In synopsis, the corporate tax structure in France is as follows:
Standard Company Rate of Tax is 33.33%
The standard corporation tax or, impôt sur les sociétés, applies not only to company income but also to short-term capital gains i.e. those realised in less than two years of ownership. For financial years ending on or after 1 January 1995, a 10% surtax is payable on the gross corporate income tax (i.e. before tax credits or loss carry back). This surtax applies to both short and long-term capital gains. For charitable or non-profit companies the tax rate is 24%. Capital Gains Tax: The French capital gains tax system is relatively complicated but, in general gains realised after two years of ownership will benefit from a discounted 26% tax rate. However, it should be noted that speculative investments in securities are actively discouraged (being subject to the full 33.3% rate) unless it can be shown that: The shares, or other securities, held by an investing company are of a long-term nature (i.e. over two years) and that at least 10% of the equity or a substantial investment of the recipient company is owned by the investing company that the investment has been made in a designated venture capital fund and that it has been held for 2 or more years.
France has one of the most developed social security systems in Europe resulting in very high social charges to both companies and employees. In feet, if these fees are included with other tax responsibilities France has one of the highest rates of general taxation in the developed world.
With the exception of certain designated people and/or activities (including; fishermen, artists, taxi-drivers, small family businessmen and those involved in various agricultural and non-commercial endeavours) most businesses will have to pay a non-profit related tax based on both the value of the company's premises/equipment and, depending on size, salary dispositions or income receipts. The maximum rate is equivalent to 3.5% of the total value of the aforementioned in any given fiscal year
Value Added Tax or taxe sur la valeur ajoutée (TVA)
As with all other European Union members, France employs a value added tax system. At present, in 2014 the current mainstream rate has been increased to 20.0% but there are lower rates for certain 'essentials’ and price sensitive goods and/or services (varying between 2.2% and 7%) together with certain exempt and zero-rated items.
French Government Incentives
The French government actively promotes inward foreign investment through its regional development authority, the delegation a l'amenagement du territoire et l'action regionale (DATAR). In recent years this body has successfully attracted significant foreign investment, particularly from Japan and the United States. However, high social and labour costs still prevent this DATAR from being as successful as the British and Irish industrial development bodies.
Various tax concessions are available both through DATAR and municipal authorities on a case by case basis. In particular, it may be possible, though it is no longer automatic, to receive tax holidays of up to a 10 year duration in the very depressed regions of Aubagne-la-Ciotat, Dunkirk and Toulon-la-Seyne (these areas all being designated enterprise zones). In other regions, significant tax credits are available and/or preferential loans and assistance with factory sites/rental
Job Training Grants
Apart from the aforementioned, DATAR also can provide significant training grants especially in high technology industries and/or areas of high unemployment.
Small & New Company Incentives
Totally apart from the above, the Government (under the Finance Law of 1989) introduced measures aimed at stimulating new entrepreneurial activity. The law applies equally to sole proprietorships, partnerships and companies in respect to most commercial, industrial and handicraft activities. It should be noted, that this legislation is meant for genuinely new ventures and not for existing firms establishing new divisions and/or subsidiaries.
Investing in France with a UK Company - The Advantages
In general, the establishment of a United Kingdom company with a registered 'branch’ (a succursale) in France can afford significant benefits over and above a société anonyme (SA) or a société á responsabilite limited (Sàrl). In particular, a UK company is not subject to the 'special branch tax* of 25% levied over and above the normal corporate tax rates (see above) which may apply to other countries where there is no similar government protocol. In synopsis, a British succursale will have the under mentioned advantages
- Branch operations in France will be subject to the same standard corporate tax rates applicable to indigenous entities. There are no branch withholding taxes and,
- the cost of registering a British limited company is a fraction, even after additional special costs are deducted (see below), of those relating to a French company and,
- Branches of foreign companies are only subject to the capitalisation requirements applicable in the mother country. In the case of the United Kingdom, a single subscriber company can be capitalised with as little as UK£1.00* and,
- branch registration fees are significantly lower than those for either a SA or Sàrl and,
- branches do not have to satisfy the normal requirement that all board and shareholder meetings are ‘minuted’ and,
- There are no annual auditing requirements although proper company accounts must be maintained for general tax assessment purposes. The rules and regulations relating to such records are very similar to those for a Sàrl. Most importantly it should be noted that a foreign company can, by registering a succursale, avoid the requirement to submit annual audited accounts (applicable to all medium to large undertakings) which would automatically apply if it was decided to register either a Sàrl or an SA.
To register a succursale for a British company in France it is normally only necessary to lodge a certified translation of a pre-apostilled Memorandum & Articles of Association with the Tribunal de Commerce. In addition, details of the local gérant (manager) will be required so that a carte de commerant (commercial identity card) can be issued. Legally, the French branch, apart from any specific requirements required to satisfy French law, will be governed by British common law principles whilst the succursale turnover will be shown in the British company's annual accounts. Of course, the exact taxable liability in each country will be governed by the British/French tax treaty but in general any income earned in France will be subject to French taxes
Using the French Territorial System of Taxation
As already indicated the French system of taxation is basically territorial therefore it is often possible that income earned abroad can be protected from French taxation by establishing a foreign 'branch' or 'subsidiary', in general, because of French anti-avoidance provisions, these entities should not come from a stigmatized jurisdiction and should be able to demonstrate bona fide local management and control. The exact choice of jurisdiction will depend on the type of business being conducted and what if any tax treaty benefits are being sought For example, it would not be advantageous to establish an entity in a country, which does not have, or has an unfavourable treaty, with the income supplying jurisdiction. If this was the case, then even if the branch or subsidiary was subject to low taxes, such benefits could be mitigated by high withholding taxes. In respect to the question whether a branch or subsidiary should be established this will often depend on the applicable tax treaties and in particular if branch activities will be covered by the 'host' country's treaty network. Finally, before making an election, the image and not only the legality of the structure should be considered. For example, a French computer company may find it legally only necessary to establish a Cypriot company (which has an excellent treaty network) to process orders from Eastern Europe. However, for both image reasons (there being few Cypriot computer companies) and because the French/Cypriot tax treaty discriminates against Cypriot offshore companies* it may be better to use an Irish company as a respectable trading front with a 'branch' in Cyprus. The branch of the Irish company in Cyprus (in most cases) still being able to avail of the favourable tax treaties negotiated by Cyprus with Russia and Eastern Europe.
For more information on the French Tax System please contact one of our tax planning consultants.