Executive compensation: rules of deductibility in company profits

When a company is subject to corporation tax (IS), the remuneration of its director can generally be deducted from profits. The French tax authority (BOFiP) sets out two conditions: the remuneration must correspond to actual work performed, and it must not be excessive in relation to the service rendered. When the company is subject to personal income tax (IR), the rule is reversed for the manager of a limited liability company (SARL): their remuneration is not deductible.

This page deals with the deduction on the company side. It does not deal with the social security contributions of the manager, nor the choice between remuneration and dividends, nor with "reasonable" remuneration amounts: the texts consulted do not define any.

The principle: a deductible expense, under two conditions

The BOFiP (BOI-IS-BASE-30-20, in effect since December 20, 2019) states that remuneration paid to company directors "can, in principle, be included among deductible expenses." It adds that this deduction "is only permitted to the extent that the remuneration corresponds to actual work performed." For further information on avoiding excess deductions, it refers to BOI-BIC-CHG-40-40-10.

Two conditions, therefore:

1. Effective work. The sum compensates for a real activity.
2. A reasonable salary, in view of the importance of the service provided.

The BOFiP specifies that these remunerations can take various forms. Therefore, salary is not the only amount to consider (see below).

What the administration is looking at

The actual work

The BOI-BIC-CHG-40-40-10 (version of 12/09/2012) states: "To be included among deductible expenses, remuneration must correspond to actual work performed." The assessment depends "essentially on the factual circumstances." A sum calculated based on the securities held, without work performed, does not, in principle, correspond to work.

The non-excessive nature

Remuneration may be deemed excessive if it exceeds, in particular, the professional qualifications, the scope of the activity, or the company's salary policy. For company directors, the BOFiP (French Official Tax Bulletin) applies strict controls when they hold a significant share of the capital or have ties to the individuals who control the company. It adds that the mere fact that a company is operating at a loss is not sufficient to demonstrate excessive remuneration.

No maximum amount is specified in these texts. What constitutes an excessive amount is assessed on a case-by-case basis.

The justification for the expense

The expense must constitute "an actual cost" and be "sufficiently justified." Otherwise, the sums are added back to taxable income. In practice, the remuneration is documented: duties performed, amounts paid, identified beneficiary.

Depending on the type of company

Three points to clarify:

• For the limited liability company, The BOFiP targets "all remuneration of any kind" allocated to managers, whether partners or not, and to non-managing partners.
• For the SAS, The page relies on service-public.fr, which classifies the remuneration for the directorship as an operating expense of the company. According to this page, the director cannot grant themselves any benefits without the agreement of the company's shareholders.
• For the sole proprietor, The salary he allocates to himself is not deductible: according to the BOFiP, it "actually corresponds to employment and not to an expense".

Amounts other than salary

An executive's remuneration is not limited to salary. The BOFiP examines other sums.

• Benefits in kind and in cash They constitute a component of remuneration. They are subject to the same conditions.
• Unemployment insurance contributions Payments made to an uninsured executive are part of their taxable remuneration. They are deductible provided that the overall remuneration is not excessive.
• Severance pay These expenses can generally be considered deductible. However, they are not permitted in one specific case cited by the BOFiP (§ 20): the manager of a company in liquidation, who is immediately rehired in the companies resulting from the division of assets, when it is not established that their position in these companies is not comparable to their previous position within the company. The full condition is detailed in the BOFiP.
• Retirement pensions Payments made to a partner are only deductible if they are made in connection with the duties performed. Payments made in the capacity of a current or former partner are not deductible.
• Deferred compensation The payments referred to in Articles L. 225-42-1 and L. 225-90-1 of the French Commercial Code, made upon termination of employment or a change of duties, fall under Article 39-5 bis of the French General Tax Code (CGI). According to the BOFiP (Official Bulletin of Public Finances) dated February 3, 2016, the limit is three times the annual social security ceiling for fiscal years beginning on or after November 1, 2015, compared to six times previously. The exact scope of this rule can be found in the BOFiP, in its most recent version, before any decision is made.
• Advances and down payments Loans to staff are not tax-deductible.
• Unpaid compensation at closing is deductible from the financial year if the debt is certain in principle and determined in amount.

Spouse's salary

The salary of a business owner's spouse is subject to a specific rule (Article 154 of the French General Tax Code). According to BOI-BIC-CHG-40-50-10, a business that is not a member of an approved management center or an approved mixed management organization can deduct a maximum of €17,500 for fiscal years beginning on or after January 1, 2016, subject to the pro-rata rules set out in the BOFiP (spouse's working hours, fiscal year length). A member business can deduct the salary in full, provided that the membership covered the entire fiscal year. Other conditions, including the spouse's status, are not addressed here.

Numerical example (fictitious profile)

Situation. A limited liability company (SARL) subject to corporate income tax (IS) makes a profit of €140,000 before its manager's remuneration. It is assumed that the two conditions for the reduced corporate income tax rate described by service-public.fr are met: a turnover of no more than €10,000,000 for the financial year (adjusted, if necessary, to 12 months), and fully paid-up share capital held for at least 75% by individuals (or by a company itself held for at least 75% by individuals). The manager pays himself €60,000 in gross remuneration for actual work performed. Social security contributions are not calculated.

Issue. What difference in corporate income tax does the deduction create, and what happens if €20,000 of this remuneration is deemed excessive during an audit?

Strategy. Apply the reduced rate of 15 % up to €42,500 of profit and the normal rate of 25 % beyond (service-public.fr, page verified on 17/02/2026) in three cases.

Result.

The deduction reduces the corporate income tax by €15,000. The reinstatement of €20,000 adds €5,000 of IS (basic reminder, excluding interest and penalties, which this page does not quantify).

This profile is fictitious. The assumptions (profit, remuneration, excess deemed excessive, conditions for the reduced rate) are those of the profile. The calculation ignores the manager's social security contributions and income tax. It does not predict your situation.

What changes depending on your situation

• The form of the company and its regime IS or IR. In a SARL, this determines whether the remuneration is deductible.
• Your status as a partner : majority, equal, minority or not associated.
• The reality of your functions and proof that you can provide it.
• Your share of the capital : the BOFiP provides for strict control of excess for managers who hold a significant share of the capital.
• The nature of the sums paid : salary, benefits, severance pay, pensions.

The rule depends on your situation. No results are guaranteed.