Capital Gains Tax on Selling a French Business, and the Exemptions That Can Wipe It Out

Capital gains tax on a French business sale: how the gains are taxed - and erased

The gain on selling a fonds de commerce is taxable at once - but for most individual sellers, the real question is not the rate: it is which exemption applies. French law offers four, each with precise conditions the closing date can make or break: the receipts exemption for small businesses, the value exemption for sales up to €1,000,000, the retirement exemption, and the holding-period allowance on operating real estate. They combine, but only in certain pairs and in a certain order, and a seller who plans the sale around them can leave with little or no tax on the gain. This guide takes each regime in detail, then the stacking rules, the crédit-vendeur tax spreading, and what losses are worth when the sale produces them instead.

The seller's broader tax picture, immediate taxation, deadlines, VAT, CFE, joint liability, is mapped in this series' tax pillar; this guide goes deep on the gains alone.

The receipts exemption: small-business gains wiped out (Art. 151 septies)

Who qualifies. Individual operators (and, under conditions, partners of income-tax partnerships) whose activity was carried on professionally for at least five years, with average receipts within the thresholds. "Professionally" means the seller's personal, direct and continuous participation in the acts the activity requires - regular presence and at least one full function of the business (staff management alone can suffice), though the fonds need not be the seller's only or main occupation. A bare owner who never operates is out; so are non-participating co-owners - and so, decisively, is the owner whose fonds is under location-gérance: the tenant runs it, not the owner. (The value and retirement exemptions remain available to lessors under their own rules.)

The thresholds. Full exemption, income tax and social levies, where average receipts do not exceed €250,000 for sales and supply businesses or €90,000 for services; partial, degressive exemption up to €350,000 and €126,000.

The five years. Counted from the effective start of the activity, creation or acquisition of the fonds, to the sale, in principle the parties' agreement on thing and price. The refinements matter in practice:

• the condition attaches to the activity, not the asset sold: the Conseil d'État, in plenary formation, exempted the sale of a fonds held under five years because the seller had run the same activity in another fonds for over five (the administration cumulates the operating periods of several fonds in the same activity, run jointly or successively);
• different activities in distinct fonds are counted separately - the restaurateur-turned-baker who added a delicatessen in 2018 could not sell it exempt in 2020; but distinct activities within the same fonds count as one where they share a tax category (a bar-restaurant, classically);
• periods in an income-tax partnership then as an individual cumulate; periods in a corporation-tax company do not;
• the owner who reclaims a fonds after a location-gérance cumulates the direct-operation periods before and after the letting - but the letting years themselves never count;
• spouses: under community of property, one business is presumed, the clock running from the first spouse's start - unless the facts show two distinct businesses; under separation of property, each spouse runs its own clock, absent a de facto partnership;
• an activity under five years pays the ordinary professional gains regime - even where the sale was forced by ill health: force majeure does not bend the rule.

The value exemption: gains erased on sales up to €500,000 (Art. 238 quindecies)

The thresholds - updated. Full exemption where the value of the transferred elements does not exceed €500,000; partial, degressive exemption up to €1,000,000 - the levels set by the 2022 finance law (older material still shows €300,000/€500,000). The partial fraction is computed by applying to the gain the ratio (€1,000,000 − value transferred) / €500,000. The value that counts is the registration-duty base, clientele, lease right and operating movables, excluding new goods, trade receivables, cash and securities, and excluding any real estate sold alongside. Thresholds are assessed per complete branch where several autonomous branches are sold in one year, and, for a business under location-gérance, on the value of the let activity.

What must be transferred. In principle all the (non-obsolete) assets and liabilities of the activity - but the administration accepts a transfer without the liabilities, the cash or the stocks (nor, on the better view, the trade receivables), the test being that a third-party buyer carries the activity on identically. Operating premises and marks can even stay with the seller if the buyer's use is durably guaranteed (ten years at least for marks) - the retained asset then leaves the professional balance sheet, its own gain taxable (the building's long-term gain can still take the Article 151 septies B allowance). A complete branch of activity qualifies on the same basis, its five years counted from the start of the operation.

Five years, and independence from the buyer. The activity must have been carried on five years at the sale - the same activity-not-asset reading as above. And where the buyer is a company, the seller must not control it: no more than 50% of its voting or profit rights, directly or indirectly (dismembered rights count either way; indirect chains multiply through), and no de jure or de facto management of it - conditions met at the sale (the parties' agreement on thing and price, even with later entry into enjoyment) and maintained for the following three years, on pain of clawback. Family shareholdings do not count towards the 50%: selling to a company controlled by the seller's relatives can qualify.

Location-gérance sales. A let business can be sold exempt where the activity had run five years at the letting and the sale goes to the tenant-manager. Where the location-gérance was terminated before the sale, the ordinary conditions alone apply - the buyer need not be the former tenant.

What is exempted. All gains, short and long term, on the fixed assets transferred, including social levies, except real-estate gains (taxed ordinarily, with the 151 septies B allowance available) and current-asset profits. Credit-lease rights qualify unless they bear on real estate. Losses remain deductible, and previously deferred gains fall due at the sale - they never ride the exemption. The regime is optional: elected on plain paper stating the sale date, in principle with the cessation declaration (the administration's position), though lower courts have allowed later elections during an audit dialogue or within the claims period.

Do your gains qualify? The eligibility check

Pick the point that worries you - the check gives the rule.

The retirement exemption: income-tax-free gains around retirement (Art. 151 septies A)

Who qualifies. Income-tax PMEs in the EU sense: under 250 employees at the last closed financial year (part-time, seasonal and mid-year staff pro rata; temps and non-employees excluded), and either turnover under €50m (last twelve-month financial year, prorated otherwise) or balance-sheet total under €43m. The activity must have run five years, on the same activity-based count as above. The sale must cover the individual business - with the administration's tolerances: liabilities, cash, stocks and (on the better view) receivables can stay behind; premises and marks can be retained against a durable guarantee of use; an unprotected patronymic trade name need not pass. The test, again: identical continuation by a third-party buyer for a reasonable time.

