What are the different types of companies?
Non-commercial profits – Sole Proprietorship
If you run a self-employed business, you will be taxed as a non- commercial profit (BNC). This is the tax regime of right for individual firms. Collection accounts must be held for each calendar year. The professional activity is otherwise subject to VAT, if applicable. The operator has unlimited liability for the business and personal property. The operator must register with the URSSAF, or with the ETC depending on the activity.
There is a simplified micro-BNC, exempt from VAT and accounting, where revenues received are less than or equal to 70K€ before tax. The profits are put directly on the supplementary statement of income 2042 C. The benefit is calculated automatically by applying a 34% representative allowance to the reported amounts. With this system there is no VAT return (“franchise en base” VAT) if the turnover is lower than 35 200€.
There is also a super-simplified regime, also exempt from VAT, called Auto-entrepreneur, in which the same thresholds apply only to the micro-BNC. Through quarterly reports on the Internet, social charges and income taxes can be automatically deducted during the collection of revenue.
Industrial and commercial profits – Sole Proprietorship
Sole traders must be listed on the Registre du Commerce of the nearest Court of Commerce. They must obtain a work permit if they are not EU citizens, and are responsible for the business as well as personally liable for their business debts.
This model applies to the activities of purchase and resale apartments. A 2010 law established a sole proprietorship with limited liability (EIRL). The activity is subject to VAT.
As for BNCs, there is a simplified micro-BIC, exempt from VAT and accounting, when the revenue collected is less than or equal to 170K€. The profits are put directly on the supplementary statement of income 2042 C. The benefit is calculated automatically by applying the reported amounts of allowance representing 71% or 51% depending on activity. With this system there is no VAT return (“franchise en base” VAT).
There is also a super-simplified regime, also exempt from VAT, called Auto-entrepreneur, where the same thresholds apply only to the micro-BIC. Through quarterly reports on the Internet, payroll and income taxes can be automatically deducted during the collection of revenue.
An agency or connecting office
A connecting office is not a legal entity and does not have administrative and financial independence. Its purpose is to look into business opportunities for a foreign company considering investing in France. Because there is no commercial activity it is exempt from income tax and VAT. If the office employs staff, it must register with the social security organizations.
Branch
A branch is a permanent secondary establishment of a foreign business. Under French law, a branch has no legal identity and neither its assets nor liabilities are separate from those of the company. A branch is required to:
– file a report with the Ministry of Finance when the initial investment is made;
– register with the Registre du Commerce and include a French translation of its by-laws (memoranda and articles);
– appoint a person responsible for the branch. This person must have a work permit if he or she is not an EU citizen;
– file a set of the firm’s balance sheets with the Tribunal de Commerce nearest to the branch’s official place of business;
– pay tax on the profits of branches located in France, when their country of origin has signed an inter-country convention with France.
Private Limited Company (SARL)
A Private Limited Company has between 2 and 100 members whose liability is limited to the amount they have each contributed. The amount of capital of a Private Limited Company is freely specified by the articles of incorporation. Individual members are not deemed to be in business. The SGM approves the annual accounts and makes major decisions, as well as giving its assent to agreements made between the company and its managers or members where no independent auditor has been appointed.
One or more managers are given authority to run the company. They can be appointed by the articles or the SGM. They are not necessarily members of the company. Since they wield considerable power, they can be held liable for any misdemeanors. They are also responsible for drawing up the balance sheet and operating report and convening the SGM. A non-French manager must obtain a trading permit if he is not an EU citizen. Note: a non-French manager, who is not an EU citizen living in France, must obtain a residence permit which will allow him to exercise any profession. If he does not live in France, he must obtain an administrative authorization. There is a special kind of SARL, called EURL, with a sole partner (natural person or legal entity).
Simplified PLC (SAS)
A SAS can be created by one or several members whose liability is limited to the amount they have contributed. A SAS is a flexible organization that is suitable for small and medium- sized businesses. Membership is permitted to any natural person or legal entity, even in the case of a sole member. The capital amount of a SAS is freely determined by the articles. The statutes of the SAS set the rules of internal organization (management, collective decisions and information to the members) without any legal requirements. When there are at least two members, the statutes can set some clauses concerning the trading of shares, the acceptance of a new member and the exclusion of a member. The SAS is a privately-owned company and cannot be listed on the stock market.
