Choosing the right Legal Structure for your Venture in France
Foreign companies: which is the best legal structure to adopt when making one’s first steps towards the French market?
Liaison office, branch, subsidiary… You should decide on a structure that meets your needs in terms of development (short-term or long-term) and desired level of control for the foreign company (low or high). However, the tax consequences and social obligations for each structure differ considerably, and therefore deserve a short analysis.
If you are a foreign company and you wish to approach the French market, there are several solutions available to you.
• Liaison office: analyzing the local market whilst not developing any commercial activity
A liaison office is a fixed place of work that is not considered as a Permanent Establishment as long as you do not carry out any commercial activity. Under this structure, one or more employees are placed under the responsibility of a representative. The activity of the office is limited exclusively to providing the parent company with information, and/or advertising or conducting market research analysis on their behalf.
Tax obligations: a liaison office is not subject to corporate tax, VAT or property tax like the CET (Contribution Economique Territoriale), but will still have to pay the local property tax (taxe d’habitation).
Social obligations: the employees are subject to French labor law and benefit from the French social security system, in which their social contributions are managed by the URSSAF of Bas-Rhin (URSSAF specializes in foreign firms that employ workers in France).
• Branch: expanding the foreign company’s activity to France
As the ‘mildest’ structure of all, a branch offers the advantage of being able to ignore certain administrative formalities since no true company creation takes place, i.e. no legal form is chosen, no bylaws are drafted, etc. However, the obligations to register with the Trade and Companies Registry (RCS , registre du commerce et des sociétés) and to file annual accounts still stand.
Tax obligations: although a branch is does not have a legal personality, it does have a fiscal personality. Consequently, it is obliged to pay the same taxes as a resident company.
Note that a withholding tax of 30% is applicable to all branch profits generated by non-resident companies (from EU member states), unless otherwise stated in the respective tax treaty.
Social obligations: all branch employees are subject to French labor law, as with a liaison office. URSSAF also requires a branch to register with the Trade and Companies Registry (RCS, registre du commerce et des sociétés).
• Subsidiary: creating an autonomous legal structure to develop long-term activity in France
It is important to note that you have the option of creating a liaison office before setting up a subsidiary, or the option of creating a subsidiary instead of setting up a branch.
What makes a subsidiary more attractive, in comparison to a branch, is that the foreign parent company does not face unlimited liability regarding the debts incurred by the Permanent Establishment in France. However, a subsidiary is only of interest if you are pursuing long-term development and want to create an entirely independent structure, in France.
Tax obligations: a subsidiary is a company and is therefore subject to corporate tax, VAT, and CET property tax, etc.
Social obligations: the employees (except for posted workers) are, of course, subject to French labor law.
Important: if you wish to pursue the gradual incorporation of your business in the French market (by first creating a liaison office), you are exposing yourself to the risk of being challenged by the Tax Authorities. For example, a liaison office that finds itself in close contact with customers is actually to be considered as a Permanent Establishment, and is therefore subject to corporate tax.
Nonetheless, if you are planning to create a branch or a subsidiary, and your main aim is to establish yourself discretely, it is possible to postpone the first filing of your annual accounts. Under French law, the first financial year is able to exceed December once, and last up to 23 months in duration, if the financial year started in January.
This article is brought to you by Maupard Fiduciaire and if you are interested in learning more about doing business in French then please come and visit us on stand 2460.