How a Location-Gérance Is Taxed in France: Owner, Tenant, Exit

How a location-gérance is taxed in France

The location-gérance has a tax personality of its own. Putting a business into it triggers no capital-gains bill - the law treats the letting as a change in how the fonds is operated, not as a sale. From then on the two sides run parallel tax lives: the owner declares the redevances and charges VAT on them; the tenant deducts them and pays tax on the operating profit. The reckoning comes at the end. When the fonds is sold, usually to the tenant, the ordinary cessation rules apply, and the difference between a heavily taxed exit and an exempt one turns on conditions that had to be satisfied years earlier, at the moment the letting began.

This guide follows that timeline: the entry (why it is tax-neutral, and the traps that make it less so), the running period on the owner's side and the tenant's side (income tax, VAT, local taxes), the requalification risk when the "letting" looks like a disguised sale - and the exit, with the capital-gains exemptions, the retirement regime and the registration duties that apply when the business finally changes hands.

Putting a business into location-gérance: a tax non-event, with edges

The principle. The mise en location-gérance is a mere change in the mode of operating the fonds - not a transfer or cessation of the business within the meaning of Article 201 of the tax code (CE 29 July 1983 n° 24158). The owner is therefore not taxed on the latent capital gains sitting in the fixed assets. For the year the letting begins, tax falls in the ordinary way on two segments: the profits of the direct-operation months, and the redevances earned from the letting's start.

Companies keep their loss carry-forwards. For an owner subject to corporate income tax, one could fear that abandoning direct operation counts as a change of activity killing the deficits carried forward (CGI Art. 221, 5). The tax administration has stated the contrary: putting a fonds into location-gérance does not, by itself, characterise a change of activity - the carry-forwards survive. The published reservation is aimed at abuse: a loss-making company that leases its fonds while the parties have in fact agreed its sale, purely to consume the losses before the sale completes, should not count on the tolerance.

The gift trap. One entry scenario is penalised. Where the business was previously transmitted free of charge, typically inherited or received by gift, under the tax-deferral regime of Article 41 of the tax code, leasing it out within five years of the transmission is expressly assimilated to a cessation: the beneficiaries lose the deferral on the gains. Heirs who do not want to run the business personally but are not ready to sell should take advice before signing a location-gérance; where the transmitted business has several establishments, keeping some in direct operation preserves the deferral for those.

The building. If, on leasing out the fonds, the owner withdraws the operating premises from the business balance sheet into private wealth, the withdrawal in principle taxes the latent gain on the building - softened by a holding-period allowance once the building has been on the balance sheet more than five years, with full exemption after fifteen. Keeping the building on the balance sheet triggers nothing: the letting of the fonds is not, by itself, a withdrawal of any asset.

The stock. The entry usually comes with a sale of the existing stock to the tenant. That sale does not disqualify the operation - but it carries VAT like any commercial transaction (the tenant deducts it), and it forces the owner to write back provisions previously built on the stock, which lose their object when the goods leave.

No automatic write-down. The letting by itself justifies no provision for depreciation of the fonds: to deduct one, the owner must show an effective loss of value, letting or no letting.

The owner's taxes during the location-gérance

The redevances are business income. The rents from letting the fonds are taxed, according to the owner's status, under corporate income tax or under personal income tax in the industrial and commercial profits category (BIC) - under the real regime, normal or simplified, unless the owner is an individual whose receipts fit the micro-BIC regime. For individuals, the redevances are in addition treated as patrimony income for the CSG and the other social levies, at 18.6% since the 2026 social-security financing law raised the rate on this category from 17.2%, assessed through the annual income-tax return.

What goes into the taxable base. Under the real regime, the result is built from the redevances earned and the charges borne, with a few points specific to the letting:

• the building's rent counts. Where the owner lets the fonds and the operating premises under one contract, the whole rent, walls included, is commercial income, even if the contract prices the two separately. Only genuinely separate contracts, on terms that do not associate the owner with the tenant's results and with the building off the business balance sheet, keep the building's rent in the property-income category (CE 18 June 1990 n° 61022);
• a rescue is not misconduct. Waiving redevances owed by a tenant in financial difficulty is not an abnormal act of management where the waiver is part of measures to restore the tenant's position or carries a better-fortunes clause (CE 16 July 2008 n° 277180; CE 16 June 2004 n° 235647) - but redevances contractually due are taxable in full even where, for the tenant's difficulties, only the guaranteed minimum was invoiced;
• the deposit is not income - yet. The guarantee deposit the owner customarily takes from the tenant stays outside taxable income as long as it remains refundable; it becomes income only when definitively kept, set against unpaid redevances or the tenant's defaults;
• depreciation is capped for individuals. Assets let with the fonds are depreciated over their normal useful life, not the letting's duration. For an individual owner, the deductible depreciation of the let assets cannot exceed, per financial year, the rents earned less the other charges on those assets (CGI Art. 39 C) - the excluded fraction is not lost, only deferred, deductible later within the same cap. Only the rent attributable to depreciable assets counts for the comparison, not the part paid for the intangibles;
• losses change category. Deficits from the direct-operation years remain deductible from the owner's global income in the usual conditions. Deficits arising during the letting, by contrast, are treated by the administration as income from a non-professional commercial activity (CGI Art. 156, I-1° bis): they offset only non-professional BIC profits, not global income. A corporate owner keeps ordinary carry-forward.

