France is one of the ideal places to invest in Europe. The reasons for this are:

  • France supports innovation
  • It is one of the easiest places to set up and run a business in Europe
  • It has one of the most productive labour markets in Europe
  • The French workforce, which benefits from one of the world’s best education system is highly qualified
  • The lowest costs of implementation in Europe including labour, real estate, transport, utilities and taxes

MAIN TYPES OF FRENCH BUSINESS ENTITIES

Limited Company (SARL)Read more

The most common way of doing business in France is through a private limited company. Private limited companies are owned by shareholders (individuals or other legal entities) and run by managers. They must be registered at the register of companies and meet regulatory requirements detailed below.
    
To set up a limited company you need to:
- Have a name and address for the company
- Have a company registration
- Have at least one manager
- Have at least one shareholder
- Have articles of association (agreed rules about running the company)
- Set up your company for corporation tax
- Register for VAT (if applicable)

Simplified Limited Company (SAS)Read more

This kind of company is very flexible. The management of the company is provided in the articles. The articles of association may freely fix the SAS corporate bodies and their decision-making process. The minimum corporate bodies of a SAS are: - a sole shareholder – a Chairman who is the SAS legal representative.

Public CompanyRead more

The public limited company (Société Anonyme – SA) is one of the most common legal forms in France. This form of company offers many advantages, including limited liability and regulated access to the capital.

In France, an SA is often chosen as a form of company for a large business, but it is also an option for SMEs as the shares in such companies can be bearer shares and are therefore more easily transferable.

Sole TradersRead more

The easiest way to start a business in France is to become a ‘sole trader’. This means that only you own the business and you can work alone or employ other people.

AUDIT AND REGULATORY ENVIRONMENT

Legal AuditingRead more

There are several audit standards:

International:
ISAs (International Standards of Auditing). Audit and other missions (review, agreed compilation procedures). These standards are developed by the IAASB (International Auditing and Assurance Standards Board)

In France:
The professional practice of CNCC (Compagnie Nationale des Commissaires aux Comptes) are transposed ISAs relating to audit standards.

The appointment of an auditor (Commissaire aux comptes) could be statutory or voluntary. The appointment of an auditor is compulsory in an SA (Public company).

The appointment of an auditor is also compulsory in a SAS (Simplified Limited Company) if two of the following criteria are met:

1) Total assets exceed €1,000,000
2) The turnover produced by the activity is over €2,000,000
3) More than 20 workers are employed

The others companies (SARL…) have to be audited only when they exceed at least two of the following thresholds:

1) Total assets > €1,550,000
2) The turnover produced by the activity > €3,100,000
3) Employees > 50

The contract between the statutory auditor is considered a contract in the sense of Article 1710 of the French Civil Code (contract where by one party agrees to do something for the other, with a mutually agreed price). According to professional standards, the auditor and the client together define a contract, called a mission statement, defining the mutual obligations and fees.

The contractual controlRead more

The application of this control can be requested by the company of by third parties. This control must be applied according to the standards of the OEC or company of registered auditors. The interest of the contractual control is to give more insurance to third parties.

INDUSTRY INCENTIVES

Tax Benefits

Investors in France enjoy tax benefits and significant financial Grants:

- The exemption of profit for new businesses:
The exemption is provided for new businesses to promote employment in certain areas of the country. Companies that can benefit are those that are created in:

  • An area of urban revitalization (ZRU)
  • A regional aid (AFR)
  • An area of rural revitalization (AIR)

- Companies located in Urban Zones (UFZ):
This exemption is to expand employment in disadvantage areas and is restricted to companies that create their activity in these areas.

- The benefits reserved for Young Innovative Companies (YIC):
If you incur expenditure on research and development and if your business is less than 8 years old, you can benefit under certain conditions, tax breaks through the status of Young Innovative Company (YIC).

- Business area research and development of a cluster:
All companies involved in a research and development that are located in an area of research and development may, under certain conditions, benefit from tax relief.

Tax Credit Read more

- Tax credit for research expenses:
Companies that engage in research and development expenditures have a research tax credit for the reduction of corporate tax.

- Tax credit for learning:
This tax credit concerns companies that employ apprentices whose contract is for a minimum period of 1 month. The tax credit is equal to €1600 per apprentice per year.

- Tax credit for commercial prospecting:
The SMEs engaging expenses to export services, goods and commodities can receive a tax credit for expenses of business development.

- The tax credit for competitiveness (CICE):
The CICE is intended to finance the improvement of the competitiveness of enterprises, in particular through the efforts of investments, research, innovation, training, recruiting, prospecting new markets, ecological transition of energy and rebuilding their capital. Accessible to all French companies, the CICE can achieve substantial tax savings. For 2015, it amounts to 6% of payroll, excluding greater than 2.5 times the minimum wage salaries.

Financing InvestmentRead more

The French government has created a public bank to finance business investment: BPI France.

  • BPI France has three main tasks:
  • Financing SMEs having difficulty accessing private bank financing;
  • Investing in the development of strategic sectors of the future, such as digital conversion, environmental and energy industry and the social and solidarity economy;
  • Constitute a powerful lever action for the development of territories in connection with the regions.

