Time of establishment of the company
France is the largest country in Europe, situated between the Mediterranean and the North Sea. France has the second largest economy in Europe and is one of the economic powers in the world. It boasts a number of economic advantages that attract many foreign investors who decide to do business in France. It is a world leader in industries such as automotive and space technology, luxury goods and tourism. France is also the 5th import power and 6th export power in the world.
Economic activity in France
In the French legal system there is no specific law for companies with foreign capital. Foreign companies wishing to invest in France have many opportunities to shape their legal status. The choice of the optimal option depends on the strategy and type of business activity of the company. In principle, there are no restrictions on foreign investment in France. An entrepreneur setting up a business in France has an exceptionally wide range of different legal forms to choose from. With the help of our intermediaries, we offer the registration of all types of companies, e.g: EURL, SARL, SA, SAS and legal assistance in establishing and administering a company in France.
Types of companies
More than one million new businesses have been created in France in the last six years and 20,000 foreign companies have decided to expand their operations there. The business activity of a foreign entrepreneur in France may take different forms, depending on the strategy adopted by the investor and the type of activity of the company. A foreign investor who wishes to conduct business activity in France may act as a natural or legal person. It should be borne in mind that the running of certain businesses (e.g. sale of alcohol, insurance activities, operation of a travel agency, etc.) requires the fulfilment of certain conditions and the provision of appropriate financial guarantees. The choice of a business start-up depends primarily on the purpose of the investment and the degree of independence that the future investor wishes to use.
Usually, the types of companies are established:
- SARL (limited liability company), EURL (one-man limited liability company)
The most popular form of activity in France. In order to establish a limited liability company, it is necessary to have a written articles of association , however the formalities related to the establishment of a single-person limited liability company have been simplified (articles of association according to the standard model). The minimum share capital is EUR 1. At the time of registration of the company, the following is required:
- to cover 20 % of this sum and the rest within five years. Contributions in kind must be covered in full at the time of registration of the company. The liability of the shareholders is limited to the amount of the contributions in kind. They may at any time, at the seat of the company, obtain current information as well as information concerning the last three years of the company’s activity or accounting. The company can have between 1 (EURL) and 100 partners.
The provisions of the French Commercial Code contain several elements that must be included in the company’s articles of association, including the period for which the company was established and the way profits are distributed. In order to establish a company, it is necessary to have a written agreement (the form of a notarial deed is required only for the contribution in kind in the form of real estate), and then registration in the Commercial Register(RCS – Registre du Commerce et des Societe). An important element is also the publication of an announcement of the establishment of a company in a selected press with the right to publish legal announcements. The administrator of a limited liability company may only be a natural person. As in the case of partners, he may also be a foreigner. The administrator represents the company in relation to third parties. He or she has extensive powers to act in the name and on behalf of the company. A trustee who is not a shareholder of the company or who owns at most 50% of the shares is considered an employee of the company and pays social security contributions just like any person employed under an employment contract.
- SA (public limited liability company): minimum 7 shareholders
The form of a joint-stock company is intended for large companies. Joint stock companies are in a minority, but they have a large economic potential, they are open companies, which means that their financial results are widely known. The share capital of a joint-stock company must be at least EUR 37,000. At the time of registration of the company, half of this amount is required to be covered and the rest within 5 years. The contributions in kind must be made in full at the time of the issue of the shares. Minimum 7 shareholders of the company. These may be legal persons as well as natural persons, spouses, foreigners. They bear responsibility for the company’s obligations in proportion to the number of shares held. Shareholders have the right to obtain at any time at the company’s registered office information concerning the company’s activities, current accounts as well as information on accounts going back up to 3 years. Participation of shareholders in the life of the company is manifested primarily through participation in Meetings, they also have the right to be appointed to a governing body or a Supervisory Board. A joint-stock company is obliged to appoint one or two independent auditors to verify annual accounts and other tasks for a period of 6 years, without the possibility of dismissal. In France, there are two types of joint-stock companies: the mono-management board with the President, where the representation of the company has been entrusted to the Chief Executive Officer, and the dualistic one with the Management Board and the Supervisory Board. The most common form of joint-stock company is a monistic type of SA, among other things due to the possibility of dismissal of members of the management board without the need to justify this decision and payment of compensation.