Micro-BIC for small lettings. An individual owner whose annual redevances do not exceed the services threshold, €83,600 for 2026-2028 (CGI Art. 50-0, thresholds revised every three years), can sit in the micro-BIC regime: taxable profit is the receipts less a flat 50% allowance (minimum €305) standing in for all charges, depreciation included. An option for the real regime remains open, and owners within the micro-social regime can opt for the entrepreneur's flat levy discharging income tax at 1.7% of receipts. Whether micro is a good deal depends on the real charge load: an owner still amortising heavy equipment usually does better under the real regime.

VAT, local taxes and wealth tax during the location-gérance

VAT on the redevances. The owner charges VAT on the redevances; the base includes not only the fonds' rent but also the rent of the commercial premises where the fonds is operated - even where the owner is itself only a tenant of the walls, and even where the tenant-manager pays the walls' rent directly to the premises' owner (CE 27 October 1933). The tax does not stay with the owner: invoiced to the tenant, it is deductible on the tenant's side. Where the owner of both fonds and building lets the building by a genuinely separate civil lease, building off the balance sheet, rent terms not associating the owner with the operation, the building's rent can escape VAT unless the owner opts in; the administration reads the exemption narrowly, so the structure should be documented, not assumed.

VAT on the deposit. The guarantee deposit follows its income-tax logic: VAT is due when the sums stop being refundable to the tenant. But a deposit out of proportion to the real risk is taxed on receipt for the excessive part.

CFE: the owner keeps a line, usually a small one. The owner of a let fonds remains within the business-premises levy (CFE) during the letting - but the tax is assessed on premises at the taxpayer's disposal, so an owner who keeps no business premises has no base and pays only the minimum assessment of Article 1647 D of the tax code. Where the activity let out was itself exempt, the exemption can continue in the owner's hands (CE 9 March 2016 n° 374893). As for the value-added component (CVAE), still alive, its abolition now scheduled for 2030, the thresholds mean an owner living on redevances almost never pays it.

Wealth tax: the letting stays "professional". Real-estate wealth tax (IFI) exempts business assets - and the letting of a commercial establishment equipped for its operation, the location-gérance of a fonds included, counts as a commercial activity for the exemption (CGI Art. 975). An owner whose operating building would otherwise swell the IFI base keeps the professional shelter while the fonds is let.

The solidarity window. Two texts make the owner answerable for the tenant's early debts: until the contract's publication, the owner is jointly liable for the operating debts (C. com. Art. L 144-7) and, in tax matters, for the direct taxes assessed on the operation (CGI Art. 1684, 3) - the fiscal solidarity applying only where the assessments carry the bad-faith or late-filing surcharges and the owner knew or could not have ignored the failings, and not extending to the deliberate-failure surcharge itself (CE 28 July 2011 n° 313279). Since the contract must be published within fifteen days of signature (C. com. Art. R 144-1), the window is short for anyone who files on time - the mechanics, and the owner's recourse against the tenant and possible discharge requests, are covered in this series' joint-liability and owner's-risks guides.

Who pays which tax during a location-gérance?

Pick your seat - the check maps your tax lines for the running period.

The tenant's taxes during the location-gérance

The operator's ordinary tax life. The tenant-manager runs the business at its own risk and is taxed accordingly: personal income tax in the BIC category or corporate income tax on the results. A corporate tenant is necessarily under the real regime; an individual can, receipts permitting, use micro-BIC - the thresholds and mechanics mirror those described for the owner, with the 71% allowance for sales activities and 50% for services.

The redevances deduct - with two attack lines. The redevances paid are normally deductible charges. The administration can contest the deduction on two grounds:

• excessive redevance - an abnormal act of management. The courts test the amount against comparable lettings, the return on the owner's invested capital and the equipment made available; where the redevance matches market comparables, the deduction stands even if it happens to track the owner's own financing costs (CE 16 March 1990 n° 57219);
• disguised sale - the requalification risk covered in the next section, which converts the "rent" into instalments of a purchase price, deductible not at all.

