A Comprehensive Guide to SARL Taxation

It is common knowledge that a company’s tax liability depends on its registered legal structure. Taxes and levies vary from one type of entity to another, and each tax regime presents its own set of advantages and disadvantages compared to other categories. What are the key points to understand regarding the taxation of Limited Liability Companies (SARL)?

Standard Taxation for a SARL and Corporate Income Tax Calculation

Normally, taxation for a SARL is levied at the corporate level rather than at the individual shareholder level. Regarding a LLC, it is the company’s profits that are subject to taxation. Shareholders are not affected by this tax, except when they receive compensation or dividends from the company.

Corporate income tax for a SARL is calculated based on taxable income at a reduced rate of 15%. This 15% reduced rate applies to the first €38,120 of the company’s profits. It applies to SARLs with an annual turnover of less than €10,000,000 over a 12-month period. This also applies to SARLs where the share capital is fully paid up and at least 75% is continuously held by individuals or legal entities that meet the aforementioned criteria.

Under the standard taxation regime for a SARL, compensation allocated to managers is typically deductible from taxable income. At the end of each fiscal year, a corporate tax return must be prepared for the payment of corporate taxes. Should the tax liability exceed 3,000 euros, corporate tax installments are required during the fiscal year.

The advantage of corporate tax for a SARL lies in the fact that taxation is focused on the company’s net income. Furthermore, the company will be able to control the taxable amount allocated to shareholders, whether through their compensation or dividends.

Taxation of a SARL under corporate, individual, and family tax regimes

A SARL may opt for an alternative taxation method. This includes the option for direct taxation in the name of the partners. Here is what you need to know.

Taxing a SARL under partnership taxation regimes

It is important to note that for a SARL to opt for this tax regime, it must meet certain specific criteria:

• Not having been in existence for at least five years at the start of the first fiscal year under the regime;
• Primarily engaging in activities within the artisanal, industrial, commercial, agricultural, and professional sectors, excluding the management of personal movable or immovable property;
• At least 50% owned by natural persons and at least 34% owned by the management;
• Employs fewer than 50 employees with an annual turnover of less than 10 million euros (excluding tax).

All partners must consent to this tax regime, and such consent must be submitted in writing during the first quarter of the first fiscal year in which it applies. Under this regime, each partner is taxed individually on their respective share of the profits. To allow partners to benefit from tax limitations, the parent-subsidiary regime is an available option.

Taxation of the Family-Owned LLC

A SARL established between relatives benefits from a very specific tax treatment. This structure is classified under the tax regime for partnerships with no fixed term. In a family-owned SARL, if the business operates as a professional services firm, the SARL will not be subject to corporate tax. This tax regime is applicable to a SARL engaged in industrial, commercial, agricultural, or artisanal activities.