The 24-month window. The seller must cease all functions in the business sold and draw its retirement pension within twenty-four months, date to date, before or after the sale:

• sale first: both events within twenty-four months after it. Events first: both within the twenty-four months before it;
• the administration tolerates one event before and one after - provided no more than twenty-four months separate the two events; and for the parallel share-sale regime the Conseil d'État has read the condition as satisfied anywhere in the four-year corridor from two years before to two years after the sale, a reading the administration has since adopted there;
• the pension date is the entry into enjoyment of the basic-scheme rights attached to the activity sold (for traders, the first day of the month after the claim); it does not matter that the age or quarters conditions ripened only after the sale, so long as the window holds;
• miss the window and the exemption is clawed back in the year it closes. Two humane adjustments: spouses running one community-property business qualify when either draws the pension, and a seller who dies within twenty-four months of the sale, or is forced out by invalidity, keeps the benefit under the applicable conditions;
• where activity ceased before the sale, the seller may hold the gains undeclared to crystallise them at the sale - stating so expressly in the cessation declaration, with an undertaking to regularise if the conditions fail within the twenty-four months.

What it exempts - and what not. Income tax on the gains, short and long term - but not the social levies, which remain due (the receipts exemption's rate, where available, can shrink their base). Real-estate gains are excluded, buildings, land, and shares of predominantly real-estate companies (over 50% of real value in such assets at the sale), with the 151 septies B allowance as their consolation. Previously deferred gains fall due - except gains deferred on an incorporation of a complete branch or of titles under Articles 151 octies / 151 octies B, which become definitively exempt where the sale's own gains qualify. The regime is optional, elected with the cessation declaration on plain paper: the option stated, the sale date, and an undertaking to produce the pension-entry certificate when issued.

Real estate and the gains: the holding-period allowance (Art. 151 septies B)

Long-term gains on operating real estate, the assets every other regime excludes, take an allowance of 10% per year of holding beyond the fifth: taxation shrinks from year six and disappears entirely after fifteen years' holding. The allowance covers buildings affected to the operation (a mixed building qualifies in proportion, and wholly where the non-operating surface stays within 10%), and it cumulates with every other regime in this guide - applied first in the recommended order. Where the walls sell with the fonds, or stay behind as a retained asset, this allowance is what tempers the real-estate carve-outs of the receipts, value and retirement exemptions.

Stacking the exemptions: how the gains reliefs combine

The pairs. The receipts and value exemptions never apply together: a seller meeting both must elect one - and, where neither gives a total exemption, cost the sale under each and pick the cheaper. Both stack with the retirement exemption and with the real-estate allowance; the retirement exemption stacks with either - but is exclusive of the titles-incorporation deferral (Art. 151 octies B), and the receipts exemption is exclusive of both incorporation deferrals.

Why stack. A seller fully exempt on receipts or value has no use for the retirement regime - it would add nothing and spares no social levies. A seller only partially exempt gains twice by stacking: the retirement exemption clears the income tax on the taxable remainder, while the partial receipts or value exemption keeps shrinking the social-levy base - the administration even allows the receipts-exemption rate to be applied to the social-levy assiette left after the retirement exemption.

The order. Where regimes cumulate, apply them from specific to general: the real-estate allowance first, the retirement exemption next, the receipts or value exemption last.

Deferred gains. Gains parked in deferral by earlier operations fall due at the sale and never ride the receipts or value exemptions; the one rescue is the retirement route for branch- or title-incorporation deferrals, definitively exonerated where the sale itself qualifies.

Timing your retirement around the gains exemption

Pick your calendar - the check tells you whether the window holds.

Paying the tax on gains over time: the crédit-vendeur spreading (Art. 1681 F)

A seller who accepts deferred or staged payment of the price, the crédit-vendeur covered in this series' financing guide, can ask to spread the income tax on the non-exempt long-term gain, rather than pay at once on money not yet collected. The frame: the sale must cover all the fixed assets of the activity, a complete branch, a fonds de commerce, an artisanal fonds or a clientele; the spreading runs at most to 31 December of the fifth year after the sale, and never beyond the price's own payment schedule. Since 2019 the regime covers individual enterprises under 50 employees with turnover or balance sheet within €10m meeting the EU small-enterprise definition (it began, in 2016, restricted to micro-enterprises). Three cumulative conditions gate the instalment plan: the tax must not arise from a rectification or an ex officio assessment; the seller must be current on its ordinary tax obligations; and it must post guarantees with the public accountant securing the gain's tax. The whole sits under the EU de minimis ceiling.

When the sale produces losses instead of gains

Selling at a loss has its own rulebook. The net long-term loss of the cessation year, and long-term losses still in carry-forward, deduct from the cessation year's profit only for a fraction: the ratio between the long-term gains rate of the loss year and the standard rate of the cessation year (CGI Art. 39 quindecies), and only within the year's taxable profit (which includes the year's short-term gains and previously spread short-term gains). They cannot create a deficit deductible from global income. Two further walls from the case law: a long-term business gain cannot be offset against losses of another tax category, such as securities losses - nor against a partnership deficit allocated to the seller. And the ordinary deficits of the years before the sale survive it: they remain deductible from global income on the usual conditions, the cessation notwithstanding.

Frequently Asked Questions

This article is for general information only and states French law as published in the sources available at the date shown above, updated against official sources for current thresholds. It does not constitute legal or tax advice. Eligibility turns on your facts and calendar. Always seek qualified advice before committing.