Public Limited Company (SA)
A Public Limited Company requires a minimum of seven members who contribute a minimum global capital of €37,000 if funds are not raised from the general public, or €225,000 if funds are raised from the general public. Two types of management structures are possible:
– chairman (PDG) with a board of directors (3-18 directors who must be shareholders);
– supervisory board (same as board of directors) and an executive board (1-5 members who need not be shareholders).
Non-French nationals can be directors of a French SA without holding a trading permit. The board of directors convenes the shareholders’ ordinary general meeting (SGM), fixes the agenda, draws up the annual balance sheet and report, appoints and dismisses the CEO, and authorizes the signing of agreements between the company and any of its directors. Normally, the transfer of shares is straightforward and unrestricted. The disposal of shares is always subject to a transfer tax of 3%, limited to €5,000.
Economic Interest Group (GIE)
Profit making is rarely the objective here. In many cases, it is a consortium structure designed to pool the efforts of several firms in a specific field (technical research, for example). Members are all jointly and severally liable.
Real Estate Management Corporation (SCI)
The purpose of a Real Estate Management Corporation is to own, rent and manage real estate properties for the benefit of another business. It allows for the segregation of the real estate assets of a business from its main economical activities. The real estate management corporation can elect to be taxed at the corporate level or to be a pass-through entity.
How to set up a company in France ?
All businesses must be included in the Registre du Commerce at the Court of Commerce. The Registre du Commerce requires documents (in French or with a certified translation) to clarify the purpose of the business – the obligations and commitments of founders, directors (or partners) and members of the company or business. A copy is sent to the tax authorities and social security organizations. All businesses must state :
Companies must publish a standard advertisement in the legal gazette. All employers must be registered with social security institutions.
Note: a non-French manager, who is not an EU citizen living in France, must obtain a residence permit which will allow him to exercise any profession. If he does not live in France, he must obtain an administrative authorization.
What are the main legal requirements, accounting and tax compliance?
Accounting regulation
The French Code of Commerce contains precise regulations concerning the legal accounting and reporting requirements for companies and businesses. Many of these regulations are based on EU regulations and apply to all business entities, with more detailed information depending on the size (measured by assets, turnover and staff) and the legal form of the business. A standard layout of accounts must be adhered to. Financial statements produced in France follow French GAAP. However, French GAAP tends to be standardized with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB).
Legal requirements
Public limited companies (SAs), and simplified PLCs (SAS) that form part of a group, and some other major companies, must undergo a statutory audit required by the Commercial Code. They must also appoint one or two auditors for six years revocable only by court order.
As a general rule, often surprising to foreign investors, corporate bodies (SA and SARL) must file their financial statements with the Registre du Commerce annually, where they are available for public inspection. Tax returns are similar to the annual accounts reporting documents and are systematically monitored.
Tax compliance
Corporation tax
All joint stock companies are subject to corporation tax. Branches of foreign companies are taxable, and in some cases non-profit-making associations may be liable to corporate tax. Most partnerships and joint ventures do not pay corporation tax. Profits are divided between the partners with each partner being taxed on his share. The current rate is 28%. The reduced rate of 15% does not normally apply to foreign companies, since, to benefit from it, 75% of the company must be held continuously by individuals, and the turnover must not exceed 7,6M€. Note: foreign investors are often shocked by the company tax rate of 28 %. To get around this, there is a temptation to “feed back” the maximum result to the foreign parent company. Foreign investors are, however, strongly advised to allocate the result to the French subsidiary to avoid any problems in the event of a tax inspection. Likewise, be careful with the transfer prices: in the event of transactions between the foreign parent company and the French subsidiary, it is necessary to implement invoicing agreements, to prove that the negotiations have indeed taken place and comply with normal pricing conditions.
Taxable profit is net income after deducting allowable expenditure (cost of goods sold, expenses properly incurred for the benefit of the company’s business, depreciation and provisions). Losses can be carried forward indefinitely or carried back three years, but only under certain circumstances. Certain expenses are not deductible: the tax itself, certain provisions, excessive salaries and fringe benefits, non-business expenses, luxuries (private yachts, expensive cars, race-horses, hunting), fines and penalties. Most short- and long-term gains are taxable at the standard rate.
When a subsidiary pays a dividend to its parent, the payment is exempt (up to 95%) from tax on corporate profits, if:
– Both companies are subject to corporation tax;
– The parent company has a stable share of at least 5% stake in the subsidiary.
VAT
The standard rate of 20% is applied to most goods and services. The reduced rate of 5.5% covers agricultural products and cultural products. The reduced rate of 10% covers food served in restaurants and a couple of services for private person. There are even lower rates for theatres, concert halls, etc. The 2.1% minimal rate applies to medicines. Some products attract a turnover tax. VAT can be recovered by businesses on goods and services with certain exceptions such as petrol, upkeep and repairs to private cars, transport of persons, and gifts.
