In an era of ever-evolving financial regulations, companies operating in France face a complex landscape shaped by both international and domestic developments. This article offers an overview of the financial reporting framework in France, the adoption of International Financial Reporting Standards (IFRS), and the significant tax measures introduced under France’s Finance Act for 2025. Together, these changes reflect a broader push towards greater transparency, consistency, and fiscal discipline.

Financial Reporting in France: From French GAAP to IFRS

Adoption of IFRS in the European Union

Since 2005, European companies listed on securities markets within the European Union (EU), including banks and insurance companies, have been required to prepare their consolidated financial statements in accordance with IFRS. This mandate stems from an IAS Regulation adopted by the EU in 2002, aimed at harmonizing financial reporting across member states to enhance comparability and transparency for investors and stakeholders.

France, as an EU Member State, implemented this requirement, and French-listed companies have since been reporting under IFRS. Notably, EU countries retain the flexibility to:

• Permit or require IFRS for unlisted companies;
• Permit or require IFRS for parent company financial statements;
• Allow companies with only debt securities listed to delay IFRS adoption until 2007;
• Allow companies listed outside the EU and using non-EU GAAP (such as US GAAP) to defer IFRS compliance until 2007.

While IFRS governs consolidated financial statements for listed companies, many French companies continue to use French Generally Accepted Accounting Principles (French GAAP) for statutory (stand-alone) financial statements. This dual reporting requirement presents both challenges and opportunities for businesses.

Key Differences Between French GAAP and IFRS

Transitioning from French GAAP to IFRS involves understanding several fundamental differences:

1. Revenue Recognition:
   Under French GAAP, revenue is recognized when risks and rewards of ownership transfer. In contrast, IFRS 15 focuses on the transfer of control, applying a five-step model. This can result in earlier or more gradual revenue recognition under IFRS.
2. Asset Valuation:
   French GAAP relies primarily on historical cost, while IFRS permits revaluation models for certain assets like property, plant, equipment, and investment properties. This can introduce volatility in reported asset values.
3. Lease Accounting:
   IFRS 16 requires nearly all leases to be recognized on the balance sheet, introducing right-of-use assets and corresponding liabilities. French GAAP maintains a distinction between operating and finance leases, which impacts financial ratios differently.

Adopting IFRS aligns French companies with global standards, improving cross-border comparability but requiring careful planning, especially for stakeholders unfamiliar with the nuances of international standards.

The French Finance Act 2025: Tax Reform Highlights

The Finance Act for 2025, definitively adopted by the French government in February 2025, introduces several tax reforms affecting both individuals and businesses. This legislation emerged following political turbulence and reflects an effort to balance fiscal responsibility with social equity.

Key Measures for Individuals

1. Adjustment of Income Tax Brackets for Inflation:
   The individual income tax brackets have been updated as follows:

2. 20% Minimum Tax on High Earners (CDHR):

A new tax, the Contribution Différentielle sur les Hauts Revenus (CDHR), applies to French residents whose household income exceeds €250,000 (single) or €500,000 (joint) if their effective tax rate falls below 20%. The difference must be paid to meet the minimum threshold of 20%.

Crucially, expatriates benefitting from the favourable „155B inpatriate regime“ are exempt from this calculation, preserving the regime’s advantages. Additionally, income exempt under tax treaties is excluded from the CDHR base.

1. Advance Payment Requirement:
   Taxpayers subject to the CDHR must make an advance payment equal to 95% of the calculated tax between December 1st and 15th, 2025, with penalties for non-compliance increased to 20%.
2. Clarification of Tax Residence:
   The Finance Act confirms that international tax treaties take precedence over domestic definitions in determining tax residency. This ensures alignment with global norms and reflects recent case law.
3. Extended Statute of Limitations:
   The tax authorities now have 10 years (increased from 6 years) to challenge declarations of foreign tax residence, signalling a tougher stance on potential tax avoidance.

Key Measures for Businesses

1. Corporate Income Tax Surcharges:
   Temporary surcharges apply to companies with French annual turnover exceeding €1 billion. The surcharges, set at 20.6% or 41.2% depending on revenue thresholds, apply to 2024 and 2025 only.
2. Enhanced Tax Credit Audits:
   New audit procedures are being introduced for tax credits and withholding taxes, emphasizing compliance and accountability.
3. No Wealth Tax on Unproductive Assets:
   Proposals for a new wealth tax on unproductive assets (impôt sur la fortune improductive) and changes to investment income tax rates were dropped from the final legislation.

What This Means for Businesses and Individuals

The combined impact of IFRS adoption and the 2025 tax reforms underscores the need for proactive planning:

• For Companies:
  The transition to IFRS remains an essential step for listed companies and those seeking cross-border investments. Businesses must carefully review their financial reporting processes, especially regarding asset valuations, revenue recognition, and lease accounting.
• For High-Income Individuals and Expatriates:
  The introduction of the CDHR adds complexity for high earners but preserves key expatriate benefits. Taxpayers should evaluate their projected income, residence status, and compliance obligations early to avoid surprises.
• For Employers:
  Companies managing international assignments should communicate the implications of the new tax rules to impacted employees and adjust payroll processes as needed.

References

AccountingInsights. (2025, January 14). Transitioning from French GAAP to IFRS: A Comprehensive Guide. Retrieved from AccountingInsights: https://accountinginsights.org/transitioning-from-french-gaap-to-ifrs-a-comprehensive-guide/

Deloitte IAS Plus. (2025). France. Retrieved from Deloitte IAS Plus: https://www.iasplus.com/en/jurisdictions/europe/france

KPMG. (2025, February 21). France – Finance Bill 2025 Clears Final Hurdles. Retrieved from KPMG: https://kpmg.com/xx/en/our-insights/gms-flash-alert/flash-alert-2025-043.html

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