Doing Business with French People

7/29/2019 Doing Business with French People

1/44

Doing Business

in France

2011


2/44

Copyright2012UHYInternationalLtd 1

Contents

1. Introduction...................................................................................................22. Businessenvironment..................................................................................33. Foreigninvestment.......................................................................................84. SettingupaBusiness..................................................................................11

5. Labour..........................................................................................................226. Taxation........................................................................................................287. Accounting&reporting.............................................................................408. UHYfirmsinFrance..................................................................................439. UHYofficesworldwide.............................................................................43


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1. Introduction

UHYisaninternationalorganisationprovidingaccountancy,business

managementandconsultancyservicesthroughfinancialbusinesscentres

inover81countriesthroughouttheworld.Businesspartnerswork

togetherthroughthenetworktoconducttransnationaloperationsfor

clientsaswellasofferingspecialistknowledgeandexperiencewithintheir

ownnationalborders.Globalspecialistsinvariousindustryandmarket

sectorsarealsoavailableforconsultation.

Thisdetailedreportprovidingkeyissuesandinformationforinvestors

considering

business

operations

in

France

has

been

provided

by

the

office

ofUHYrepresentatives:

UHYGVA

Tel: +33145007600

Web: www.gva.fr

Email: [email protected]

YouarewelcometocontactMurielNouchyforanyinquiriesyoumay

have.

Informationinthefollowingpageshasbeenupdatedsothattheyare

effectiveatthedateshown,butinevitablytheyarebothgeneraland

subjecttochangeandshouldbeusedforguidanceonly.Forspecific

matters,investorsarestronglyadvisedtoobtainfurtherinformationand

takeprofessionaladvicebeforemakinganydecisions.Thispublicationis

currentatFebruary2011.

WelookforwardtohelpingyoudobusinessinFrance.

UHYGVA(theFirm)isamemberofUrbachHackerYoungInternationalLimited,aUK

company,andformspartoftheinternationalUHYnetworkoflegallyindependent

accountingandconsultingfirms.UHYisthebrandnamefortheUHYInternational

network.TheservicesdescribedhereinareprovidedbytheFirmandnotbyUHYorany

othermemberfirmofUHY.NeitherUHYnoranymemberofUHYhasanyliabilityfor

servicesprovidedbyothermembers.


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Lyon

2. Business envir onment

TheFrenchConstitutionandGovernment

Underthe1958Constitution,Franceisaparliamentaryrepublic.The

PresidentistheHeadoftheStateandhemonitorsthefunctioningofthe

democraticinstitutionsinaccordancewiththeConstitution.ThePrime

Ministerisinchargeofthedaytodaypolicy.

Thecountryisgovernedbyabicameralparliament.Thiscomprisesa

HouseofRepresentatives(AssembleNationale)electedeveryfiveyearsby

universalsuffrageandaSenate(Snat)ofdirectlyelectedrepresentatives

fromthe

regions

and

departments.

MetropolitanFrancecomprisestwentytworegionswithatotalofninety

sixdepartments.Theregions,departmentsorcommunitiesshareinthe

centrallycollectedtaxrevenues.

Bordeaux

StMdardenJalles

Cadillac

Montpellier

Avignon

Frontignan

Nmes

Perpignan

AiguesMortes

GrouxlesBains

Grauduroy

Mze

Ste

Thuir

Strasbourg

Valenciennes

Cambrai

AuxerreGVA,Paris

Orlans

Nice

Cannes


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Thedomesticmarket

Population:

As

of

June

2010,

France

had

65.4

million

inhabitants,

making

it

the21stmostpopulouscountryinworldandthe2ndintheEuropean

UnionafterGermany.Threequartersofthepopulationliveinthecities.

Area(Metropolitan):547,000sq.Km.includingCorsica.

Populationdensity:97inhabitantspersquarekilometerinmetropolitan

France.

Currency:Euro

Language:French.

Theeconomy

Theservicesectoraccountedfor74.2%oftotalemploymentin2010

comparedwithagriculturewith4.4%.Theindustrialsectorhassufferedan

importantdeficitinforeigntradeduetotheincreasedcompetitionofFar

East.

Thepresentobjectiveis,amongothers,toemphasizetheFrench

competitivenesstowards

early

developed

countries.

Economicsectors(in%ofemployment)

ThetotalGrossDomesticProductis1,950billionEurosfor2009,which

givesanincreaseof2.5%since2007

In2009,itsgrowthrateof0.6%isclosetotheEurozoneaverage(0.7%)

and

the

US

figure

of

0.8

%.

74,20%

21,40%

4,40%

Services

Industry

Agriculture


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Becauseofthefinancialcrisis,theeconomysloweddowninallareas.

Althoughtheglobaleffectwasinternationallyhigh,Francebenefitedfrom

itsrelativelylittleexposure(comparetoothermoreexposedcountrieslike

USA)and

keep

astrong

public

spending

policy

in

other

to

maintain

ahigh

levelofdemand.

Unemployment

Unemploymenthasincreasedsince2008toreacharateof10%ofthe

activepopulation,whichishigherthantheEuropeanaverage(9.6%).

PricesandInterestRates

Insupporttotheglobalefforttopreventcollateraleffectfromthecrisis,

interestrate

for

the

second

quarter

2010

amounted

to

3.3

%,

which

representsasignificantdecreasesince2008(4%).

Theinflationratefor2010isof1.6%comparedtothe2009ratesof0.5%

andthe2008rateof3.6%.

Foreigntradeandthebalanceofpayments

In2007,theexchangesstillprogressinFranceaswellasintheEuropean

Union.Theexportshavedecreasedby17%andtheimportsby15%.The

threebestclientsofFranceareGermany,SpainandItaly.Germanyis

alsothe

best

supplier

of

France

ahead

of

Italy

and

Belgium.

In2009,theFrenchcommercialdeficitamountedto42billioneuros,versus

54billioneurosfor2008.

Tourism,asanyotheractivity,sawitsleveldecreasein2009by4.3%.The

balancealsokeptdecreasingfrom8.5billioneurosin2008to7.4billion

eurosin2009.Francestillremainstheworldsmostpopulartourist

destination,havingwelcomed74millionvisitorsfromabroadin2009

TheFinancial

System

Centralbank

On1June1998,anewinstitutiontheEuropeanCentralBank(ECB)was

setuptoimplementasinglemonetarypolicytheEuro.Itsheadquarters

isinFrankfurt.TheECBandthenationalcentralbanksofalltheEU

memberStatestogetherformtheEuropeanSystemofCentralBanks

(ESCB).

ThebasictasksoftheESCBaretodefineandimplementthemonetary

policyof

the

Euro

area,

conduct

foreign

exchange

operations

under

the


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communitysforeignexchangepolicyandholdandmanagetheofficial

foreignreservesoftheMemberStates.Itshouldbenotedthat,inthefield

offoreignexchangepolicy,thereissharedresponsibility.

Inadditiontothesinglemonetarypolicy,theESCBisalsoresponsiblefor

ensuringthesmoothoperationofpaymentsystemsandforcontributingto

theeffectivenessofthepoliciesimplementedbythecompetentauthorities

forprudentialsupervisionofcreditinstitutionsandforthefinancial

systemstability.

TheBanquedeFranceisanintegralpartoftheEuropeanSystemof

CentralBanksdefinedbytheMaastrichTreaty.Itparticipatesinthe

performanceoftasksandachievementofobjectivesassignedtothis

systemby

the

Treaty.

Commercialbanks

Thecountryscommercialbankcategorynowincludesawiderangeof

institutions:

Majordepositbanks(banquesdedepots)withextensivedomesticandinternationalnetworks;

Formermerchantbanks(banquesdaffaires)withfewerbranchesinFrancebutstronglinkswithindustry,andastronginternational

orientation;

CreditAgricole,thelargestinstitutionprovidingbankingservicesandothercooperativeandmutualservices;

Foreignbanks,numberinggenerallythroughlocalbranches.Otherfinancialinstitutions

AnumberoffinancialinstitutionsinFranceofferawidevarietyof

financialservices.Theseinclude:

Savingsbanks Leasingcompanies Venturecapitalfirms Governmentsponsoredfinancialinstitutions,whichprovidecreditfacilitiestoexportingcompaniesandtosmallandmediumsizedbusinessesforfixedassetsfinancing.

Shorttermfinance

Shorttermfinanceiseasytoobtainfromspecializedinstitutionssuchas

banks:discountingofbills(escompte)isthemostcommonlyusedmethod

offinanceinFrance;overdraftorloanfacilitiesaresourceswhichareused

lessfrequentlyinFrancethaninothercountries.

Othermethodsoffinancingareavailablesuchas:assignmentofdebtsand

factoring.


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Financialcrisis

Although2009wasaroughyearintermsofgrowth,employmentand

touristicattraction,

the

French

financial

system

was

less

exposed

to

the

crisisthanmostotherEuropeancountries.


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3. Foreign invest ment

Exchangecontrols

TheacquisitionandcreationofaFrenchbusinessbyaFrenchnonresident

(EUresidentornot)hasbeenfreeofexchangecontrolsince1996.

However,foreigninvestmentsinFrancebynonresidentsmustbe

reportedtotheFrenchTreasurywhentheyareearnedout.

ForeigninvestorsshouldbeawarethattheFrenchExchangeControl

authoritieshaveawidecontroloverthetypesofinvestmentsinexisting

Frenchenterpriseswhichmaybeconsideredasdirectinvestmentsand

thereforesubject

to

the

above

reporting

requirements.

