Doing Business in France

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Around 20,000 foreign companies are already established, running businesses under many different legal forms.

The reforms that France has pursued to improve competitiveness and the business environment have fundamentally changed the legal framework in which companies can be set up and expanded.

More specifically, they are:

  • promoting R&D and innovation by consolidating France's innovation clusters and research tax credit;
  • reducing labor costs through the competitiveness and employment tax credit;
  • making it easier for companies to access effective and tailored funding through Bpifrance, France's public investment bank;
  • introducing greater flexibility into the labor market, building upon renewed social dialogue through the Employment Act of June 14, 2013. 

However, there are a number of issues which you must consider when you are looking to set up your business in France. This document takes you through some of the common questions we come across and gives you practical information about the issues you need to consider.    

What type of Business Structure should we use?

There are advantages and disadvantages to all of them, and there is no one correct answer, it's all dependent on your specific business circumstances and needs. A brief overview of the main structures is below:

Liaison Office (short-term solutions)

  • One representative office in France, no commercial activities.
  • Simple structure (extension of a foreign company in France).
  • No commercial activities (a very limited amount of non-commercial operations, such as prospecting, advertising, providing information, storing merchandise, or other operations of a preparatory or auxiliary nature).
  • No autonomy (Invoices must be issued by the parent company, which must also sign any contracts)

 Establishment (a branch of your overseas business)

  • Not a separate legal entity but an extension of the overseas parent company, transactions legally binding for the foreign company
  • No limited liability or ring-fencing of the France operations
  • If have a permanent establishment in France then profits from this PE are liable to France Corporation tax
  • Through its representative, an entity of the foreign company that can legally bind the company (i.e. sign sales contracts).
  • Uncomplicated structure that can conduct commercial activities.
  • Can make decisions independently as the branch's representative in France.
  • Branches must pay corporate tax and VAT.

 Limited Liability Partnership (SARL):

  • Easy to set up and operate.
  • No minimum: sufficient capital to finance long-term needs. Partners define the amount in the articles.
  • At least one-fifth of contributions must be paid-up capital when the company is founded and the balance over five years.
  • Restrictions apply to issuing bonds.
  • Sweat equity: a partner offers the company his time, work and professional knowledge. Does not contribute to forming the capital but has right to shares in company.
  • Auditor necessary if company exceeds two of the three thresholds below: net turnover over 3.1 million; total balance sheet over €1.55 million; more than 50 employees.

Simplified stock company (SAS):

  • At least one partner. Freedom of constitutional arrangements for relations with shareholders, management and the structure and to transfer capital.
  • No minimum: sufficient capital to finance long-term needs. Partners define the amount in the articles.
  • At least one-fifth of contributions must be paid-up capital when the company is founded and the balance over five years.
  • Restrictions apply to issuing bonds.
  • Sweat equity permitted.
  • Statutory auditor required for: companies held by (or holding) another company OTHERWISE, or if company exceeds two of the following three thresholds (Pre-tax turnover > €2 million; total balance sheet > €1 million; over 20 employees).

Limited Company (SA):

  • Structured for 'monitored delegation'. Public offerings permitted.
  • Minimum of €37,000.
  • Half the capital must be paid up when the company is founded and the balance over five years.
  • Public offerings permitted.
  • No sweat equity permitted.
  • Statutory auditor required.

 How much Corporation Tax will the business pay?

  • For large companies: standard rate of 33.33% plus, for companies with pre-tax turnover of over €7,630,000, an additional 'social contribution' of 1.1 percentage points, i.e. a rate of 34.43%. As of January 1, 2014 and until December 31, 2015 companies with over €250 million in turnover must pay an exceptional contribution equal to 10.7% of the corporate tax due.
  • For small and medium-sized businesses (SMEs): reduced corporate tax rate of 15% up to €38,120 of profits and standard 33.33% rate on the remainder. SMEs are exempt from paying an additional 'social contribution'.
  • Proceeds from intellectual property (royalties and capital gains on the transfer of patents), if they have been held for at least two years are eligible for a reduced rate of 15%. This affects patents, inventions that can be patented and manufacturing processes as well as improvements made to patents and patentable inventions.
  • Permanent establishments located in France that hold equity interests in French and foreign companies are only taxed at a rate of 5% of these companies' redistributed dividends. Companies are eligible for this reduced tax rate if they own a stake of at least 5% in each company and have owned the securities for at least two years.
  • Capital gains on the sale of shareholdings held for at least two years are totally exempt except for the 12% representing expenses. This exemption no longer applies to the transfer of securities of companies located in a state considered non-cooperative for tax purposes.

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