- SAS (simplified joint-stock company): minimum 1 shareholder (SASU)
It is characterized by great freedom of action. It facilitates cooperation between large corporations and conducting business activity in the form of a single-person company. The minimum share capital is EUR 1. Thanks to the possibility of maximum simplification of its operation, the costs of the company’s operations are relatively low, especially in comparison with a joint stock company. In order to establish a company, at least one partner is required. It is necessary to sign a written articles of association. The announcement of the establishment of the company must be published in a selected press for legal publication. The exceptional flexibility provided by the choice of this legal form makes the form of a simplified joint-stock company the choice of both large corporations (especially for their 100% controlled branches) and small, sometimes even sole enterpreneurs. Despite the fact that a simplified joint-stock company is not a public company, so its shares cannot be listed on the stock exchange, it can issue bonds. The articles of association may freely determine the conditions of expulsion of a shareholder, even without the shareholder’s consent, after ascertaining any deficiencies in the shareholder’s proceedings against the company. Simplified joint-stock company is managed by the President, a natural person or a legal entity whose designation is obligatory. He has a wide range of competencies to represent the company in relation to third parties and to act on its behalf. The articles of association may also provide for other governing bodies, such as the Chief Executive Officer or the Governing Board. Similarly, the establishment of specific control bodies is left to the will of the shareholders. All members of the management body are liable under civil and criminal law for their actions.
- SAN (general partnership): minimum 2 shareholders
Partners of this company can be both natural and legal persons. Once the company is established, the partners acquire the status of traders (commerçants). As a rule, each partner has the right to represent the company. In a general partnership, the partners are responsible for the company’s obligations with all their personal assets jointly and severally with the other partners. The establishment of a general partnership does not require a minimum capital contribution. It should be remembered, however, that the liability of shareholders is of a subsidiary nature, which means that a shareholder may be held liable only if the execution of the company’s assets proves ineffective. The governing body of a company is a manager (gérant) or an administrator, who may be elected from among or outside the shareholders. The administrator of a general partnership may be a legal person. The dismissal of the administrator or managers requires a resolution of the partners. In the event of the dismissal of the administrator, who is also a member and who has been appointed in the articles of association, a resolution of the shareholders should be adopted unanimously, without the member concerned taking part in the vote. In the event of the dismissal of a board member who is also a member but who is not appointed in the articles of association or of a board member who is not a member, the dismissal shall take place in accordance with the rules laid down in the articles of association. It is a legal form willingly used by foreign investors, due to the favourable tax system in the case of small-scale economic activity.
Other forms of doing business in France:
- Representative office – there is no requirement to have a registered structure. Unregistered activity is possible when a foreign company rents premises for business and opens a bank account.
- Office of connection (Bureau de liaison) – this is not a separate legal entity, but the continuation of the parent company. Bureau de liaison – is not a separate legal entity, but the continuation of the parent company’s activity. In France it does not have its own accounts and does not pay taxes. The legal person authorised to make orders and deliveries is the parent company, represented by an office.
- The branch does not have a separate legal personality, it must be entered in the Commercial Register and Companies and, as each company, receives an excerpt from the register and an identification number. The branch has a much wider range of activities than the office of communication. It can produce, store, sell in France and abroad. It can have employees, sign commercial contracts, collect orders, issue invoices, deliver goods, export.
In France, the use of holding companies is possible in two cases. Firstly, a company established in France serves as a holding company for a French or foreign company, and secondly, a company established in France has a foreign holding company. It should be noted that the establishment of a holding company in France is done on a case-by-case basis.
Company registration procedure
- Preparation of the company’s articles of association in writing, without the obligation to be certified by a notary public, however the formalities related to the establishment of a single-person company have been simplified (according to the standard model).
- Indication of the name of the company (after prior examination in the Commercial Register that no business activity is conducted under this company and at the patent office that the name has not yet been used as a brand).
- Designation of the registered office of the company.
- Creation of a bank account.
- Registration of the company in the Commercial Register and Companies.
A minimum of one shareholder is required to establish a company. There can be a maximum of 100 shareholders. Foreign shareholders are allowed.
The company is managed by a manager appointed by the shareholders.