Transactionssubjecttoexchangecontrolformalitiesmayconsistofloansor

financialguarantees.Ingeneral,however,aforeigninvestorwillonlybe

deemedtobemakingadirectinvestmentinFrancewhenheacquiresat

least20%ofthecapitalofaquotedFrenchcompany.Theacquisitionof

33.33%isdeemedtobecontrolledforthesepurposes.

Investmentsineconomicsectorsthatareconsideredsensitive(public

healthandsecurity,manufacturingortradeinweaponsormilitary

equipment)are

still

subject

to

aprior

authorization

even

if

they

originate

fromtheEU.

Mergersandotherreorganizationschemes(spinoff)

Reorganizationsandacquisitionscanbeeffectedthroughmergers.Even

thoughitisarelativelycomplexandtimeconsumingprocedure,ithasthe

advantageoffallingwithinwelldefinedtaxrulesandallowinga

comprehensivetransferofassetsandliabilities,generallywitha

retroactiveeffectgoingbacktothebeginningofafiscalyear.

Suchascheme

is

applicable

to

straightforward

mergers,

with

liquidation

oftheabsorbedcompany,aswellastopartialcontributionofassetswhere

thecontributingcompanyremainsinexistence.Thislaterschemeisoften

utilizedtotransferadivision.

Thetaxcodeprovideswhatittermsafavourablesystem(option).The

contributedassetshavetoberegisteredinthebeneficiarycompanyin

accordancewiththeFrenchaccountingregulation(Accountingstandard

CRC200404):

Amergerbetweenaffiliatedcompaniesandoptiontothefavourable

system:

the

contributed

assets

are

registered

at

the

net


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bookvalue.Inthiscase,thefavourablesystemconsistsinthe

temporaryexemptionfortheabsorbedcompanyofthenetcapital

gains.Inreturn,thebeneficiaryhastofulfilsomeobligationsto

allowthe

future

taxation

of

the

capital

gains

(such

as

specific

declarationofexemptedassetstojointotheannualtaxreturnand

covenantinthemergeragreement).

Amergerbetweennonaffiliatedcompaniesandoptiontothefavourablesystem:thecontributedassetsareregisteredatthereal

value.Inthiscase,thebeneficiarycompanyhastoreinstallinits

annualtaxableincomecapitalgainsspreadoverafiveyearperiod

(15yearsforbuilding,plantationorfittingsoflands).The

cumulativedeficitsoftheabsorbedcompanyarenowtransferred

withnolimitationtothebeneficiarycompanyifthefollowing

conditionsaremet:

o Previousapproval(automaticright)bythetaxauthorities;o Optiontothefavorablesystem;o Undertakingtokeeptheabsorbedcompanygoingforthreeyears.

Afteroptiontothefavourablesystem,contributionstotheabsorbing

companyaresubjecttoafixedregistrationdutyof375Euros(capital=

225,000

Euros).

Ifthefavourablesystemdoesnotapply,theabsorptionofonecompanyby

anotherwouldbeconsideredfortaxpurposesasawindingupofthe

targetcompanyresultingintheimmediatetaxationofalldeferredincome

andunrealizedcapitalgains.

Legalconsiderationsforamergermaybecomplex,sophisticatedand

expensive.Investorshavetoconsiderhowtheywillproperlydischarge

theircontractualobligations.Yetthemostdifficultpartofamergerprocess

isappraising

the

value

of

contributed

assets,

as

well

as

the

trading

value

of

theabsorbingcompany.Forthispurpose,oneorseveralmerger

appraisers,whoarethirdpartyexperts,areappointed.Itisessentialto

considertheirfindingsbeforeproceedingwithanymergerprocess.

Ingeneral,Frenchappraisersarereluctanttocertifyanyvalueforgoodwill

andotherintangibleassets.Inadditiontothisdifficultvaluationprocess,

mergersrequireathoroughreviewofaccountingandlegalissues,which

usuallytakesanaverageofovertwomonths.


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Dueto1992EUDirectiveonmergers,ifeithertheabsorbedorthe

contributedcompanyislocatedinFrance,noFrenchtaxwillbeleviedon

capitalgainsobtainedfromcrossborderreorganizations.Howeverabetter

approachis

possible.

It

consists

of

purchasing

all

the

shares

of

asubsidiary

andwindingitup.

Asaresultofthewindup,allassetsandliabilitiespasstothesole

shareholder,withoutamergerprocess.However,themaindisadvantageis

thatthereisnoretrospectiveaffectandadversetaxconsequencesmay

result.


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4. Set t ing up a Business

ForeigninvestorswhointendtoconductcommercialactivitiesinFrance

canchoosefromawiderangeoflegalentities.Thechoicewilldependon

businesspriorities.

Soletrader

Therearefourpossiblewaysforanindividualtogointobusiness:

Asasoletrader(entrepriseindividuelle); AsasoletraderofanEIRL(EntrepriseIndividuelleResponsabilit

Limite);

AsthesolepartnerofanEURL(EntrepriseUnipersonnelleResponsabilitLimite);

AsthesolepartnerofanSAS(calledSASU SocitparActionsSimplifieUnipersonnelle).

Thesoletrader

Asoletraderisconsideredtobeanindividualwhocarriesonabusiness

onaregularbasis.Thesoletraderiswhollyresponsibleforhis/her

business

and

even

his/her

personal

possessions

may

be

used

as

a

guaranteeincaseoffinancialdifficulty.

AutoEntrepreneur(verysmallsizedcompaniescalledmicroenterprises)

Since1January2009,theFrenchgovernmenthasmadeiteasiertoforma

smallsizedcompanyinrespectoflegalandfiscalprovisions:

Registrationtothebusinesscourtisnotnecessary; Paymentofincometaxwithdeductionatsource; Paymentofsocialcontributionwithdeductionatsource; Exemptionfrombusinesstaxfortwoyearsafterformingthecompany.

Thisfiscalplanisreservedtomicroenterpriseswhoseturnoverhasto

beunder80,000eurosforcommercialbusinessandunder32,000eurosfor

services.ThesecompaniesarenotliableforVAT.

Thepaymentofincometaxisdeductedatsourceasfollows:

Commercialactivities:13%ofannualturnover Servicesactivities:23%ofannualturnover.


13/44


EIRL(effectivefrom2011)

Thesole

trader

affects

specific

possession

to

his

or

her

business

by

an

officialstatement.Onlythesespecificpossessionsmaybeusedas

guaranteeincaseoffinancialdifficulty.

EURL(EntrepriseUnipersonnelleResponsabilitLimite)

TheEURLisaSARL(privatelimitedcompany)withonlyonepartner.The

legalrequirementsarebasicallythesameasfortheSARLandare

describedbelow.

Theliabilityofthesinglepartnerislimitedtotheamountofitsinvestment.

CommonFrenchlimitedcompanies

Publiclimitedcompany(SocitAnonyme S.A.)

TheFrenchlegalformclosesttoaUScorporationistheSocitAnonyme.

TheincorporationofaSocitAnonymerequiresaminimumofseven

shareholdersandaminimumcapitalof37,000Euros(225,000Eurosifthe

sharesaretobequotedonthestockexchange).

Atleast100%ofthesharecapitalmustbesubscribedatincorporation;only

50%must

be

paid

at

the

set

up.

Theliabilityofshareholdersislimitedtotheamountoftheirinvestment.

Theshareholdersmeetatleastonceayeartoapprovetheannualfinancial

statementsandtodecidewhetherprofitswillbedistributedorretained.

Directorsormembersofthesupervisoryboard(Conseildesurveillance)

andstatutoryauditors(CommissairesauxComptes)arealsoappointed

anddismissedbyshareholdersingeneralmeeting.Statutoryauditorsare

engagedforasixfinancialyearperiod.

Simplemajorityrulesapplyatannualshareholdersmeetings.Ifmajor

decisionshavetobemade,suchasamergerorachangeinthearticlesof

association,anextraordinaryshareholdersmeetingmustbeheldand

qualifiedmajorityruleapply(twothirds).

Management

Daytodaymanagementcanbestructuredintwodifferentways.AnSA

mayeitherhaveaBoardofDirectors,aChairman(Prsidentduconseil

dadministration)andaChiefExecutive(DirecteurGnral)oran


14/44


ExecutiveBoard(Directoire)workingunderthecontrolofasupervisory

board(Conseildesurveillance).

Boardof

Directors

TheBoardofDirectorsmustbecomposedofaminimumofthreeanda

maximumof18members(Administrateurs).Theyareappointedforthree

yearsforthefirstonesdesignedbythearticlesofincorporation.Their

tenurecanbeextendeduptoamaximumofsixyearswhentheyare

appointedduringthecourseofthebusiness.

Since1January2009anewlaw(loipourlamodernisationdelconomie)

canceledtheobligationfordirectorstohaveatleastoneshareofthe

companyexceptifitslaiddownbythememorandumandarticlesof

association.

TheBoardofDirectorsappointsthePresident(whomustbean

individual),whoisinchargeofthemanagement,theorganizationandthe

presentationoftheBoardactivitiestotheshareholdersmeeting.

ThePresidentandtheChiefExecutivehavebroadpowerstoactonbehalf

ofthecompany.TheChiefExecutivecanbeelectedamongtheBoard

members,butmaynotbeaBoardmemberofthecompany.TheChief

Executiveisresponsibleforthecompanysmanagementandcanbe

assistedby

one

or

more

deputy

managers.

