Developing your activity in France as a foreign company
You are a foreign company and want to expand a business activity in France. You are a foreign company and want to explore the French market.
You are a foreign company with a large amount of business in France and want to set up a permanent establishment there.
Against this background, you want to explore your legal and tax obligations in France.
Taxation in France
When a foreign company wants to expand or establish its business in France, it needs to think about the most suitable legal and tax form for its project.
What do you need to consider?
Here are a few avenues to explore when defining your project.
What legal form can I adopt for my business?
A liaison office is a vantage point for the parent company.
Its mission is to carry out purely preparatory or ancillary activities for the benefit of the foreign parent company.
The liaison office can carry out the following tasks:
- make contacts on the spot (potential customers, suppliers)
- provide the parent company with various information on the local market
- develop its advertising
The office is managed by a representative who is not able to conclude a contract in the name of or on behalf of the parent company (no commercial activity).
The liaison office neither has a legal personality nor assets of its own.
A branch office is a secondary establishment of the parent company.
The branch office is a geographical extension of the parent company in France which facilitates its relations with customers locally.
The branch office can carry out the following tasks (under the control of the parent company):
- same activity as the parent company
- manage goods
- execute contracts
The branch office is managed by a representative who has the authority to deal with third parties and to act in the name of and on behalf of the parent company.
The branch office does not hold any assets of its own and acts in the name of and on behalf of the company.
The subsidiary is a genuine company incorporated under French law.
More than 50% of its capital is held by the foreign parent company. It must take a legal form under French law.
The subsidiary is managed by a natural or legal person who has the authority to deal with third parties and to legally bin the company.
The subsidiary holds its own assets and acts in its own name
Consequently, if the aim is to simply observe the French market, it might be better to choose the liaison office whereas if the aim of the entity is to provide services or sell products in France, it would be more appropriate to create a branch office or a subsidiary.
Which tax regime would apply?
The activity’s tax classification in France does not just depend on the legal classification. Indeed, according to the role and functions exercised locally, the structure chosen may be subject to commercial taxes in France if that is provided for in the applicable tax treaty.
Generally, profits are taxed in the country in which the business activity is carried out unless the company carries out its business activities in the other country acting through a permanent establishment.
For example, if a German company wants to carry out a business activity in France, it would generally be taxable in Germany unless it carried out its activity in France through a permanent establishment.
What is a permanent establishment?
In most tax treaties, the expression “permanent establishment” means a fixed place of business through which a company carries out all or part of its business activity. Consequently, the business activity must be carried out in a specific location situated in France with a certain degree of permanence. The permanent establishment often takes the form of a head office, a branch, an office, a factory, a workshop, a mine, an oil or gas well, a quarry or some other place of extraction of natural resources.
It is advisable to consult a tax lawyer before creating the establishment in France to examine the characteristics of the structure and determine whether it is a permanent establishment or not.
Are there any specific tax regimes in France appropriate for my business activity?
Multinationals based in France may, with the prior approval of the authorities, determine their taxable profits based on a profit margin calculated by applying a given percentage of the amount of their current operating expenditure. This percentage applies for a period of 3 to 5 years barring changes in operating conditions.
This regime applies particularly to:
- Headquarters whose activity consists in providing services of an essentially administrative nature, not likely to give rise to any marketing to third parties (directing function, management, coordination or control);
- Logistic centres the activities of which have a preparatory or auxiliary character and which do not constitute directly productive functions (storage functions, packaging, labelling or product distribution)
Altexis offers you full support in your capacity as a foreign company, particularly:
- We can offer you a comprehensive study of French legislation to help you choose the most appropriate structure
- We can create the entity you need in France to develop your business activity: liaison office, branch office, subsidiary
- We can determine whether your activity in France is taxable in France as a permanent establishment
- We can check if you fit into one of the specific tax regimes
- We can analyse tax allocation rules for you between your country of establishment and France