Country profile, France

France is Britain’s closest neighbour and with the development of fast rail links between the two countries, more UK businesses now see France as a business development opportunity. The workforce is skilled (and more and more French people speak English) infrastructure is very good and salaries are on the whole lower than in the UK. More problematic is, however, the perceived culture of bureaucracy and strong employment protection rights.

1. Legal culture, regulatory regime

Like its continental European neighbours, France is a Civil Law country. This means in particular that its legal system relies on written codes of statutes. The main codes are the Civil Code which regulates contracts and individuals; the Commercial Code which applies to commercial transactions and companies, the Criminal Code and the General tax Code. There are also procedural codes (for civil and criminal procedures), as well as more specific codes (like the Intellectual Property Code). All of these codes can be found on the official website

French laws are voted by Parliament (composed of a lower chamber Assemblée Nationale and of a higher chamber Sénat). In some instances laws can be reviewed by the Constitutional Court before being enacted. Since 23 July 2008, the Constitutional Court can also review laws after they have come into force. All laws have to comply with a hierarchy of norms which places international treaties and European community legislation above national laws.

The role of French judges is limited to implementing laws voted by the Parliament. French judges are, therefore, prohibited from creating laws and, contrary to common law judges, they cannot judge in ‘equity’. Past court decisions have no compelling binding legal authority. This is another major difference with common law systems.

While English contracts set out every details of a contractual relationship and define each term carefully, most French contracts will be shorter and rely instead on legal statutes. The French Civil Code regulates for instance most aspects of French contracts. The scope of what will be left to the parties’ agreement is therefore usually more limited than in common law countries.

2. Status of foreign capital / foreign enterprise

European Union citizens or businesses who wish to invest in France may generally do so without the need to follow specific formalities. Investors from outside the EU may, however, be subject to tighter regulations. For example, anyone wishing to carry out trade or manufacturing activities in France will be required to hold a valid foreign trader identity card .

There is no general screening of foreign investments in France. This principle is stated at article L151-1 of the Monetary and Financial Code. However, certain sectors such as gambling, security related services, Research and Development and production of chemical and biological antidotes, equipment for intercepting communications and any technology which has to do with the military sector; cryptology and Information are considered as sensitive sectors and subject to tighter regulation. Regulation 2005/1739 of 30 December 2005 sets out that investments in sensitive sectors are subject to prior approval by the French Finance Minister. Further, any investment that grants control of a company, or goes beyond a 33% threshold, or involves any part of any branch of any firm that has established headquarters in France will be subject to governmental review. Authorities will consider the place of residence rather than the nationality of the potential investor. The place of residence of a corporate investor is determined by the place of residence of its ultimate beneficial owners, without regard to place of incorporation.

3. Investment incentives

A wide range of financial and tax incentives are available to companies in France. Invest in France Agency encourages foreign companies to set up in France and you should get in touch with its UK representatives. France’s planning and investment promotion agency is the Délégation interministérielle à l’Aménagement et la compétitivité des Territoires (DIACT) but assistance for investments and job creation can also be sought from local authorities.

4. Structuring activities (what kinds of company structures are available? Which ones suit which activities?)

For an individual or a company setting up a business in France the range of options as to the legal structure of the business, from individual ownership to a listed company is very similar to that available in Britain. As in Britain, individual ownership remains the most common form of business but as it presents additional risks to the foreign investor given the level of investment and therefore potential liability, it is generally advisable to consider setting up a company.

  • Requirements to set up a company

The different types of companies include the Société à Responsabilité Limitée (SARL) (private limited company), the Société Anonyme (SA) (limited liability company with share capital), the Société en Nom Collectif (SNC) (unlimited partnership), the Société en Commandite par Action (SCA) (partnership limited by shares), the Société par Action Simplifiée (SAS) (simplified version of the SA).

  • Formalities                                                                                                                                                                                                              A “one-stop service” has recently simplified the administrative formalities to set up a business. Companies are registered at the Centre des Formalités des Entreprises (CFE). The CFE will obtain a number called SIREN (identification number) and a SIRET (premises number) and will register the company at the Commercial Court (Tribunal de Commerce). The Registrar office of the Tribunal de Commerce will issue an extract called Kbis which will certify the registration at the Registre du commerce et des sociétés (Companies House). The time necessary for registering a company is approximately 2 weeks. Settings up costs are minimal and lower than in the UK.
  • TheStatuts                                                                                                                                                                                                                            The Statuts are the Memorandum and Articles of Association of the company. The     object of the company has to be specified (it may be wide ranging). The Statuts also     contain details on capital, shareholders, officers, registered office, registered name,     incorporation number and duration (max 99 years). They also deal with directors’     powers and procedures for the transfer of shares. The Statuts have to be registered at the Recette des Impôts (Tax Office) where an original of the registration will be kept.
  • Branch (succursale) v. subsidiary (filiale)                                                                                                                                                                                                                                          From a UK tax standpoint, it may not be tax efficient to create a French subsidiary of a UK company because a group of two companies results in the limits for smaller company rate of UK corporation tax being halved for the UK company. It is possible to create a succursale (branch) instead (and this is done is a similar way to the creation of a company described above). However, it is important here, as in other aspects of doing business abroad, not to let the ‘tax tail wag the dog’ and you should always take legal advice before you decide whether to create a succursale, a filiale or a stand alone French company as each structure has particular implications at different levels, from a tax perspective to questions of ownership and liability. Generally, it seems that using a French company as opposed to a branch increases the chances of getting the correct administrative procedures right from the start from a compliance point of view. It also gives your French business a good commercial profile. And last but not least, it protects the UK business and limits risks.