ExecutiveBoardandSupervisoryBoard

TheExecutiveBoard(Directoire)hasamaximumoffivemembers(seven

inquotedcompanies)whoarenotnecessarilyshareholders.Theyare

generallyappointedforfouryearsbytheSupervisoryBoard(Conseilde

surveillance)whichiscomposedofthreetoeighteenmemberswhoare

electedbyshareholdersatageneralmeeting.

TheSupervisoryBoardhaspermanentcontrolovertheExecutiveBoard

anddefines

major

business

goals.

SAS

SASisaspecificsimplifiedtypeofSAsetupbyaminimumofone

shareholder(individualorcorporation).Since1January2009,nolegal

minimumcapitalisrequired.SASmayproveusefulinsettingupajoint

venturebecauseitsarticlesmaybelessonerousthanthosethatnormally

applytotraditionalSAs.


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Theshareholdersarefreetochooseinthearticlesofassociationthe

structureofmanagementanditsfunctions.Nevertheless,aPresidentmust

beappointedtorepresentthecompany.

Since1January2009,nostatutoryauditorisrequiredinsmallsizedSAS

(turnover


16/44


TheSNCisnotdirectlysubjecttoincometax.Profitsaretaxableaspartof

eachmemberincomeinproportiontohis/herinterestinthepartnership.

LimitedPartnership

(Socit

en

commandite

simple

SCS)

TheSCSstructure,seldomusedinFrance,includes:

Oneormoregeneralpartners(calledCommandits)whomanagethecompanyandareresponsiblefordebtsincurredbythe

company;

Oneormorelimitedpartners(calledCommanditaires)whoseliabilityislimitedtotheircapitalcontribution.Limitedliability

partnersarenotallowedtoparticipateinthemanagementofthe

company.Theirlegalstatusissimilartotheoneofapartnerofan

SARL.Thereisnolegalminimumcapital.

LimitedPartnershipbyshares(Socitencommanditeparactions SCA)

Similartothepreviouscategoryexceptthatthesharesarenegotiableand

thatthestatusofthelimitedliabilitypartners(Commanditaires)issimilar

toashareholdersinaSA.Aminimumcapitalof37,000eurosor225,000

eurosiftheSCAisquotedisalsorequired.

Otherformsofbusinessorganizations

IntercompanyPartnership(GroupementdintrtconomiqueorGIE)

AGIE

is

not

acompany

but

an

association

of

companies

wishing

to

developcertainactivitiestogether(e.g.research,marketing,jointsalesand

exports)whilstretainingtheirindividualityandindependenceinother

areas.AGIEhasalegalpersonalityandmaybecreatedwithorwithout

capital.Itsobjectivesmaybecivilorcommercial.AGIEisflexibleand

membersarefreetodefineitsinternalregulations.AGIEistransparentfor

taxpurposes.Itsmembersareliableforitsdebts.

Jointventure(Socitenparticipation SEP)

Ajointventureisnotordinarilydisclosedtothirdparties.Thepartners

makeall

management

decisions.

Partnersareindividuallyliabletothirdpartiesandsharetheoperating

results.

ASEPisrequiredtoregistereachactivepartnerwiththeTradeRegister.It

canbeaciviloracommercialentity.

Branchofaforeignenterprise(Succursale)

Branches(Succursales)arepreferredbysomeforeigninvestorsbecauseof

theirless

onerous

legal

requirements

(one

manager,

no

minimum

capital,


17/44


noarticlesofincorporation).Someinvestorsalsofeelthattheprocedures

involvedinsettingupabranchareeasier.Inpracticehowever,itisneither

easiernorquickertoformabranchthantosetupalimitedliability

company.Because

it

has

no

separate

identity,

the

branch

is

subject

to

all

lawsapplicabletotheforeigncompanytowhichitisrelated.

BeforeopeningabranchinFrance,aforeigncommercialcompanymust

filetwocertifiedcopiesofitsarticlesofincorporation,translatedinto

French,withtheCommercialCourtandthefilesmustbekeptuptodate.

ThebranchmustalsoberegisteredwiththeTradeRegister.Eachyear,the

foreigncompanyhastopublishtotheCommercialCourtitsownaccounts

translatedintoFrenchandcertifiedbytherepresentativeasatruecopy.

Liaisonoffice

(Bureau

de

liaison)

Theliaisonofficeisnotaseparateanddistinctlegalentitywithrespectto

theforeigncorporationofwhichitisapart.Itssolepurposebeingto

collectinformationonthemarketandpromotethecorporationsbusiness,

itisnotallowedtodealwithcommercialactivities.However,liaison

officesmustberegisteredwiththeTradeRegisterandtheirmanaging

directorsmusthaveresidencepermitorreceiptofstatementatthe

prefecture(administrativeauthority).

Civilcompany(SocitCivile)

Thiskind

of

company

is

empowered

to

take

on

civil

that

are

non

commercialoperations.Themembersareliableindefinitelyforthe

companysdebts.

BusinessIncentives

Financialincentives

ForeigncompaniesstartingabusinessinFranceareeligibleforfinancial

assistanceunderthesameconditionsasFrenchcompanies.Thisassistance

isofferedasanincentivetoencourageregionaldevelopmentandtoavoid

overindustrialization

in

certain

areas.

Thereforeitisessentialtochoosetherightlocation.Variousincentivesare

offeredtocompaniesincludingregionalgrantsand/orsubsidiesfor

startingacompanyorforjobcreation.Loans,advancesandreduced

interestratesofferedbyvariousregions.

Taxincentives

Corporatetaxexemption

Forcompanieslocatedinspecifiedareas(AFRAidefinalitrgionale,

ZRRZone

de

Revitalisation

Rurale),

new

exemptions

have

been

created.


18/44


Companieslocatingtheirinvestmentintheaboveareasmayalsobenefit

fromothertaxbreakssuchas:

Reduced

rates

of

transfer

duties

Exemptionfromlocaltax(CET) Taxcredits.

Thenewstartupfirms(JeunesEntreprisesInnovantesJEI)registeredfor

lessthaneightyearsandwhichspendeachyearmorethan15%oftheir

expensesinresearchanddevelopment,andcontrolledbymorethan50%

individualsorspecificcompanies,aretaxexempt.Thistaxexemption

consistsin100%freeforthreeyearsoftaxableprofitandthen,in50%

reducedlevelsoftaxexemptionforthetwofollowingtaxableyears.This

taxexemption

is

strictly

applicable

to

the

medium

sized

firms

(i.e.

less

than250employees,andincomebelow40millioneurosortotalofbalance

sheetbelow27millioneuros).

Theyalsobenefitfromatotalexemptionofminimumannualcompanytax

(IFA)duringtheirJEIperiod.Theycanalsoaskforanexemptionof

businesstaxandrealestatetaxforsevenyears.

Thesetaxbenefitsarelimitedto200,000eurosforeachperiodof36months

(minimisceiling).

ThesestartupfirmsmayalsobenefitfromCrditdImptRecherche

CIR(seep.20)andCrditdimptpourdpensesdeprospection

commerciale(seep.21)

Until31December2013,companiescreatedtotakeoverotherenterprises

whicharenearlyoreffectivelybankruptareentitledtoatwoyear

corporatetaxexemption.

Taxcredits

OnR&Dexpenses:Crditdimptrecherche(CIR)

CommercialandindustrialcompanieswhichareinvolvedinR&D

programscouldobtainthebenefitofataxcreditonoption.Thetaxcredit

isbasedonemployeesalaries,somesubcontractingentitiescosts,

depreciationifdedicatedtoR&D.Since1January2008itrepresents30%of

thepartofyearlyR&Dexpensesunder100millioneurosand5%forthe

partofexpensesmorethan100millioneuros.Forcompanieswhichbenefit

fromthistaxexemptionforthefirsttimeorwhichhavenotbenefitedfrom

itforfiveyears,theCIRrepresents40%oftheR&Dexpensesforthefirst

yearand

35%

for

the

second

year.


19/44


ThistaxcreditonR&Dexpenseshasaceilingof16millioneurosforeach

company.Since2009,ifthetaxcreditCIRcantbechargedontheincome

tax(for

example,

negative

income

tax),

it

will

be

paid

immediately,

only

forsmallandmediumsizecompanies.Weimaginethatthetaxauthorities

willbeinterestedinauditingcompaniesapplyingforthistaxcredit.

Oncommercialprospectexpenses(Crditdimptpourdpensesdeprospection

commerciale)

Small andmediumsizedcommercialandindustrialcompaniescould

obtainthebenefitofataxcreditontheircommercialprospectexpenses.

However,companiesareconcernediftheyrecruitoneemployeewhois

dedicatedtothedevelopmentofexportbusiness.Thecredittaxrepresents

50%oftheallocatedexpensesspentduring24monthsafterthis

employmentwithaceilingof40,000euros.Thiscredittaxmaybe

refundable.

Onapprenticeshipprogramexpenses(Crditdimptapprentissage)

Commercialandindustrialcompanieswhichincurapprenticeship

programscouldobtainthebenefitoftaxcredits.Thesecompaniesreceive

1,600eurospertrainingpersonwithaceilingofthewageofthese

apprentices.

