Tax Consequences of Signing a French Commercial Lease

Tax Position of the Tenant: The Droit au Bail

The Droit au Bail as a Fixed Asset by Nature

The droit au bail — the right the tenant acquires under a French commercial lease, combining the contractual rights conferred by the lease and the statutory protections of the commercial tenancy regime — is an intangible fixed asset by nature. It belongs to the fixed assets of the tenant's business whether or not it is entered on the balance sheet, since it can only be used for the exercise of a profession (CE 17-10-1990 n° 56991; CE 23-2-2000 n° 162659; CE 27-1-2017 n° 391817). The expenditure incurred to obtain the grant of the lease — the droit d'entrée or pas-de-porte — has as its counterpart the entry of an asset into the company's patrimony and cannot be treated as a formation expense or a deductible operating charge.

Where the tenant fails to record the droit au bail on the balance sheet, the tax authorities take the position that this omission constitutes an error whose correction generates a taxable profit equal to the increase in net assets. However, where the correction has as its counterpart a capital contribution supplement, no taxable profit arises (TA Orléans 15-3-1994; CE 17-11-2000 n° 179429). Because the droit au bail is a fixed asset by nature, any subsequent sale of the lease right gives rise to a professional capital gain — taxable regardless of whether the right appeared on the balance sheet (CE 15-10-1982 and subsequent jurisprudence).

No Amortisation — But Depreciation Provision Is Possible

The advantages that the droit au bail confers on the enterprise cannot be regarded, from the moment of acquisition, as necessarily expiring at the end of the lease term, since the lease is eligible for renewal. For this reason, the droit au bail cannot be amortised (CE 15-10-1982 n° 26585; confirmed in the tax administration's Bofip commentary). Seeking to amortise the cost of the lease right as an annual charge will be disallowed.

However, a depreciation provision (provision pour dépréciation) may be constituted if the value of the droit au bail falls below its acquisition cost — for example, in a declining rental market, following partial loss of trade, or where the landlord has notified a refusal of renewal without compensation (CE 23-6-1986 n° 50655).

CFE: The Tenant's Liability

The cotisation foncière des entreprises (CFE) is the first component of the contribution économique territoriale (CET). The CVAE — the second component — will be fully suppressed with effect from 1 January 2030 (Loi 2024-127 of 14 February 2025). The CFE is levied on persons who, as at 1 January of the tax year, habitually carry out an unsalaried professional activity in France.

The CFE base is constituted by the rateable value (valeur locative) of the property assets subject to taxe foncière that the taxpayer holds for the purposes of their professional activity (CGI Art. 1467). Critically, it is the tenant who is liable for CFE on the leased premises — not the landlord. This applies regardless of whether the landlord is themselves subject to CFE on those premises. What matters is that the tenant holds the premises for professional use at the end of the reference period (CE 14-4-2022 n° 439812). Property held under a lease or a crédit-bail is included in the CFE base of the occupying enterprise in the same way as owned property (CE 18-2-2002 n° 220796).

CFE: The Landlord's Liability

Furnished or Fitted-Out Premises

Landlords who let furnished or fitted-out premises for professional use exercise a professional activity and are therefore subject to CFE in the ordinary way. At minimum, the landlord must pay the statutory minimum CFE contribution under Article 1647 D of the CGI even if the base assessment is low.

Bare Commercial Premises

The letting of bare (nues) commercial premises is deemed to be carried out on a professional basis and falls within the scope of CFE (CGI Art. 1447). There is however a significant threshold exemption: CFE is not due where the activity of letting or sub-letting bare premises generates gross receipts below €100,000 in the reference period. Receipts encompass all receipts of any nature received by the landlord — rents, droits d'entrée, pas-de-porte, charges passed through to tenants, and similar. The reference period is generally the penultimate calendar year before the year of assessment.

Landlord's Fiscal Solidarity on Tenant's Departure

A landlord who fails to notify the relevant tax collector (comptable du Trésor) of a tenant's departure at least one month before the contractual end date may be held jointly liable for the fraction of CFE owed by the departing tenant for the month preceding and the month of departure (CGI Art. 1687). In a subletting arrangement, this solidarity obligation falls on the main tenant rather than the property owner.

IFI: The Landlord's Position

Commercial Property and the IFI Scope

All real property and real property rights held by the taxpayer and members of their foyer fiscal on 1 January fall in principle within the scope of the impôt sur la fortune immobilière (IFI), as do shares in companies to the extent of the fraction of their value attributable to directly or indirectly held real property (CGI Art. 965). An immeuble let under a French commercial lease therefore enters the IFI base of its owner unless it qualifies for exemption.

The Professional Asset Exemption (CGI Art. 975)

Three scenarios qualify for the bien professionnel exemption under Article 975 of the CGI:

• The property is let to a company in which the taxpayer exercises their principal activity.
• The property is held by a property company (société immobilière) of which the taxpayer is a shareholder, and is let to the taxpayer's own individual business.
• The letting covers a fully-equipped commercial establishment (including furniture and operational equipment), and this letting activity constitutes the taxpayer's principal professional activity.

In the first and third cases, the exemption applies in proportion to the taxpayer's (and household members') ownership interest in the operational company. Where the taxpayer holds their interest in the property indirectly through an intermediary company, the exemption applies to the fraction of the value of those shares representing the exempt property, proportionate to the taxpayer's rights in the operating entity.

Worked Examples

Valuation of Let Property for IFI

Where the professional asset exemption does not apply, commercially let property must be declared for IFI at its valeur vénale réelle as at 1 January, taking into account the legal effects of the lease. A blanket occupancy discount is not the correct method: a let commercial property can in certain markets be worth more than a vacant equivalent (Cass. com. 7-2-1989 n° 242). The valuation must reflect actual market conditions.

Fiscal Solidarity for Furnished Office Lettings

Article 1688 of the CGI introduces a specific fiscal solidarity mechanism for the letting of furnished offices (bureaux meublés). Every tenant of a furnished office is required to pay to the Treasury — at the end of each month, through the intermediary of the landlord and under the landlord's responsibility — a sum equal to 25% of the monthly rent, in guarantee of the direct taxes for which the tenant may be liable.

To implement this mechanism, every landlord of furnished offices must file a declaration in duplicate with the public finances collector for the district in which the offices are located, within the first ten days of each month. The declaration must identify each tenant for the preceding month: name and address, profession, date of entry into occupation, lease end date where relevant, and monthly rent paid. For leases still running at the end of the month, the declaration must also state the consignment sum due (25% of rent) for each tenant — since only persons who are tenants on the last day of the month are required to consign.

If these formalities are not regularly observed, the landlord becomes personally liable for the tenant's taxes up to the limit of the sums that should have been consigned — capped at one-quarter of the annual rent (CE 2-2-1934 n° 30492). The tenant may apply for reimbursement where they can show they have paid all their direct taxes for the year of consignment and the following year. The reimbursement application must be submitted to the departmental director of public finances no later than 31 December of the fourth year following the year of consignment.

This article is for general information and educational purposes only. It does not constitute legal or tax advice and does not create an adviser-client relationship. Tax laws change; always verify with a qualified French tax professional before relying on this content.