A supervisory board is not required, but if the company has more than 50 employees, a works council is appointed, which has the right to be informed about the company’s activities.
The company must have its registered office in France and must be disclosed in the company’s register. The registered office of the company may be at the place of residence of its legal representative. Unless otherwise provided for by law or contract, there is no time limit on using the location of the registered office, otherwise the duration of use of the dwelling as the registered office of the company is a maximum of 5 years.
The time to set up a company in France is approximately 7 days. This period may be extended because of the various formalities (drawing up the statutes, applying for permits for different activities, etc.).
No minimum capital required.
Taxes and finances
Tax residence of the company
A company is resident if it is registered in France or is managed and controlled from France. Non-residents pay tax only on income earned in France, residents also. France is therefore a country that has implemented a territorial tax system.
33.33% By 2020, the rate will be reduced to 28% and by 2022 to 25%. CIT is also subject to an additional social fee of 3.3% (34.43% in total) for each company whose turnover exceeds EUR 763,000. Small and medium-sized companies are exempt from this fee if they meet certain conditions. Usually a straight-line method is used, for new or renovated assets a degressive method is allowed. The depreciation rate for the degressive method is calculated by multiplying the straight-line method rate by 1.25; 1.75 or 2.25 depending on how many years depreciation is foreseen. Losses may be carried forward and deducted at any time but only up to EUR 1 million in a given year and up to 50% of the profits in excess of that. In some cases, losses can be deducted one year back. Capital gains are usually taxed in the same way as income (33.33%).
France is a party to a number of treaties that provide businesses with an exemption from double taxation.
Counteracting tax avoidance
France has regulations on thin capitalization, restrictions on debt financing and transfer pricing. CFC rules apply to entrepreneurs holding directly or indirectly more than 50% of shares or votes in foreign companies, branches, and the tax in the country in which it is registered is less than 50% of the tax in France. The company pays tax on profits from a foreign company. European companies are usually not subject to these rules unless the structure is designed to avoid taxes. International companies with a total turnover of more than 750 million Euros have to prepare a report on their activities in each country. The French tax administration has the right to challenge transactions, agreements or acts which are fictitious or which have been concluded to avoid taxation in France.
A tax year is a calendar year but a different model may be adopted. Usually it is 12 months but in some cases it can be longer or shorter. Returns are submitted by 30 April of the following year after the tax year or within 3 months of its end. Tax is paid in advance on a quarterly basis. Submission of consolidated statements is allowed. The time limitation is 3 years from the end of the calendar year in which the tax liability arose. In some cases this period may be extended to 10 years.
Dividends paid to non-residents are subject to 30% tax unless tax agreements or EU regulations reduce it (e.g. Parent Subsidiary Directive). Interest is not subject to taxation. Royalties are subject to standard income tax – the rate is 33.33%, it may be lower if tax agreements or EU regulations allow it.
The standard rate is 20% (reduced by 10%; 5.5%; 2.1%; 0%). The obligation to register for VAT rests with all entrepreneurs. Tax returns may be submitted every month, quarter or year depending on the company’s activity and other factors.
- Stamp duty – tax in the amount of EUR 375 is levied on activities increasing the company’s capital. For companies whose capital exceeds EUR 225,000, the tax is EUR 500. In the case of a reduction, a fixed rate of EUR 125 applies.
- Real estate tax – 3% of the value of the property.
- Tax on transfer of assets – sale of real estate is subject to taxation – the rate ranges from 5.09% to 5.8%. A tax is also levied on the sale of the company’s shares, amounting to 3% of the sale price, reduced by an allowance of EUR 23,000 divided by the number of all shares sold (the fixed rate of 5% applies if the company is active in the real estate sector). The sale of a French group, lease rights or customer list is subject to a tax of 3% (for the sale price of EUR 23,000-200,000) or 5% (for the price above EUR 200,000).
- Customs duty is levied on products originating outside the EU. Excise duty is levied on fuels, alcohol and tobacco.
Local labor law
Our clients decide to open a French company mainly for business reasons – the willingness to invest directly and attract consumers or French companies or to conquer African markets. Since France was a colonial power, the desire to conquer former colonies in business should be considered with a view to opening a holding company in France.
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