Onbusinesssponsoring(Mcnatdentreprise)

Donationstospecificworks(ascharityorNGO)giverighttotaxcredit,

whichrepresents60%ofthedonation,withaceilingof0.5%oftheannual

turnover.Thetaxcreditmaybecarriedforwardtothenextfivefollowing

fiscalyears.

Othercredit

Oncinemaoraudiovisualexpenses(cinematographicproductionfirms).

Ontrainingexpensesforthemanagers/directors. Onfamilyexpensesengagedbythecompaniesonbehalfoftheiremployees.

Forinvestmentinnonpollutingvehicles,etc.Accelerateddepreciation:

ToencourageinvestmentsinFrance,exceptionalaccelerateddepreciation

hasbeenputintoplace.But,toavoidanyfiscalrisk,apreviousagreement


20/44


mustberequestedfromthetaxauthorities.Theexceptionalaccelerations

are:

Onsoftware; Onexpensesforacquisitionorcreationofawebsite; Onlowenergypoweredequipment; Onenvironmentalinvestmentssuchasantipollutionbuilding,soundproofequipmentandnonpollutingvehicles;

Onresearchequipmentforspecificdiseases.Companiesbuildingbusinesspropertiesincertainspecificareasmay

depreciate25%ofthecostinthefirstyearaftercompletion.

Contracts

Themostfrequentlyencounteredtypesofmarketingagreementscanbe

splitintotwocategories:commercialagentsanddistribution

arrangements.

Commercialagents

Acommercialagencyisthemostcommonmeanofdistributionusedin

France.

Acommercialagentcanbeastatutorysalesrepresentative(VRP)ora

commonlawemployeecommercialagent.AsaVRP,heorsheis

consideredasanemployeeforlaborlawpurposesandmustfulfilla

certainnumberofconditions.Acommonlawemployeecommercialagent

isnotconsideredasastatutorysalesrepresentativebutisanemployee

underFrenchlaborlaw.

Acommercialagentcanalsobeanindependentcommercialagent.Heor

shemustberegisteredwiththecompetentCommercialCourtandmust

hold

a

commercial

license.

A

commercial

agent

is

an

independent

contractorforlaborlawpurposesbutheorsheisnotamerchantfor

commerciallawpurposes.

Unlessdismissedforaprofessionalfault,VRPandindependent

commercialagentsarelegallyentitledtoaseveranceindemnityin

considerationfortheincreasewhichtheyaredeemedtohavecreatedin

thevalueofthegoodwillinthebusiness.

Distributionarrangements


21/44


Adistributionarrangementis,infact,apurchaseandsaleagreement

wherebythedistributoriscompensatedforitsservicesbyagrossmargin

onsales.

ThreemaintypesofdistributionarrangementsareconsideredbyFrench

commerciallaw:

1. Supply,purchasing,orselectivedistributionarrangements:Asupplierarrangement(contratdefournitures)isacontractbywhich

asupplieragreeswithitsdistributorontheconditionsforsubsequent

deliveriesofgoods.

Apurchasingarrangement(contratdapprovisionnement)isan

agreementunder

which

adistributor

agrees

with

the

supplier

on

the

conditionsforsubsequentpurchasesofrelevantproducts.

Underaselectivedistributionarrangement(contratdedistribution

selective),asupplierwhichwishestomaintainthereputationofits

productsarrangestosupplyonlythosedistributorsselectedand

approvedbyitsownentityasworthytodistributetherelevant

products.

Essentially,thepartieshavetodeterminewhethertheagreementison

anexclusiveornonexclusivebasis,foraspecificorundetermined

territory,

or

for

a

limited

or

unlimited

period

of

time.

2. ExclusivedistributioncontractsUnderFrenchlaw,anexclusivedistributionarrangement

(contratdeconcession)isanarrangementunderwhichasupplier

agreestodeliverspecifiedproductsonlytoasingledistributorina

givengeographicterritoryandthedistributoragreestopurchasethese

productsonlyfromthesaidsupplierandnottosellcompeting

products.

3. FranchisingagreementFranchisingisamethodofclosecollaborationbetweentheownerofa

marketingprocessandproductsknownasthefranchiserandseveral

retailers,franchisees.

Thecontractgenerallyincludes:

Distributorshipofproductsbyfranchisees; Licensingofmarketing,tradenameand/ortrademark;


22/44


Marketingservicesandotherrelevantsales.

Ifacontract

provides

for

the

assignment

of

atrademark,

this

must

be

registeredwiththeNationalInstituteforIndustrialProperty(INPI).

Copyright,patents,trademarksandintellectualandindustrialproperties

arefullyprotectedinFrance.Inthisrespect,Franceadherestomost

relevantinternationaltreatiesandprovidesforcomprehensiveprotection

throughitsdomesticregulationsandlegislation.

Royaltiesarepaidfortheuseofintangibleassetsrecognizedasthe

licensorspropertybycontractforknowhoworbylegalregistrationfor

trademarks,

patents

and

copyrights.

Whenaroyaltyagreementissignedwithaforeignlicensor,thereisno

needforanypriorapproval.However,acopyoftheagreementmustbe

registeredwithINPI.

AllthesecommercialagreementsmustalsobeclearedfromanEUlaw

standpoint.


23/44


5. Labour

Employer/employeerelationslegislation

RelationsbetweenemployersandemployeesaregovernedbytheFrench

LaborCode,collectivebargainingagreements,companyregulationsand

individualemploymentcontracts.Employmentcontractsmustbedrawn

upforeachspecificjobcategory,accordingtoemploymentlegislationand

collectiveagreementsinforce.

Frenchlawdistinguishesbetweentwocategoriesofemploymentcontract:

Permanentcontract(i.e.,concludedforanindefiniteterm) Temporarycontract(i.e.,concludedforaspecifiedperiodoftime).

Temporarycontractscanbecreatedinthefollowingcircumstances:

Forapermanentemployeeonleaveorabsent; Foratemporaryandoccasionalincreaseinbusiness; Forseasonalactivities; Aspartofgovernmentjobcreationschemestofightagainstunemployment.

Tradeunions

InFrance,theUnion(syndicat)isalocalunit,notanationalbody.Alocalunitisusuallyaffiliatedtoanationalfederationofunions,whichinturnis

linkedtooneoffivenationalconfederations.Unionsaremostlybasedon

industrysectorsratherthanonparticularcrafts.Theremaybeseveral

differentunionsineachplaceofworkbecauseeachoftheconfederations

hasadifferentideologicaloutlookeventhoughnoneisformallylinked

withanyindividualpoliticalparty.Tradeunionsarepowerfuldespitethe

factthatonlyalowpercentageoftheworkingpopulationareunion

members.

Employeesinfluence

on

management

Frenchlawprovidesforseveralsystemsofrepresentationforemployeesof

acompany:

Companieshavingmorethantenemployeesmustappointpersonneldelegates(dlgusdupersonnel).Delegatestakecareof

individualandgroupcomplaintsaboutworkingconditions.

Companiesofmorethan50employeesmustformaWorksCouncil(comitdentreprise).TheWorksCouncilsroleisessentially

consultative.RepresentativeselectedtotheWorksCouncilhaveno


24/44


powerofveto.However,theydohavethefinalsayinacompanys

socialandculturalactivities.

TheWorks

Council

must

be

provided

with

the

same

information

as

that

madeavailabletoshareholders.

WorkingConditions

Wagesandsalaries

Aminimummonthlysalary(SMIC)mustbepaidtoallemployees.The

presentminimumgrowthmonthlysalaryis1,365euros(January2011)for

35workinghoursperweek.

Employmentof

Foreigners

Foreignworkersareentitledtothesameprotectionunderthelawas

Frenchcitizens,providedtheyresideinFrance.Otherwisetheirrightsare

restrictedunlessthereisatreatybetweenFranceandtheircountryof

origin.SpecificlawsexistformembersoftheEU.Everyforeignworker

residinginFranceandintendingtoseekemploymentmustobtaina

residentcard.

MembersoftheEUareentitledtocertainadministrativeprivileges

(simplifiedformalitiesinapplyingforaresidentcardandexemptionfrom

obtainingawork

permit).

Executives

who

are

not

EU

residents

acting

as

legalrepresentativesofaFrenchcompanymustapplyforspecific

accreditations.

Workinghours

Thelegalworkingweekis35hoursforallbusinesses.The35hour

workingweekcanbearrangedtotakeintoaccounttheneedsofthe

employer,accordingtothefollowingschemes:

Variableworkingweek(mustreachanaverageof35hours) Workingcycles Supplementarydaysoff(RTT)tocompensatehoursworkedbeyond35hours.

Thisarrangementhastobeagreedbetweentheemployerandthe

employeesrepresentatives.


25/44


Holidaysandvacations

Accordingtothelaw,eachemployeeisentitledtotwoandahalfworking

days

paid

leave

for

each

month

worked,

or

five

weeks

per

year.

TheacquisitionofthevacationrightsgoesfromJuneN1toMayN+1

TheacquiredrightsofvacationcanbetakenfromMayN+1toAprilor

MayN+2.FromMayN+1toOctoberN+1,aminimumoftendayshaveto

betakentogether

Theonlypublicholidaythattheemployerislegallyobligedtograntwith

payis1Mayandmostbusinessescloseforanother10nationalpublic

holidays.Monthlypaidemployeesarepaidfortheseholidays.Other

employeesneednotbepaidunless,asfrequentlyhappens,acollective

agreementprovidesotherwise.

Overtimepayment

Thelawonpurchasingpower(TEPAlaw)whichenteredintoforcein

October2007exemptstheovertime(paid25%or50%more)fromsome

socialcontributionsandpersonalincometax.

