French General Tax Code
In forceI. - Capital gains subject to the articles 39 duodecies to 39 quindecies, other than those mentioned in III, realised in the course of a commercial, industrial, craft, liberal or agricultural activity, are exempt when the following conditions are met:
1° The activity must have been carried on for at least five years;
2° The transfer is made for consideration and relates to a sole proprietorship or to all of the rights or shares held by a taxpayer who carries on his professional activity within the framework of a company or group whose profits are, pursuant to the articles 8 and 8 ter, which are subject to income tax in its name and which are considered to be assets allocated to the exercise of the profession within the meaning of I of l'article 151 nonies ;
3° The transferor ceases to hold any position in the sole proprietorship transferred or in the company or grouping whose rights or shares are transferred and asserts his retirement rights, within two years following or preceding the transfer ;
4° The transferor must not hold, directly or indirectly, more than 50% of the voting rights or rights in the corporate profits of the transferee company;
5° The sole proprietorship being transferred or the company or grouping whose rights or shares are being transferred must employ fewer than two hundred and fifty employees and either have achieved annual sales of less than 50 million euros during the financial year, or have a balance sheet total of less than 43 million euros ;
6° 25% or more of the capital or voting rights of the company or grouping whose rights or shares are being sold are not held by a company or by several companies that do not meet the conditions of 5°, on a continuous basis over the course of the financial year. For the purposes of determining this percentage, holdings in venture capital companies, venture capital mutual funds, specialised professional funds covered by article L. 214-37 of the Monetary and Financial Code as it stood prior to Order no. 2013-676 of 25 July 2013 amending the legal framework for asset management, professional private equity funds, sociétés de libre partenariat, regional development companies, financial innovation companies and single-member venture capital companies are not taken into account provided that there is no arm's length relationship within the meaning of 12 of article 39 between the company or grouping in question and the latter companies or funds. This condition is assessed continuously throughout the financial year.
I bis. - The exemption provided for in I applies under the same conditions to capital gains tax deferred on the basis of I ter of article 93 quater, of a of I of l'article 151 octies, I and II of l'article 151 octies A and the I of article 151 octies B.
I ter. - Disposals of businesses by the companies referred to in 2° of I are also eligible for this scheme, under the conditions set out in I and only for the capital gain taxable in the name of the shareholder, provided that the company is dissolved at the same time as the disposal and that the said shareholder exercises his right to retire within two years of or prior to the disposal.
II. - The exemption provided for in I is called into question if the transferor falls into the situation referred to in 4° of I at any time during the three years following the completion of the transaction that benefited from the regime provided for in this article.
When one of the conditions provided for in 2° or 3° of I is not met at the end of the period provided for in that same 3°, the exemption provided for in I is called into question in respect of the year during which the end of that period occurs.
III. - Capital gains on the following are taxed in accordance with ordinary law:
1° Built or unbuilt real estate or rights or shares in companies whose assets consist mainly of built or unbuilt real estate or rights or shares in companies whose assets consist mainly of the same property, rights or shares;
2° The rights or shares mentioned in 2° of I when the assets of the company or grouping are mainly made up of built or unbuilt real estate assets not allocated by the company or grouping to its own operation or rights or shares in companies whose assets are mainly made up of the same assets, rights or shares.
IV. - By way of derogation from 2° of I, the transfer for consideration of a business that is the subject of a management lease or comparable contract may benefit from the regime referred to in I if the following conditions are simultaneously met:
1° The business has been in operation for at least five years at the time of the lease;
2° The transfer is made to the lessee or, in compliance with the contract, to any other person, provided that this transfer relates to all of the elements contributing to the operation of the business which was the subject of the management lease or a comparable contract.
IV bis. - In the event of the disposal for valuable consideration of units or shares in companies subject to corporation tax or an equivalent tax or subject by option to this tax, rendering taxable a capital gain deferred on the basis of I ter of article 93 quater, of a of I of article 151 octies, of I and II of article 151 octies A, of I of article 151 octies B or of III of article 151 nonies, this deferred capital gain is exempt, when the following conditions are met:
1° The transferor:
a) Must have exercised, continuously over the five years prior to the disposal, one of the functions listed in 1° of 1 of III of Article 975 and under the conditions set out in the same 1° in the company whose securities are being disposed of;
b) Ceases to hold any position in the company whose securities are sold and asserts his or her retirement rights, within two years following or preceding the sale;
c) Meets the condition set out in 4° of I;
2° The sale relates to all of the company's securities;
3° The company whose securities are sold:
a) Meets the conditions set out in 5° and 6° of I;
b) Has its registered office in a Member State of the European Union or in another State party to the Agreement on the European Economic Area that has entered into an administrative assistance agreement with France with a view to combating tax fraud and tax evasion;
c) Must have been continuously engaged in a commercial, industrial, craft, liberal or agricultural activity for the five years prior to the disposal, with the exception of the management of its own movable or immovable assets.
The exemption mentioned in the first paragraph of this IV bis is called into question if the transferor falls within the situation mentioned in 4° of I at any time during the three years following the completion of the transfer of all of the securities.
When one of the conditions provided for in b of 1° or in 2° is not met at the end of the period provided for in the same b, the exemption provided for in this IV bis is called into question in respect of the year during which the end of this period occurs.
V. - 1. The compensatory indemnity paid to a general insurance agent practising on an individual basis by the insurance company that he represents on the termination of his mandate benefits from the scheme referred to in I if the following conditions are met:
a) The contract whose termination is compensated must have been concluded for at least five years at the time of termination;
b) The general insurance agent asserts his rights to retirement within two years of termination of the contract;
c) The activity is continued in full within the two-year period.
2. Where the preferential regime provided for in 1 applies, the general insurance agent who ceases his activity shall be subject, on the amount of the compensatory indemnity, to an exceptional tax established in accordance with the tariff provided for in Article 719. This tax is assessed, controlled and collected in the same way as income tax and subject to the same guarantees and penalties. A decree shall determine the terms and conditions for the application of this 2 and the reporting obligations incumbent on taxpayers and insurance companies.
VI. - The option to benefit from the regime defined in this article is exclusive of that of the regimes provided for in I ter of article 93 quater and articles 151 octies and 151 octies A.
