When people hear the words “Capital Gains Tax,” they immediately panic. But here’s the good news upfront: most small business owners moving from an EI to an EURL end up paying little to zero CGT on the transfer.
Before we look at tax rates and registration fees, let’s look at why you will likely walk away CGT-free.
1. The 5-Year Exemption Rule
The French government wants to reward established small businesses. If your Entreprise Individuelle or micro-entreprise has been active for at least 5 full years before the date of the cession, you unlock massive tax exemptions on your capital gain (plus-value):
- The Turnover Exemption (Article 151 septies) – If your average revenue over the last three years was under €90,000 for services (or €250,000 for sales), your capital gains are 100% exempt from both income tax and CSG/CRDS.
- The Valuation Exemption (Article 238 quindecies) – Even if your revenue was higher, if the overall valuation of your business is under €500,000, you are fully exempt from the income tax portion. Lisa’s Warning: Be guided by your accountant here. Although this exemption applies to income tax, it does not apply to CSG/CRDS so choosing to use the Turnover Exemption probably still works out cheaper for you, even if it means paying a small amount of CGT!
If you hit the 5-year mark and stay under the revenue limits, your capital gains tax is €0.
2. Registration Duties (Droits d’Enregistrement)
Regardless of how long you’ve been trading, the tax office charges a registration fee when the Acte de Cession is submitted.
This bill is paid by the buyer – your new company pays it, not you personally.
The tax is calculated on a sliding scale based on the official valuation:
- Up to €23,000 = 0% tax
- €23,001 to €200,000 = 3% tax (only on the portion above €23,000)
If your business is valued at €30,000, your new company pays 3% on €7,000 – a total tax bill of just €210.
3. If You’re Under 5 Years Old
If your business is less than 5 years old, your goodwill will be subject to capital gains tax. Because of this, we have to be very smart about what we include in the sale deed:
- Depreciating Assets (Vehicles, Large Equipment) – If an asset is currently being depreciated on your EI books, we have to include it. Because it’s being sold for less than you originally paid for it, there is no “profit” on the item, so it creates no taxable gain.
- Fully Depreciated Assets – If a laptop or desk is fully depreciated, its accounting value on paper is €0. If we include it in the cession deed for €500, you have created €500 of taxable profit out of thin air!
The Strategy
Leave fully depreciated equipment out of the formal cession deed entirely. Your accountant should guide you with this, Dougs certainly do. Instead, sell these items to your new company separately using a simple note de frais (expense report). (We’ll cover how to do this in the next resource).
4. What If You Do Owe Tax? Don’t Panic – Use the CCA
If your business is under 5 years old and you owe capital gains tax on the goodwill, that bill won’t arrive until you file your personal tax return the following spring.
When your accountant gives you an estimate for that future tax bill, do not stress. You already have the cash to cover it.
Remember the CCA (Compte Courant d’Associé) from Part 1? Your new company owes you the total valuation of the business (eg €30,000). As your company trades, it will pay that €30,000 back to you 100% tax-free and free of URSSAF charges.
Simply take a slice of those tax-free CCA repayments, drop it into a personal savings account, and leave it there. When the personal tax bill arrives next year, you pay it directly from that saved money.
Lisa’s Tip: Don’t let tax jargon scare you off a cession.
If you’ve been trading for 5 years, you’ll likely pay nothing or very little on the gain. If you’re under 5 years, we keep fully depreciated assets out of the contract and let your tax-free CCA repayments foot the tax bill.