Fringebenefits

Specialpensionprogramsandadditionalhealthinsurancecomplementthe

StateSocial

Security

system.

The

choice

is

up

to

each

company

and

can

alsodependonanindividualemployeestatuswithinthefirm.

Trainingindividualright(DroitIndividuellaFormationDIF)

Withthismethodofaccesstotraining,eachemployeecouldconstitutea

quotaoftraininghours,touseafteragreementoftheemployeronthe

choiceofthetheme.

Toeachfulltimeemployeeinpermanentcontractandhavingmorethan

oneyearseniority,20hourscreditperyearfortrainingisallocated.Those

hourscouldbecumulatedoversixyearswithamaximumof120hours.

Theemployeemustfollowatrainingdefinedasprioritybythecompany

orthebranchofactivity.Ifthesetrainingsarecarriedoutapartfromthe

workinghours,anallowanceequalto50%ofthenetremunerationofthe

employeeispaidbytheemployer.

Whenanemployeeleavesacompany,thenumberoftrainingindividual

rightsnottakenistransferabletothevalueof9.15eurosbyDIFhoursnot

taken.


26/44


Terminationofemployment

Permanentemploymentcontractscanbeterminatedeitherbythe

employee

(resignation)

or

by

the

employer.

Dismissing

an

employee

is

alwayspossible,providedthattheemployerhasajustandproperreason

tojustifyit.Incasesofindividualdismissal,forwhateverreason,

employersmuststrictlyadheretoestablishedprocedures.

Collectivedismissalcanbejustifiedonlywhensevereeconomicupheaval

affectsacompanysstructureoritsdaytodayoperations.Aplanmustbe

drawnupincollaborationwithworkersrepresentativestominimizethe

impactofsuchadismissalonemployees.

Aconventionalbreakisanewproceduretoterminatetheemployment

contract.Anagreementbetweentheemployeeandtheemployerisneeded

toterminatetheemploymentcontract.Anagreementbythegovernmentis

alsorequested.Thisprocedureassumesasmoothclimatebetweenthe

employeeandtheemployer.Theproceduremustnotreplaceanother

proceduretofinishanemploymentasdismissal

Profitsharingplans

Businessesemployingatleast50peoplemustsetupastatutoryprofit

sharingplan.

Goldenparachutes

Inlistedcompanies,goldenparachutes(severancepay)giventodirectors

orpresidentmustbepreviouslypermittedbymembersofdirectors.

SincetheTEPALaw,goldenparachuteshavetobebasedondirectorsand

companiesperformances.Fivedaysaftertheauthorizationofthemembers

ofdirectors,theinformationrelatingtothegoldenparachutemustbe

availableonthewebsiteofthecompany.Ashareholdersgeneralmeeting

mustapprovethesegoldenparachutes.Goldenparachutes(severancepay)

canbe

submitted

to

social

contributions

and

taxes

in

certain

circumstances

(sinceJanuary2010)

SocialSecurityscheme

TheSocialSecuritysystem,whichisfinancedbytaxationandby

contributionspaidbycompaniesandemployees,providessickness,

disability,maternityandpaternitypay,retirementpensions,compensation

forworkrelatedaccidentsorsickness,andfamilyallowances.Substantial

allowancesarealsodistributedformedicalexpenses.Chargespaidbythe

employerareequaltoapproximately45%ofgrosssalaries.


27/44


Anobligationofinternetteledeclarationandtelepaymentforsocial

securitycontributionshasbeensetup(iftheamountofsocial

contributionspaidthepreviousyearhasreached150,000euros).

ForeignersworkinginFranceareentitledtoFrenchSocialSecurity

benefits.

Forfaitsocialrecoveredbythesocialsecurityfund(URSSAF):

Anewcontributioncalledforfaitsocialhasbeenimplemented.This

contributionrepresents6%sinceJanuary2011oftheamountspaidto

employeesonwhichsocialcontributionshavenotbeenpaid.

Aresubmittedtothisnewcontribution(notlimitative):

ProfitsharingandInteressement

ParticipationoftheemployerincollectiveplansasPEEcollective

retirementplanasPERCOadditionalsupplementarycollective

retirementplan(abovestateretirementplans).

Notincludedinthisnewcontribution(notlimitative)

StockoptionsandRSU(restrictedstockunits)

Participationoftheemployerinadisabilityplan.

Indemnitiesforbreachoftheemploymentcontract(dismissalor

conventionalbreak)

Retirementandpension

Foremployeescoveredbythegeneralscheme,theretirementpension

systemisatwotieronewithabasicschemeandsupplementarycover.

ThegeneralsocialsecurityschemehasfundsfederatedastheCNAVTS

(NationalEmployeesOldAgeInsuranceFund).Thesupplementarycover

isprovidedbyfundsbelongingtotwofederations:forexecutives,the

AGIRC(GeneralAssociationofPensionsInstitutionsforManagement

Staff),establishedin1947,andfornonmanagerialemployees,ARRCO

(AssociationofSupplementaryPensionSchemes),setupin1961.Inthe

caseofemployeescoveredbyspecialschemes,thesemostoftencombine

thebasicandcompulsorysupplementarytiersinasinglescheme.

Therearetwomaintypesofpensionschemes:

1.Schemesbasedonthenumberofcontributionyears(calculatedinyears

andquarters).Almostallthebasicschemesandthespecialschemesfor

publicsectoremployeesoperateinthisway.


28/44


2.Schemesbasedonthenumberofpointsobtained.Inthiscase,

contributions

corresponding

to

a

salary

fraction

are

paid

in

annually

and

transformedintounitsofaccountwhicharecreditedtoanemployees

individualaccount.Theamountofthepensionattheendofanemployees

workinglifedependsonthenumberofpointscreditedtohis/heraccount

andthevalueofthepointatthattime.Almostallthesupplementary

schemesoperateinthisway.

Anewlawhasbeenpromulgatedinordertoincreasetheretirementage,

irrespectivelyofthegender,fromthecurrent60to62(effectivein2018),

providedthattheyhadbeencontinuouslypayingsocialcontributionsfor

41.5years

(effective

around

2020).

In

any

case,

people

will

be

entitled

to

fullpensionattheageof67,regardlessofthenumberofyearstheyhave

contributed.

IncomeSupportRSA:RevenudeSolidaritActive

InJune2009,anewminimumsubsistenceincomeforunemployedpersons

withnounemploymentbenefitandwithoutmeansofsupporthasbeen

implemented.

InordertofinancetheRSA,anadditionalsocialcontributionof1.1%will

beapplied

on

capital

gains,

profit

of

short

term

investments

and

dividends.


29/44


6. Taxation

Thetaxsystem

Maintaxes

Thecentralgovernmentleviestaxesareatnationalandlocallevels.The

mainnationaltaxesarecorporateincometax(imptsurlessocits),

personalincometax(imptsurlerevenu),anumberofwithholdingand

flatratetaxesonspecialcategoriesofincomeandvalueaddedtax(taxe

surlavaleurajoute).

Other

national

taxes

include

inheritance

and

gift

taxes,

registration

and

transfertaxesandminordutiesandfees.Themainlocaltaxesarereal

estatecontribution(cotisationfonciredesentreprises),valueadded

contribution(cotisationsurlavaleurajoutedesentreprises),dwellingtax

(taxedhabitation)andrealestatetax(taxefoncire).

Basiclegislation

TaxationlawsareenactedbyParliamentandthenconsolidatedintothe

GeneralTaxCode(CodeGnraldesImpts CGI).Appendicestothe

CGIincludedecreesandregulationsthathavetheforceoflaw.Notes,

instructionsand

circulars

interpreting

the

tax

laws

are

published

by

the

tax

authoritiesinbulletins,mostofwhichareavailabletothepublic.These

bulletinsprovideguidanceinunderstandingtheinterpretationsand

practicesofthetaxauthorities.TheCouncilofState(ConseildEtat,the

highestcourtintaxmattershasasignificantinfluenceontaxlegislation

throughitsdecisionsinlegalcases).

Administration

AdivisionoftheMinistryofEconomyandFinance,headedbya

commissioner,administerstaxlaw.Taxinspectorslocatedintaxoffices

throughoutthe

country,

issue

and

review

assessments.

Payments

of

tax

are

madetocollectors,notnecessarilylocatedinthesameofficesasthe

inspectors.Taxrulingsareonlyobtainedinexceptionalcircumstances

fromthetaxauthorities.

Taxesonbusiness

Thetaxationofbusinessprofitsisguidedbythemajorbasicconceptof

territoriality.InaccordancewithArticle2061oftheFrenchGeneralTax

CodeandtheprovisionsofmosttaxtreatiessignedbyFrance,corporate

taxisusuallyassessedonFrenchprofitsofcompaniesregisteredinFrance


30/44


andontheprofitsofFrenchpermanentestablishmentsofforeign

companies.

Taxableincome

Thecompanysprofits,asdeterminedinaccordancewithgenerally

acceptedaccountingprinciples,aresubjecttofewadjustmentsfortax

purposesinFrance.Itemssuchasnonallowableexpensesonexcess

depreciationareaddedback,whileothersarededucted.Itisworthnoting

thatsomespecifictaxdeductionsareonlygrantedifrecordedinthebooks:

forsuchitemsnoadjustmentsneedtobemadetobookincome.Thisisthe

casefortheexcessofdecliningbalanceoverstraightlinedepreciation,as

wellasforreservesforcostincreaseofinventories,whichisaprovision

designedtoreplacetheLIFOmethod(presentlyprohibitedforbothtax

andbookpurposes).Taxcredits,eitherFrenchorforeign,maybeoffset

againstcorporatetaxbutcannotberefunded.