PRINCIPAL TAXES

Corporation Income Tax (IS/CIT)

The French Corporate Income Tax is payable by any company operating within the french territory. However, based on the territoriality principale, French corporations are not taxed on their foreign source income. Accordingly, French corporations are not taxed on their foreign permanent establishment (PE) income. Under French tax law, the PE concept refers to a fixed place of business, a business agent or the operation of a full production cycle.  

If the annual turnover of the company is more than or equal to €7.63 million, the amount of the IS is equal to 33,33% of all its taxable profits.

However, if its turnover is less than this amount, the tax rate of your company depends on conditions relating to its capital:

The capital of your company:
Has been fully paid by the partners and is held for at least 75% by individuals (or by another company that meets the same conditions) has not been fully paid by the shareholders or is held for less than 75% by individuals
It is taxed at:
15% on its first €38,120 of earnings. This amount is appreciated by 12 months.
Then 33.1 / 3% for the rest of its profits.
33.1/3 for all its benefits

Income from variable-yield securities (Dividends and similar income)Read more

In principle, income distributed by French or foreign companies liable to corporation tax or an equivalent tax and received by individuals is liable to personal income tax at a progressive rate. After deducting, if the companies have their registered office in France, a European Union Member State or in a state territory having concluded a tax treaty with an administrative assistance clause to combat tax fraud or evasion with France, a 40% allowance and an annual fixed allowance.

Companies receiving eligible dividends may however benefit from the so called “parent and subsidiary” exemption regime. This regime may apply where the parent company owns 5% or more of the distributing company’s shares capital for more than two years (or undertakes to keep its shares for more than two years) regardless of its residence country.
Where applicable, the parent and subsidiary regime enables the French tax resident corporation receiving the dividend payment to benefit from a 95% exemption of the gross dividend received.

Indirect Tax (Sales Tax)

Standard rate 20%
Reduced rate 5.5% (food and certain agricultural products, books, theatre…)
Intermediate rate 10% (Public transport, non reimbursable drugs…)
Read more

VAT is a tax applicable to the consumption of goods and services. This tax is borne by the final consumer of goods and services. This tax is only collected by entities which conduct taxable activities. This tax is in principle, neutral for the companies subject to it as they can deduct from the amount of VAT collected
on their sales, the amount of VAT they paid on operating expenses. However, in the financial sector, VAT could represent a significant tax charge if not properly monitored.

The difference between output and input VAT is either paid to the FTA or, if negative, entitles the taxpayer to a tax credit that could be used to offset VAT payable or refunded.

Exports of goods outside the European Union are VAT exempt.

Personal Income Tax
The following seven categories of income are liable to personal income tax:

  • Business profits;
  • Non-commercial profits;
  • Agricultural profits;
  • Income from real property
  • Wages, salaries, pensions and annuities;
  • Investment income;
  • Capital gains

Read more

Who is the PIT taxpayer?
PIT is a general and progressive tax based on the tax household’s overall income. Broadly speaking, a tax household is: a single person, a couple (married or into a contract of civil union) or a family.
The tax burden of all individuals included in the tax household is globally determined.
The household tax burden could be mitigated depending on the composition of the household (single, couple, children etc).

A tax borne by both residents and non-residents
PIT may potentially apply to non-French residents.
Although French tax residents are taxed on their worldwide income, non-French residents are only taxed on their French source income, subject to the application of DTT.

Tax administration and declaration requirements
The taxable period is the calendar year. Both residents and non-residents need to file a tax return. Generally, the deadline for filing PIT return is the end of May.

Payments
PIT is generally paid in three instalments (March, June and September). On a voluntary basis, the payment can however be done by monthly instalments.

The PIT scope
As mentioned above the PIT scope is the overall income of the tax household. This general income is divided into seven categories depending on the nature of the income.

The rates applicable to each share of taxable income.

Portion of taxable income (one part) Rate (%)
Up to €9,700 0%
From €9,700 to €26,791 14%
From €26,791 to €71,826 30%
From €71,826 to €152,108 41%
Over €152,108 45%

Capital Gains Tax
Capital gains realised on the sale of real property or property rights by individuals in the course of managing their private assets are liable to income tax at 19%.
Capital gains realised on the disposal of securities of companies not liable to corporation tax whose assets mainly comprise real property or property rights (“companies investing predominantly in real property”) are subject to the same rules.Read more

  • The notary is responsible for making the return and paying the corresponding tax on the sellers behalf when the transfer is made.
  • The taxable event is the sale of the property or the rights relating to it. The capital gain is therefore established for the year in which the sale takes place, whatever the terms on which the price is paid. Certain capital gains are expressly exempted, such as those that arise, under certain conditions, from the sale of the seller’s main residence or sales of properties for which the price does not exceed €15,000 per property.
  • The taxable base is equal to the difference between the sale price and the purchase price paid by the seller (or market value if the property was acquired free of charge), plus, where relevant, certain exhaustively specified expenses and charges.

NATIONAL INSURANCE

The French Social Security System

Rates and ceilings of Social Security and unemployment contributions

Read more

In contrast to most European countries, where the social security system is financed through general taxation, the system in France is funded through social security contributions.

You will find that if you are either an employer, employee or self-employed, the level of social security contributions is high, indeed, one of the highest in the world. This justifies a strong social coverage for French citizens and foreign residents in France.