Deposit, repairs, equipment. The deposit paid to the owner is not a deductible charge: it stays on the tenant's balance sheet as an asset until definitively lost. Routine upkeep and repair of the let assets deducts as incurred; heavy works that increase value or extend life are capitalised and amortised. Where the contract obliges the tenant to renew the equipment for its own account, the new equipment is the tenant's asset, amortised normally; where the renewal is made in the owner's name and for the owner's account under an express clause, the outlay is a deductible charge without a counterpart asset - and a provision spreading a planned renewal programme can be deducted under the ordinary conditions where the plan is documented.

VAT and CFE. The VAT invoiced on the redevances is deductible in the ordinary way against the VAT the tenant collects on its own sales, as is the VAT on the stock bought at entry. A tenant obliged to renew equipment deducts the tax on the purchase; where it buys in the owner's name and for the owner's account, the deduction belongs to the owner on a rendered account. The tenant is the operator for the business-premises levy: CFE is assessed on the rental value of the premises it uses, the owner's included, the change of operator taking effect at the contract's date unless a later effect is stipulated (CE 27 July 2005 n° 269605).

Registration: almost nothing. The location-gérance contract itself is not subject to registration whatever its form or the redevance level; presented voluntarily, it takes a €25 fixed duty (CGI Art. 739). One instrument does carry a registration constraint: a unilateral promise by the owner to sell the fonds to the tenant, made by private deed, is void unless registered within ten days of acceptance (C. civ. Art. 1589-2) - a €125 fixed duty (CGI Art. 680), notarial promises being exempt from the formality. The promise architecture belongs to this series' try-before-you-buy guide.

When the location-gérance is requalified as a sale

The theory. Where the letting dissimulates a sale of the fonds, the administration can set the contract aside as an abuse of law (LPF Art. L 64) and requalify the redevances as instalments of a purchase price - with the tenant's deductions reversed and the sale's registration duties claimed. Since 2021 assessments, a parallel track catches arrangements whose main purpose is tax avoidance (LPF Art. L 64 A), and a general anti-abuse clause does equivalent work for corporate income tax (CGI Art. 205 A).

The test. The dividing line the courts draw is whether the owner remains able to take the operation back at the term - the premise on which the whole institution rests. Requalification was justified where the tenant took over at once the operating equipment, the loans financing it and the commercial lease (CAA Paris 22 June 1995), and where the entirety of the equipment, furnishings and fittings was sold to the tenant at the outset (CE 15 October 1986 n° 44186) - though the sale of all equipment was not enough for the Cour de cassation where the owner kept the commercial lease (Cass. com. 18 October 1994). It failed where the tenant paid annual redevances, reimbursed the owner's depreciation and took over the commercial lease only three years into the contract: no transfer of ownership of the fonds' assets was characterised at the contract's date (Cass. com. 13 January 2009 n° 07-14.835, and the same outcome on the profits side).

The discipline. The practical rules follow. Do not sell the tenant the whole of the tangible substance at the outset; keep the commercial lease in the owner's hands; price the redevance as rent, not as amortised purchase instalments; and where the parties do intend a purchase, write it as what it is, a promise or a credit-lease with its own regime, rather than dressing a sale as a letting. The entry conditions and the qualification boundary are covered in this series' conditions guide.

Selling the business at the end of the location-gérance

The sale is a cessation. Most lettings end in a transmission - typically the sale of the fonds to the tenant. The sale triggers immediate taxation of the profits to the sale date, of any profits in deferral, and of the capital gain on the fonds (CGI Art. 201). The gain follows the professional capital-gains regime, short-term and long-term, described in this series' capital-gains guide. What changes with a location-gérance is which exemptions remain available, and on what conditions.

The receipts-based exemption is off the table. The exemption for small businesses whose receipts stay under the statutory ceilings (CGI Art. 151 septies) is reserved for activities carried on professionally - a personal, direct and continuous involvement the lessor of a fonds does not have. A lessor can engineer around the exclusion by resuming the operation before selling: the administration accepts that the direct-operation years before the letting and after the resumption cumulate for the five-year test, with the tenant's receipts counted where the sale comes within two years of the resumption.

The value-based exemption (Art. 238 quindecies). The gain on selling a let fonds can be exempt - totally where the value of the elements sold stays below €500,000, degressively up to €1,000,000 (thresholds set by the 2022 finance law; the exempt fraction between the two marks equals (1,000,000 − value) ÷ 500,000). The valuation counts the fonds itself, stocks and buildings excluded. Two conditions are specific to the location-gérance (CGI Art. 238 quindecies, VII): the activity must have been carried on for at least five years at the moment the letting began, the letting years themselves do not count, and the sale must be made to the tenant. The general conditions apply on top (CE 16 October 2013 n° 346063), including the absence of control links between seller and buyer (CE 30 December 2013 n° 355328) - which in practice denies the exemption to an operator who leases the fonds to a company it controls or directs and then sells or contributes the fonds to it.