Deductions

Tobedeductible,expensesmustmeetthefollowingcriteria:

Theymustbe incurred in thedirect interestof thebusinessorbeconnectedwiththenormalmanagementoftheenterprise;

Theymustbecertaininamountandmustbeincurredbytheendoftherelevantyear;

Theymustbeenteredintheaccountingbooksfortherelevantyear.Nondeductibleexpenses

Thefollowingexpensesarenotdeductible:

Dividends Personalexpenses Corporatetax Incometax Liquidationsurplustax Companycartax Finesandpenalties Interestpaidtoshareholdersovercertainlimits Giftsovercertainlimits Certainprofit transfers (for example, excessive royaltyor interestpaymentsmadebetweenrelatedparties)

Excessivedepreciation.Inaddition,certainreservesareallowedfortaxpurposesonlywhenthe

charge

is

actually

incurred

and

paid

(such

as

organic

tax

accruals).


31/44


Longtermcapitalgains

Longtermcapitalgainsweretaxableandappliedtofinancialassets

(investment)held

for

more

than

two

years

used

to

be

taxed

at

areduced

rateof19%untildistributed,atwhichtimeonlytheexcesspartofthe

standardrateoverthereducedratewaspaid.Since2007,thesecapital

gainsarenowexemptedfromtaxafterreinstatementintheincometax

basisof5%ofthecapitalgain.

Losses

Carryforward

Lossesincurredinoneyearmaybeoffsetagainstprofitsofthefollowing

yearswith

no

time

limit.

Long

term

capital

losses

may

be

carried

forward

fortenyearsbutmaybeoffsetonlyagainstlongtermgains.

Carryback

Alossmaybecarriedbackandsetoffagainstacompanysundistributed

profitsofthethreeyearsproceedingthelossmakingyear,settingoffthe

lossfirstagainstundistributedprofitsofanearlieryearbeforethoseofa

lateryearwithinthethreeyears.Theamountresultingofcarryingbackthe

losscaneitherbeusedtopayothertaxes(VAT,taxesbasedonsalariesand

futurecorporationtax)duringthefivefollowingyearsor,itcanbeasked

forrefund

after

five

years.

CorporationTaxRates

Thecurrentglobaltaxrateamountsto331/3%ofbusinessprofitsfor2011.

Forthesmallandmediumsizecompanies,areducedtaxrateof15%is

offeredonamaximumbaseof38,120eurosoftaxablebenefitfortwelve

monthsperiodprofits.Twoconditionsarerequired:theturnovermustbe

lowerthan7,630,000eurosandthesharecapitalmustbeownedina

proportionofmorethan75%byindividualsorbyacompanymeetingthe

sameconditions.

Companieswhosecorporatetaxismorethan763,000eurosareliabletoa

socialcontributionamountingto3.3%ofcorporatetax.Thiscontributionis

notapplicabletosmallandmediumsizecompaniesasdefinedabove.

Groupsofcompanies

Underthefiscalintegrationprovisions(intgrationfiscale),agroup

consistingofaFrenchholdingcompany(includingsubholdingsofforeign

groups)anditsFrenchresident95%ownedsubsidiariesmayconsolidate

itsresults

for

corporate

income

tax

purposes,

thereby

offsetting

current


32/44


profitsandlosses.Thegroupassessmentismadeontheparentcompany

astheonlytaxpayerliableforcorporateincometaxdueonthe

consolidatedresults.Onlycompaniesthathaveconsentedtofiscal

integrationand

whose

results

are

subject

to

corporate

tax

can

be

members

ofthegroup.Allthegroupcompaniesmusthavethesamefinancialyear

end.

Taxationofbranchesofforeigncompanies

Profitsofabranchorofanotherpermanentestablishmentofanon

residentcompanyarenormallysubjecttocorporateincometaxinthesame

wayasthoseofaresidentcompany.Areasonableallocationofheadoffice

expensesrelatingtoworldwideoperationsmaybechargedtotheFrench

branchanddeductedincomputingitstaxableincomebutthetax

authoritiesmayrequiretheproductionofthebooksoftheparentcompany

beforeallowingthisdeduction.However,ifthetaxauthoritiesconsider

thattheprofitscomputedfromthebranchfinancialstatementsdonot

properlyreflecttheprofitsearnedfromoperationsinFrance,theyhave

powertoattributepartoftheprofitsoftheparentcompanytothebranch,

byreferencetotheprofitsearnedbysimilarentitiesinthesamelineof

business.

Theconversionofabranchintoasubsidiarycompanyistreatedasasale

ofthebusinessandthecreationofanewcompany.Unrealizedcapital

gainswill

normally

become

subject

to

tax.

Losses

incurred

by

the

branch

maynotbecarriedovertothecompany.

Headquartersoperationsofforeignenterprises

Headquartersoperationsofforeignenterprisesandinternationalgroups

maybegrantedfavourabletaxstatusinFrance.Toqualify,headquarters

mustactsolelyforthebenefitofeithertheforeignenterpriseorthegroup

intheareasofmanagement,controlorcoordination.

Corporate

income

tax

is

charged

on

a

deemed

profit

equivalent

to

a

prescribedpercentageofheadquartersexpenses(costplusbasis).The

percentageofthecost(theplus)mayrangefrom8%to12%dependingon

thenatureoffunctionscarriedoutbytheheadquarters.Thisarrangement

applieswhethertheheadquartersareorganizedasabranchorasaFrench

subsidiarycompany.

Withholdingtaxesareleviedonaftertaxprofitswhendistributed

(subsidiary)orrealized(branch)atthetaxtreatyrate.


33/44


HeadquartersservicesaresubjecttoVATatthestandardrateof19.6%.

However,theyareconsideredimmaterialservicesbenefitingfromazero

ratetreatmentwheninvoicedtoanynonEUcompanyortoanEU

companythat

is

itself

subject

to

VAT

in

its

own

country

in

the

frame

of

the

reversecharge.

Infact,onlyservicesinvoicedtoaFrenchoperatingcompanyareactually

subjecttoVAT.Becauseofthezeroratebenefit,allinputVATincurredby

aheadquartersofficeisfullyrecoverable(subjecttoexceptionsprovided

bylaw).

Headquartersoperationsaresubjecttotherealestatecontribution

(cotisationfonciredesentreprises)andvalueaddedcontribution

(cotisationsur

la

valeur

ajoute

des

entreprises)

just

like

any

other

company.

Repatriationofpre orposttaxprofits

Repatriationofpretaxprofits(intheformofpaymentsrepresenting

interest,royaltiesorfees)isallowedwithoutpriorapproval.However,

attentionmustbepaidtothearmslengthprinciplewhich,ifnotmet,

couldleadtoareclassificationofthesepaymentsasdividendincome.

OECDcommentaries,publishedinMultinationalCompaniesandTransfer

prices,areoftenusedbytheauthoritiestodetermineiftheaboveprinciple

ismet.

Somecategoriesofpretaxprofitsaresubjecttoawithholdingtaxwhen

remittedabroad.Thisisparticularlytrueinthecaseofroyalties(0%or5%

dependingonthetreaty).Thepaymentofinterestabroadisexemptfrom

anywithholdingtax,providedthatthereisagenuineloancontractwitha

foreignresidentperson.

Posttaxprofitsmayalsobetransferredabroadwithoutpriorapproval

fromtheauthorities.Dividendsfromsubsidiariesaresubjecttoa

withholdingtax.

TheEUdirectiveonparentcompanyregimescameintoeffectJanuary

1992.Asaconsequence,nowithholdingtaxondividendsisleviedonthe

remittanceofdividendsabroad.Branchprofitsmayalsobesubjecttoa

branchleveltax,whetherornottheyareremittedtotheheadoffice.

However,withholdingtaxhasnowbeencancelledonbranchproceedsof

EUcompanies.


34/44


IndirectTaxes

Valueaddedtax(Taxesurlavaleurajoute TVA)

Valueadded

tax

or

VAT

is

charged

on

all

economic

transactions,

sales

and

servicescarriedoutinFrance.VATisataxonconsumption,nota

corporatetax.CompaniescollectVATontransactionsandremitittothe

Treasury.

VATappliesinprincipletoalltransactionsmadeinFrancewithveryfew

exemptions(amongtheminterestpaymentsandinsurancepremiums).

Businessessuchasbanksthatacquirebothexemptandtaxablesupplies

mustapportiontheirinputtaxtocomputeanonrecoverableamount

attributableto

the

exempt

outputs

(recovery

ratio).

VATiscalculatedasfollows:

ThecompanycollectsVATfromitsclients,lesstheamountsbilledbysupplierstothecompany.

VATincurredoncertainexpensesisnotdeductible.Theseincludecertaingoodsandservices(dwellingfacilities,entertainment,gifts,

andsomepetroleumderivedproducts).

VATisaddedtotheVATexclusivesalesprice.Therateapplieddependsonthegoodsandservicesinquestion.Thestandardrateis

19.6%.

Thereducedrateof5.5%appliestofood(exceptforalcoholicdrinks)non

refundablemedicines,theaters,books,passengertransportation,hotels

(exceptluxuryestablishments).Areducedrateof2.1%isalsoapplicable

forrefundablemedicines.