According to the regime chosen, the VAT is declared on a monthly, quarterly or annual basis.
Tax on companies land and buildings (CFE)
The CFE is due by all professional activities unless specific exemptions are mentioned by law. The CFE tax basis is the rental value of the premises submitted to a tax on land and buildings.
Contribution on the added value of companies (CVAE)
This contribution (called CVAE) is required of a natural person or legal entity who does business submitted to a tax on land and buildings (CFE) with a turnover in excess of €152,500. However, due to some tax reliefs, only the above entities with a turnover in excess of €500,000 before VAT are subject to this tax.
How to hire employees in France ?
Employment relationships in France are based on both collective and individual dialogue.
Legal framework
Employment relationships in France are regulated by the Labour Code (Code du travail) and by national labour agreements. Each national labour agreement is specific to a branch of industry. The Labour Code combines in one single document the main rules given by the laws and decrees governing employment relationships. A national labour agreement provides additional provisions to the Labour Code (for example: probation period, minimum wage, bonus, vacations, working conditions). lt also improves the general provisions given by the Labour Code according to the specific situations of a branch of industry (leave compensation, for example).
Employment contract
French regulations provide various kinds of employment contracts. The main form is an open-ended contract, which does not specify a termination date (“contrat à durée indéterminée” or CDI). The employment contract must be in writing and must indicate the wage, a description of the employee’s duties, the duration and the place of work. It can also outline a probation period. The other articles of the employment contract may be determined by individual parties, but must comply with the Labour Code and with the national labour agreement applicable to the company.
The wage must be at least equal to the minimal amount indicated in the applicable collective labour agreement and to the guaranteed minimum wage (SMIC). In 2019, the minimum wage (SMIC) is set at €1,521.22 per month on the basis of a 35- hour week. Non-cash salaries and profit-sharing schemes can be added. Payment in kind, such as free housing, company car, etc., are part of the remuneration and subject to social security contributions.
Staff representation
Staff representation depends on the size of the company. In companies of at least 11 employees, staff delegates are elected by the employees. Their role consists of forwarding to the employer individual and collective claims from the workers regarding wages and working conditions. In companies of at least 50 employees, a staff council (comité d’entreprise) elected by the employees must be created. The staff council, comprised of staff delegates, is entitled to receive information on how the business is performing. In companies of more than 50 employees, trade unions can also name union representatives from among company employees to negotiate within the company agreements, either individually or collectively, to make adjustments to a national labour agreement.
Hiring employees
The administrative process for recruitment is reduced to the Single Declaration of Recruiting (Déclaration unique d’embauche or DUE). Incentives for recruiting are given to companies in the form of reduced social contributions and premiums for the recruitment of certain personnel (for example, young people, people in difficulty, recruiting in disadvantaged areas). The process depends on the nationality of the future personnel and on whether they are borrowed or expatriated. People from the EU, the European Economic Area and Switzerland are normally free to work in France without residency permit or authorization of work.
Working hours
The legal working schedule is determined at 35 hours per week for all businesses regardless of the number of employees. This working schedule is just used as a reference and is a threshold to calculate overtime. It is neither a minimum duration (the employees may work part-time), nor a maximum duration: overtime is allowed as a maximum duration but further work is not allowed.
According to the applicable national labour agreements, the rule of the 35 working hours per week is, however, flexible depending on certain categories of employees. Working hours can be scheduled over the year without wage increase. The annual paid vacation period is five weeks, plus public holidays and days off for family events.
Termination of the employment contract
Termination of an employment contract can occur at the initiative of the employee (resignation) or the employer (dismissal). Dismissal must always be justified by the employer and the law outlines specific procedures in this case. Note: there is a procedure, called “conventional interruption”, where the employee and the employer can mutually decide to terminate the contract of employment.
Social protection
France has a social security system for all employees, which includes four types of insurance relating to sickness, elderly people, family benefits and industrial accidents. The system is supplemented by compulsory insurance plans for unemployment and pensions. Employers can also choose complementary insurance plans (for health, pre-needs, retirement. etc.). Social contributions paid by the employer release them from their obligations regarding disease, retirement and unemployment. Costs are approximately 65% of the gross salary, including 45% from the employer and 20% from the employee. A less expensive scheme, with reduced benefits, exists for self- employed workers (45%).