The published softenings. The five-years-before-letting condition is waived where the letting was decided to save the fonds in the incapacity and succession cases of Article L 144-5, 4° and 5° of the commercial code (and for contracts predating 2006 that respected the then-applicable two-year rule) - provided the fonds was then let for at least five years before the sale. The sale-to-the-tenant condition is waived where the operator, having let the fonds to a company it controls, sells to its successor simultaneously the fonds and the entirety of its shares in the tenant company, the company fitting the SME thresholds. And where the contract is terminated before the sale, even the day before, the fonds is no longer let at the sale date, so only the general conditions apply and the buyer need not be the ex-tenant (CAA Versailles 23 October 2014; CAA Douai 21 November 2019). A worked figure: a fonds exploited nine years, let for three, sold to the tenant for €800,000 - the gain is exempt for (1,000,000 − 800,000) ÷ 500,000 = 40%, the rest taxed normally.

The retirement exemption (Art. 151 septies A). A seller retiring can have the gain fully exempted from income tax: SME sold for value, the seller ceasing all functions and claiming the pension within two years either side of the sale, and holding no more than 50% of the buyer at the sale or in the following three years. The location-gérance adds the same two conditions, five years of direct operation at the letting's start, sale to the tenant, with matching softenings: the péril and pre-2006 cases above, and the controlled-company scenario, where selling the fonds and the entirety of the shares in the tenant SME (at least 50% held, or effective direction) simultaneously, or even the shares first and the fonds shortly after, keeps the exemption. The exemption covers income tax only: the social levies remain due on the gain, at 18.6% now, though combining the retirement exemption with the value-based exemption, where both sets of conditions are met, can shrink that base. Real-estate gains are excluded from both exemptions.

The building's own allowance. Long-term gains on the operating building held through the letting benefit from the holding-period allowance of Article 151 septies B, 10% a year beyond the fifth year, full exemption after fifteen, the affectation condition being read without distinguishing whether the activity is operated directly or through a location-gérance (CAA Nancy 15 May 2014).

The buyer's registration duties. The tenant buying the fonds pays the ordinary transfer duties: nothing on the first €23,000, 3% to €200,000, 5% above (CGI Art. 719) - with the €500,000 allowance where the buyer is a qualifying employee or close-family member (CGI Art. 732 ter, raised by the 2024 finance law). The mechanics, the reduced-rate zones and the declaration practice are in this series' registration-duties guide.

Share sales and contributions after a location-gérance

Selling the operating company's shares. Where the owner of the fonds also holds shares in the company operating it, selling that stake is a separate taxable event. For a company under corporate income tax, the gain falls under the flat tax: 12.8% income tax plus social levies at 18.6% - 31.4% in all since 1 January 2026. A retiring director can first apply the fixed €500,000 allowance (CGI Art. 150-0 D ter, extended by the 2025 finance law to sales through 31 December 2031), on conditions that echo the retirement exemption: an SME with a real operating activity, five years of qualifying functions and a 25% minimum holding, cessation of functions and pension claimed within the statutory window, no more than forty-eight months separating the first and last of the events (CE 16 October 2019 n° 417364), full disposal of the stake, and no position in the buying company for three years. Opting for the progressive scale instead of the flat tax revives the holding-period reductions for shares acquired before 2018, but the fixed allowance and the proportional reductions do not combine. The buyer's duty on the shares: 0.1% for shares in an SAS or SA, 3% for parts sociales after the €23,000 pro-rata allowance (CGI Art. 726).

Ending by rachat of the owner-company's shares. Where the letting ends with the sale of the shares of the company owning the fonds, the gain follows the professional regime if the seller worked in a partnership-taxed company, and otherwise the individual shares regime above.

Contributing the fonds to the tenant company. The other classic exit is an apport of the let fonds to the operating company against shares. The contribution gain can use the value-based exemption, and the retirement exemption where the apport accompanies a retirement - in both cases only if the contributor does not control the company. Failing that, the deferral regime of Article 151 octies keeps the gain on non-depreciable assets untaxed until the shares received (or the assets) are disposed of, the gains on depreciable assets being reintegrated over time by the company; a later sale of the shares at retirement can even clear the deferred gain through the retirement exemption (CGI Art. 151 septies A, IV bis). On duties, the straight apport of the fonds to the company that operated it is registered free of charge, provided a contributor not itself subject to corporate tax undertakes to keep the shares three years (CGI Art. 809-810) - selling early costs the ordinary proportional duty. And a sale of partnership shares within three years of the apport is treated, for duties, as a sale of the underlying fonds (CGI Art. 727). A later gift of the shares can ride the Dutreil partial exemption where its conditions are met (CGI Art. 787 B).

Selling after a location-gérance: could the gain be exempt?

Pick your exit - the check gives the exemption that may fit and its sticking point.

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. It does not constitute legal advice. Always seek qualified advice before acting.