VATisfiledonamonthlybasiswheneveracompanydoespaymorethan

4,000eurosVATannually.Iftheannualpaymentisless,thereturnscanbe

filledquarterly.

ThecalculationoftheVATisbasedonalloutputVATongoodsinvoiced

andalloutputVATonservicespaidandallinputVATongoods

purchasedandallinputVATonservicespaid.Shouldinputexceed

output,taxpayerscanfileaclaimforarefundoftheexcessorcarrythe

creditforward.

SinceOctober2010,allcompaniesrealizingaturnoverexceeding500,000

euroshavetodeclareandpayelectronicallytheirVAT,eitheronthetax

officewebsite(www.impots.gouv.fr),orbyusingtheEDIportal.


35/44


EffectiveSeptember2006,modifiedbythearticle196ofthe2006/112CE

directiveapplicableon1January2010,thereversechargemechanism

hastobeusedforanydeliveriesofgoodswithinECandallBtoB

(businessto

business)

services

(except

for

services

related

to

intermediates,

buildings,transportations,cultureartorscientificbenefits,serviceson

goods,transportationrents,foodservices,webservicesandtravel

agencies).

Registrationduties

Traditionally,theregistrationformalityconsistsinanalyzingadeedbya

civilservantwhoassessesandcollectsthedutiesprovidedforbylaw.

Registrationhasataxpurpose,buttheformalityalsohasacivil

consequence:itgivesthedeedalegaldate;incertaincases,itdetermines

thevalidityoflegaldeeds.Normally,thepresentationofdeedstothe

formalityisaccompaniedbythepaymentofduties.However,incertain

cases,paymentmaybeininstallmentsordeferred.

Therateofregistrationdutyapplyingtoatransferofgoodsdependson

thenatureofthetransferandthetypeofgoodstransferred.

Themainregistrationdutiesaresaleofrealproperty,saleortransferof

goodwillandtransferofcorporaterates.

Saleofrealproperty

Dutiesonsalesofrealpropertyarecollectedwhenthepropertyis

transferred.Inadditiontotaxontheregistrationofrealproperty

transactions,suchatransfergivesrisetoadditionallocaltaxes.

Thetaxrateisnowasinglerateat3.8%.Apartfromthetaxonthe

registrationofrealpropertytransactions,thereisanadditionaltaxof1.2%

collectedforappropriationtothemunicipalityortoadepartment

equalization

fund.

There

is

also

another

levy

of

2.37%

collected

for

appropriationtothestate,assessedontheamountofthedepartmentduty

inrespectofassessmentandcollectioncosts.

Ineachdepartment,theratesofthetaxonregistrationofrealproperty

transactionsmaybemodifiedbetween1.2%minimumand3.80%

maximumin2011.

Saleortransferofgoodwill

Transferofbusinessesistaxedaccordingtoabandscaleandthegoodwill

value.It

is

subject

to

transfer

duties

at

the

rates

of:


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Threepercenttothefractionofpriceincludedbetween23,000and200,000euros;

Fivepercenttothefractionofpriceover200,000euros.Fortransfersmadeinspecificzones,theratesare:

Onepercenttothefractionofpriceincludedbetween23,000and107,000euros;

Threepercenttothefractionofpriceincludedbetween107,000and200,000euros;

Fivepercenttothefractionofpriceover200,000euros.Ifthetransferisacontributiontoacompany,afixedamountof375or500

eurosusuallyapplies(thesameasforacashcontribution)ifthe

contributortakes

the

commitment

to

keep

the

shares

for

five

years.

Anincreaseincapitalbywayofacashcontributionorthrough

capitalizationofreservesissubjecttothesameregistrationdutyrulesasif

thatcapitalcontributionhadbeenmadeatthecompanysincorporation,

(375or500euros).

Transfersofcorporaterights:

Astraight3%registrationdutysince6August2008willbechargedwhen

adocumentrecordingatransferofshares(actionsorpartssociales)is

executed,duty

has

a5,000

euros

ceiling

for

any

transaction.

It

is

possible

in

certaincircumstancestoavoidthisduty.

Whenthetransferofsharesconcernsacompanyspecializedinreal

propertytransactions,thisregistrationdutyisamountingto5%.

CET(TerritorialandEconomicContribution)

TheCETisreplacingthebusinesstax(Taxeprofessionnelle),andthetax

onvalueadded(cotisationminimale)fromJanuary2010.Anyentity

engaged

professionally

and

regularly

in

an

activity

in

France

(out

of

the

employees)issubmittedtothiscontribution.

Accordingtothechangesintroducedbythisnewcontributioncompared

tothebusinesstax,adiscountschemeisplannedbetween2010and2013.

Thus,companiespayingmorewiththenewsystemthanwiththeprevious

oneneedtorequestdiscountstothetaxadministration.Onthecontrary,

additionaltaxesareappliedforspecificcompanies


37/44


ThisCETtaxismadeoftwoseparatecontributions:CFE:realestate

contribution(CotisationFonciredesEntreprises)andCVAE:valueadded

contribution(CotisationsurlaValeurAjoutedesEntreprises)

CFE:realestatecontribution(CotisationFonciredesEntreprises)

Thecontributionisbasedonthecompanyslocationsrealestatevalue.It

ischargeableannuallytocorporatebodiesorindividualsregularly

carryingonbusinessinFranceasselfemployed.Aprepaymentismadein

JuneandthebalanceispaidinDecember.

Anymodificationoftherealestatevalueistobesenttothetaxofficeby

theendofeachcalendaryearifapplicableonaspecificreturn.

Taxratesvarywidelyfromonelocalauthoritytoanotherbutthetax

payablemaynotexceed3%oftheaddedvalueofthebusiness.

IftheamountoftheCFEexceeds3%ofthevalueadded,arefundrequest

canbesenttothetaxadministration.

Networkactivitiesgetadditionaltaxesaccordingtospecificactivity

criteria:onshoreandoffshorewindturbines,powerplants,photovoltaicor

hydraulicplants,powertransformer,radiostations,railcarsandmain

phonesplitters.

CVAE:valueaddedcontribution(CotisationsurlaValeurAjoutedes

Entreprises)

Thedeclarationofthiscontributionisduebyanycompanysubmittedto

CFEwhichturnoverisgreaterthan152,500euros.Itneedstobesentatthe

sametimeasthetaxreturn.

Thecontributionisbasedon1.5%ofthevalueaddedofthecompanies

havingaturnovergreaterthan500,000euros.Thisamountis,however,

discounted

when

the

turnover

is

less

than

50

million

euros.

This

discount

needstoberequestedonaspecificreturntothetaxadministrationeach

year.Aminimumof250eurosisdue,whatevertheamountofthevalue

added.

Thetaxispaidwithtwoinstallments,oneinJuneandoneinSeptember,

basedonthevalueaddedofthepreviousyear.ThebalanceispaidinMay

thenextyearwhendeclaringthefinaltax.


38/44


TheCVAEreturnandanyrelatedpaymentsneedtobedeclaredandpaid

electronicallyusingthetaxofficewebsite(www.impots.gouv.fr).Both

contributionsaretaxdeductible.

Othertaxesonbusiness

Payrolltax:EmployerswhoarenotsubjecttoVATonatleast90%oftheir

incomearesubjecttoapayrolltaxatvaryingratesfrom4.25%to13.6%.

Apprenticeshiptax:Employersaresubjecttoapprenticeshiptax.Itis

leviedattherateof0.68%ofannualsalaries.

Trainingtax:Employersaresubjecttothistaxatarateof:

1.6%iftheyemployatleasttwentypeople, 1.05%iftheyemployatleasttenpeople,butlessthantwenty,or 0.55%iflessthantenpeopleareemployed.

Compulsoryhousinginvestment:Employersemployingatleast20people

mustallocatetoahousingprogramanamountequalto0.45%ofannual

salariespaid.

Companycartax:Companiesareliableforanannualtaxonautomobiles

that

they

(or

their

employees)

own,

rent

or

use.

For

vehicles

owned,

rented

orusedsinceJune2004andownedorusedsinceJanuary2006,anewtable

basedontherateofemissionofdioxideofcarbonwassetup.

Thistaxhasbeenextendedtopersonalcarsusedforprofessionalpurposes

byemployeesandmanagers.Exemptionsareapplicableforsomenon

pollutantvehicles.

ORGANIC(socialcontributionofsolidarity):Companieshavinga

turnoverhigherthan760,000eurosmustpaythistaxequalto0.16%ofthe

salesturnoverdeclared.Declarationandpaymentofthistaxmustbedone

viainternet.

IFA(MinimumannualcorporationTax):Since2010,thistaxisdueforall

thecompanyforwhichtheturnoverishigherthan15millioneuros.The

annualtaxrangesfrom20,500to110,000euros.

Retailspacetax(TASCOM):Thistaxisdue,since2010,forretailspace

higherthan400m2withonlocalturnoverhigherthan460,000eurosand

anopeningdateafter1960.Thetaxratestartsat5.74/m2eurosandcapsat

35.70/m2eurosandvariesaccordingtothesurfaceandthetotalturnover.


39/44


Intrastatreturns

TheGoodsTradeDeclaration(DEB)

Eachmonth,

companies

are

required

to

fill

out

the

goods

trade

declaration

(DEB)coveringintracommunitytradeingoodswithothermemberstates

oftheEuropeanUnionandfileitwithcustoms.

