Expenses deductible from a company's income tax

Verified 02 June 2023 - Directorate for Legal and Administrative Information (Prime Minister)

Certain expenses incurred for the operation of the company are expenses that can be deducted from the tax result. The rules for deducting expenses presented on this page are applicable when profits are taxed against business tax (IS) or income tax (IR) in the category of industrial and commercial profits (BIC).

When a charge is deducted from the tax result, it allows reduce the amount of taxable profit and therefore taxation.

To be deductible from income tax, expenses (or operating expenses) must meet all conditions following:

  • To be engaged in the interests of the company
  • Lead to a decrease in the net assets of the company
  • Be recognized in the period in which it is incurred
  • Be justified by an invoice or receipt

Warning  

A company subject to the arrangements micro-BIC cannot deduct expenses from its income tax. Indeed, the tax administration applies a lump-sum allowance for professional expenses of 71%for sales activities and 50% for service provision activities.

To be deductible from income tax, expenses must be incurred in the interest of company. This means that they must be linked to "normal management" (neither excessive nor fictitious expenditure) of the company.

As a result, personal expenses of the manager or a partner, luxurious expenses or expenses exceeding certain limits cannot be deducted.

Exclusion of expenditure of a personal nature

Personal expenses of the individual operator, officer or partner are not deductible because they are not carried out in the company's interest.

These include:

  • Expenses related to the principal or secondary residence
  • Cost of an expert's report requested by the new manager of a business in his personal interest on the occasion of his participation in the business
  • Personal taxes
  • Travel expenses not justified by professional activity
  • Reception costs of a family nature
  • Labor costs incurred by a business in constructing the personal home of the executive's wife
  • Write-offs of commercial debt not responding to the interest of the holding

Exclusion of luxurious or lavish expenses

It's the expenses related to the recreational hunting, the non-professional fishing, the purchase or rental of a boating residence, yacht or pleasure boat.

On the other hand, the hunting expenses of a company whose social object is the professional exercise of hunting with a view to the sale of game, or the commercial exploitation of a hunting estate, are deductible.

Similarly, expenditure relating to the professional pursuit of fishing either at sea or in fresh water shall be deductible where its professional nature is indisputable.

Please note

The reception costs and representation are deductible when they are exposed in the interest of the company and sufficiently justified. They must not be extravagant expenses.

Exclusion of excessive expenses (business gifts, remuneration)

Certain expenses, which are in principle deductible from the tax result, may no longer be so if they are considered excessive. Examples include business gifts or remuneration paid to directors or officers.

Business gifts

Business gifts include wine, chocolate, books, concert tickets, pens offered by the company to its customers, prospects or suppliers, as part of their business relationships.

If their acquisition value is too high in relation to the reality of the commercial relationship or the use of the profession, it cannot be inferred. It must be reintegrated into the company's outcome. Furthermore, such excessive expenditure must be shown on the statement of overheads if their total annual amount is more than €3,000 (except for advertising objects, the unit value of which is less than €73 TTC: titleContent).

Remuneration of directors and members of the board of directors

The remuneration paid to each other the sole trader is deductible pitch the benefit of his company.

On the other hand, the remuneration paid to managers of businesses subject to the SI are deductible when they correspond to a actual work and are not excessive. In order to determine whether remuneration is excessive, several criteria are taken into account: professional qualification, the particular abilities of the manager or the extent of the duties performed.

Please note

Remuneration, allowances, allowances, benefits and refunds granted to the highest paid persons in the company shall be shown on the statement of overheads.

The remuneration paid to members of the Management Board is deductible where it does not exceed certain amounts determined on the basis of number of employees :

  • Where the business employs fewer than 5 employees, the deduction shall be limited to €457 per member of the management board or supervisory board.
  • If the business employs 5 or more employees, the deduction may not exceed a proportion fixed as follows: 5% x (average of the deductible remuneration of the 5 highest paid employees x number of members of the administrative or supervisory board)
  • Over 200 employees, the number of best paid employees to be taken into account is 10.
    The deduction rules for directors' remuneration also apply to members of the supervisory board.

Example :

An SA employs 50 employees and its board of directors comprises 6 directors.

The average remuneration of the five highest paid persons in the business is €90,000.

The deductible amount is: 5% x (90,000 X 6 ) or €27,000

To be deductible, the charge must be a decrease of thenet assets

The company can therefore deduct an immediate expense, that is to say, not subject to thedepreciation. For example, maintenance and repairs: the repair of the roof of buildings used by a company for its operation is a deductible expense.

Purchased software, office equipment and equipment, the unit value of which does not exceed €500 HT are also immediately deductible expenses.

FYI  

The elements intended to be used in a lasting manner for the company's activities constitute fixed assets. Expenditure on the acquisition or creation of a fixed asset (e.g. the purchase of a machine tool) is therefore not a deductible expense.

Loads must be some in principle and amount (commitment accounting principle). They must therefore be entered in the accounting year in which they are incurred.

This rule leads to attaching certain but certain expenses to the result of the financial year in question not yet invoiced on the date of its closure.

For example, purchases of raw materials for a production activity, purchases of products with a view to their resale, for a commercial activity, establishment costs with costs of setting up the business, costs of legal formalities (insertion fees, publication fees), fees of lawyers and notaries may be deducted.

FYI  

The ability to deduct certain expenses in the exercise of their payment is reserved for companies who have opted for super simplified accounting. This applies to individual operators subject to the simplified taxation regime (whether by right or by option) and to Civilian businesses of Means (SCM). This is a simple option for those companies who check this option on the income statement form.

The accounts must be supported by supporting documents, intended to enable the actual costs and charges deducted to be checked.

These justifications can take various forms: invoices, receipts. Invoices must be drawn up for all purchases and for all services provided in the course of a professional activity.

Companies can also exchange electronic invoices.

FYI  

The administration may impose a fine of 50% the amount of the invoice which does not correspond to an actual delivery or service.

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