turnover is the two-year average of the business's revenues for the years preceding the year of realisation of the gain.

Branche Complète d'Activité — Article 238 quindecies CGI

The business transfer exemption under Article 238 quindecies applies to the transfer of an entire business or of a complete branch of activity, defined as an autonomous set of assets and liabilities capable of operating independently. The gain is totally exempt where the value of the transferred elements does not exceed €500,000, and partially exempt on a degressive basis where the value is between €500,000 and €1,000,000. The activity must have been carried on for at least five years.

The key condition is that the assigned elements must constitute an autonomous economic unit. An isolated assignment of the lease right alone does not qualify: the exemption requires that the overall business — or at least an identifiable autonomous branch of it — is being transferred. In practice, the tax authority accepts that a business with minimal tangible assets (a bakery where the baker sells the lease right and depreciable equipment to a buyer who takes over the same activity) can qualify as a branche complète, provided the buyer continues the activity on essentially the same basis.

Registration Duties (Droits d'Enregistrement)

The assignment of a French commercial lease right is subject to registration duties under Article 725 of the CGI, calculated at the same rates as a transfer of a commercial business (cession de fonds de commerce). The duty is levied on the assignment price or, if higher, the market value of the right. Where no monetary consideration is stipulated, the parties must provide a sworn valuation.

The rate structure is progressive:

The duty is payable by the assignee (the incoming tenant), though assignor and assignee are jointly and severally liable (CGI Art. 1712). The assignment deed must be registered within one month of its date (CGI Art. 635 2-5°). Reduced rates available in certain urban enterprise zones do not apply to lease right assignments. The assignment of a lease right is exempt from VAT.

This article is for general information and educational purposes only. It does not constitute tax or legal advice. Tax rules change frequently; always verify current rates and thresholds with a qualified adviser before any transaction.