YourgoodstradedeclarationmustreportalltradeinEuropeanUnion

goods(orgoodsfromcountriesoutsidetheEUonwhichdutiesandtaxes

havebeenpaid)betweenFranceandanothermemberstate,including:

intracommunitytradeinproductssubjecttoexcisetax; goodsimportedtoFranceonwhichdutiesandtaxeshavebeenpaid

and

which

are

dispatched

to

another

member

state

(declarationofdispatchtotheothermemberstate);

EUgoodsdispatchedfromFrancetoanothermemberstatefromwhichtheyarethenexported.

Companiesmustchooseoneofthefourreportingobligationlevels,

dependingontheamountofyourarrivalsanddispatchesfrom1January

through31Decemberofthepreviousyear:

TheEuropean

service

return

(DES)

applicable

from

January

2010

ThisreturnistobesubscribedbytheprovideroftheservicestoEuropean

companiessubjecttoVAT(costplusagreementsareincludedinthisfield).

ThisreturnisdifferentthantheDEBasindicatedabove.Thetransactions

tomentionontheDESaresalesofservicestoEUwhichreversecharge

VAT(thebusinesstobusinesstransactions).

TaxesonIndividuals

Territoriality

Frenchresidents

are

taxed

on

their

world

wide

income,

subject

to

certain

treatyexceptions,whereasforeignnationalsinFranceareonlytaxedon

theirFrenchsourceincome.

Residenceisusuallydeterminedunderthetaxhometest(foyerfiscal)or

the183dayrule.AFrenchfoyerfiscalisestablishedifanindividualand

hisfamily(ifany)movestheirhouseholdtoFrance.Underthe183day

rule,residenceisestablishediftheindividualspendsover183daysin

Franceinanycalendaryear.


40/44


IfanindividualisaFrenchresidentunderFrenchlawand,concurrently,a

residentofanothercountryunderthelawsofanotherjurisdiction,tax

treatiesprovidetiebreakerrulessothattheindividualwillonlybe

deemedaresident

of

one

country

at

atime.

The

tie

breaker

tests

include

thelocationofapermanenthome,thecenterofeconomic(vital)interests,

thelocationofahabitualabodeandthecitizenshipoftheindividual.

Taxation

Frenchresidentsaresubjecttoprogressivetaxratesrangingfrom041%on

2010income.However,certainadjustmentstoincomeensureamore

moderateaveragerateoftaxation.

Frenchtaxes

are

mitigated

for

families

by

the

family

quotient

system,

whichallowsahouseholdtodivideitsincometoreflectthenumbersof

dependents(parts)beforeprogressiveratesareapplied.Thefirsttwo

childrencountasonehalfofaparteach,whileeachadditionalchildis

countedasafullpart.

Since2008,afiscalshieldhasbeenimplementedinordertolimitto50%

ofthetotalincomethemaximumtaxationinFrance.Itsbasisincludes

incometax,socialcontributions,localtaxesandwealthtax.

Anet

wealth

tax

is

levied

on

individuals

whose

net

worth

exceeds

800,000

euros(forJanuary2011).Thetaxisdueonthewholeofanindividualsnet

worthasat1Januaryofeachyear.Itdoesnotmatterwhetheritislocated

inFranceornot.However,severalitemsareexemptedfromtaxation,in

particularprofessionalproperties,worksofartandpatentrights.

Nonresidentsarealsoaffectedbythenetwealthtaxbutonlyon

propertieslocatedinFrance.Theirfinancialinvestmentsarespecifically

exempted.Doubletaxtreatiesmayaffecttheseprovisions.Otherwise,the

netwealthtaxisappliedataprogressiverate.

Value RateBetween

Above

800,000eurosand

1,310,000eurosand

2,570,000eurosand

4,040,000eurosand

7,100,000eurosand

16,790,000euros

1,310,000euros

2,570,000euros

4,040,000euros

7,100,000euros

16,790,000euros

0.55%

0.75%

1.00%

1.30%

1.65%

1.80%


41/44


7. Account ing & report ing

Accountingprinciples

FrenchaccountingprinciplesaresetupintheLawof30April1983

(individualcompaniesfinancialstatements),textrevisedin1999withthe

Rglement9903andtheLawof3January1985(consolidatedfinancial

statements)textrevisedin1999withtheRglement9902,intheopinions

andinterpretationsoftheNationalAccountingBoard(CNC)andin

recommendationsmadebyvariousprofessionalorganizations.

Fundamentalaccountingconcepts,suchasprudence,goingconcern,

accrualsandconsistency,havealegalbasisinFrance.

AsfromJanuary2005,newrulesapplytotheaccountingprinciples.

ConvergenceoftheFrenchaccountingrulestowardsIFRSwillbecodified

by:ThetranspositionofIFRSinRglement9903(IndividualAccounts)

Inthe1999rewritingofthePCGPlanComptableGnral(theFrench

GeneralChartofaccounts)annexedtotheRglement9903

From1999transpositionsofIFRSinthePCGannexedtoRglement9903:

Longtermcontracts:Rglement9908/IAS11 Changesinaccountingmethods:Rglement9909/IAS8 Retirementsandlongservicemedals:Rglement9903/recommendationoftheCNC/IAS19

Liabilities:Rglement200006/IAS37 Assets:Rglement/IAS16/IAS38/IAS40/IAS36

ThetranspositionofIFRSinRglement9902(Consolidatedfinancial

statements):

Leasing:Rglement9902/IAS17 Deferredtaxes:Rglement9902/IAS12

Formandcontentoffinancialstatements

TheformandcontentoffinancialstatementsaredefinedintheGeneral

ChartofAccounts(PlanComptableGnral2005).Thebasicfinancial

statementsincludedinannualreportstoshareholdersare:

Abalancesheet,whereheadingsareclassifiedbyfunction(e.g.financeandcustomersetc.ratherthanbyliquidity);


42/44


Anincomestatement,whererevenuesandexpensesareclassifiedbyorigin,andaresystematicallyanalyzedunderthreeoverall

categories:

operatingrevenuesandexpensesfinancialrevenuesandexpensesexceptionalrevenuesandexpenses

ExplanatorynotesFromJanuary2005,thelistedcompanieshavetheobligationtopresent

theirconsolidatedfinancialstatementsaccordingtoIFRS.Thestatutory

auditorsopinionandthedirectorsreportmustalsobeincludedinthe

annualreport.

Thefinancialstatementsandthestatutoryauditorsanddirectorsreports

mustbefiledwiththeCommercialRegisterandareavailablefor

inspectionbythepublic.

Auditing

Frenchcompanies(Socitsanonymes SAandSocitsencommandite

paractions SCA)arerequiredtosubmittheirfinancialstatementsfor

auditing.However,othercompanies(e.g.,SNC,SARL)areonlysubjectto

this

requirement

if

they

exceed

certain

thresholds

(in

terms

of

total

assets,

numberofemployees,levelofsales,etc.).ConcerningSAS,evenif

thresholdsarenotreachedsomesituationsrequirealegalauditor(SAS

ownedbyoneorseveralcompanies,SASowningasubsidiary).

Auditsareconductedbyprofessionals(statutoryauditors commissaires

auxcomptes)registeredwiththeInstitute.Statutoryauditorsare

appointedbytheshareholdersforaperiodofsixfinancialyears.

Thestatutoryauditorissuestwoformalannualreportstoshareholders:

Auditorreport:Theauditorreportmustincludeanopinionwithappropriatejustificationonthefinancialstatementsandonlegal

compliance.

Specialreport:Thespecialreportcontainsdisclosuresofthosetransactionsbetweenacompanyanditsdirectorsthateitherlie

outsidethenormalcourseofbusinessofthecompanyorarenotat

armslength.

Internalcontrolreport(onlyforcompaniesquotedontheStockExchange):Thisreportpresentstheobservationsofthestatutoryauditorson

thereportofthepresidentconcerningtheinternalcontrol

proceduresregarding

the

development

and

treatment

of

the


43/44


accountingandfinancialdataprocessing.Thepurposeofthe

statutoryauditoristoensurethatinformationcontainedinthe

reportofthepresidentispresentedinasincereway,berelevantand

notlikely

to

be

misinterpreted.


44/44

8. UHY fi rms in France

UHYGVAisamediumsizedfirmofCharteredAccountantslocatedin

ParisinthePlacedelEtoilearea.

UHYGVAispartofDIFFERENCE,anexpandingnationalnetworkof

accountingandconsultingfirmswithotherofficesinAuxerre,Avignon,

Bordeaux,Cambrai,Cannes,Dijon,Lyon,Montpellier,Nmes,Nice,

Perpignan,SaintAmandLesEaux,SaintEtienne,Strasbourgand

Valenciennes.(Seemappage5formoredetails).

We

have

the

experience

and

the

connections

to

assist

you

in

setting

up

a

businessinFranceandtoprovideaccounting,legal,fiscalandsocial

services,managementconsultingservices,computerandorganizational

services.

UHYGVA

BP2115

105avenueRaymondPoincar

Paris,F75771

France

Phone: +33145007600

Fax: +33145004010

Email: [email protected]

Website: www.gva.fr

9. UHY off ices w orldw ideForcontactdetailsofUHYofficesworldwide,orfordetailsonhowto

contacttheUHYexecutiveoffice,pleasevisitwww.uhy.com.

Documents

Doing Business with French People