France has introduced optional tax neutrality measures for sole proprietorship restructurings involving an election for Corporate Income Tax (IS), allowing deferral, suspension or spreading of taxation on capital gains and profits under Articles 151 octies D and 210 E bis of the CGI.
France has clarified the tax treatment of sole proprietorship restructuring where an individual entrepreneur elects for Corporate Income Tax (IS) on 19 August 2026, introducing optional mechanisms to defer, suspend or spread taxation of capital gains and profits arising during the restructuring process.
The changes were introduced by Article 16 of Law No. 2026-103 of 19 February 2026 on finance for 2026. The measures allow an individual entrepreneur restructuring a sole proprietorship to benefit, on an elective basis, from tax neutrality for interim transactions.
The restructuring may be carried out in two stages. First, the individual entrepreneur can elect under paragraph 1 or 2 of Article 1655 sexies of the French General Tax Code (CGI) for the sole proprietorship to be assimilated to a single-member limited liability company (EURL) or a limited liability agricultural enterprise (EARL), resulting in an election for Corporate Income Tax (IS).
Second, the restructuring may continue through the contribution of the sole proprietorship, which is then subject to IS, to a company.
Election for assimilation to an EURL or EARL
Article 16 amended Article 1655 sexies of the CGI to clarify the consequences of electing to assimilate a sole proprietorship to an EURL or EARL. The election results in the cessation of the sole proprietorship and the transfer of its assets to the balance sheet of the sole proprietorship assimilated to an EURL or EARL and subject to IS.
To prevent the immediate taxation of capital gains and profits realised upon cessation of activity, Article 16 establishes an optional regime under Article 151 octies D of the CGI. The regime provides, in particular, for the deferral or spreading of taxation of capital gains.
The provisions apply to elections made from 1 January 2026 and to financial years closed from that date.
Contribution of the business to a company
The restructuring can subsequently continue through the contribution to a company of all the assets of the sole proprietorship assimilated to an EURL or EARL, or one of its complete branches of activity (BCA).
Article 16 establishes a second optional regime under Article 210 E bis of the CGI to prevent the immediate taxation of capital gains and profits realised through such a contribution. The regime provides, in particular, for the suspension or spreading of taxation of capital gains.
These provisions apply to contributions made from 1 January 2026 and to financial years closed from the same date.
Capital gains on the securities received in consideration for the contribution to the company also benefit from a suspension of taxation. They will therefore be taxed only when the securities are disposed of, in the name of the individual entrepreneur as a natural person, under the conditions set out in Article 150-0 D of the CGI.
The mechanism for suspending taxation of these capital gains will be addressed in a subsequent publication in the BOFiP-Impôts.