5. Tax treatment / tax liability

Carrying business in France is subject to a degree of formality which can be surprising for someone with a background in small business in the UK. As far as tax and national insurance contributions are concerned, you ignore these formalities at your peril. Tax rules are complex and the French are terrified of le Fisc (the French HMRC).

Under French tax rules almost any commercial activity constitutes a business. It is best therefore to get an accountant to help you with the formalities and with tax optimisation. As a new company in France, you may benefit from the following temporary exemptions incentives:

  • exemption from corporation tax for the first 24 months for newly created companies located in certain areas;
  • total exemption during three years followed by a partial exemption during two years from corporation tax and from business and council tax for new small and medium-sized companies where research spending accounts for at least 15% of total expenses (Jeunes Entreprises innovantes (JEI));
  • corporate income tax exemption for the first ten years for a ‘one man’ venture capital company (Societe unipersonnelle d’investissement à risques (SUIR)).

VAT – Taxe sur la valeur ajoutée (TVA)

The standard rate of VAT in France is 19.6%. There is a reduced rate of 5.5% for certain essentials and price sensitive goods and/or services. Products and services for export are zero rated within the EU.

Corporation Tax

Companies and branches are normally subject to the Impôt sur les sociétés (IS). IS is payable upon the company’s net profits and the rate is currently fixed at 33.33%, plus a surtax of 3.3%  to companies whose corporate income tax computed at the standard rate exceeds € 763,000 and whose turnover realised during the preceding year exceeds € 7 630,000 (which brings the effective tax rates at 34.43%). The surcharge applied to royalties taxed at 15% reduced rate.

However, since 1 January 2008, taxpayers have been able to opt for an 18% flat-rate withholding tax (excluding social levies) and thus avoid progressive taxation. The flat-rate withholding is irrevocable and must be exercised:

  • by the taxpayer at the latest on receipt of the income where the payer is established in France, the payer paying the withholding at the latest in the first fifteen days of the month following the month in which the income is paid;
  • where the payer is established outside France, by filing the declaration and paying the withholding in the first fifteen days of the month following the month in which the income is paid. These formalities are fulfilled by the taxpayer or the payer of the income, where it is established in a State party to the agreement on the European Economic Area (except Liechtenstein) and has been authorised by the taxpayer to that effect.

There is a reduced rate of 15% for small businesses where at least 75% of the share capital is held by individuals and share capital is fully paid up. This reduced rate is applicable up to profits of €38,120.

6. Employing people

France is now determined to reform its employment laws to allow greater flexibility in the labour market.

  • Hiring

Employment contracts must be in writing and in French. The contract must stipulate the employee’s salary, describe the job duties along with the working hours and place of work. The contract may also provide for a probationary period, generally 3 months. The minimum wage is set as € 9 gross per hour or € 1 365,00 a month full time.

Different types of contracts may be used. The Contrat à Durée Indéterminée (CDI) is the norm, and the default contract by law as it gives employees greater rights than other contracts (once they have passed their probationary period). Small businesses generally prefer the Contrat à durée déterminée (CDD) (Fixed term contract) as it appears to offer a simple way out if things go wrong at the end of the fixed term period. However, the CDD is highly regulated and only available where the job is genuinely for a fixed term. If it is misused, the employment tribunal (Conseil des Prud’hommes) will automatically convert it to a CDI. Also note that the bureaucracy surrounding recruitment has been simplified through the Declaration Unique d’Embauche.

  • Dismissal

Dismissals may only come about on demonstrably and limited objective grounds which must be brought to the attention of the employee in writing (by sending him a register letter pursuant to a formal meeting between employer and employee).

Dismissals are subject to stringent procedural statutory constraints. Failure to follow the procedural steps, even where the dismissal is manifestly justified on the merits, may result in the Courts overturning the dismissal and ordering the reinstatement of the employee.

Redundancies, or lay-offs on economic grounds, are subject to separate and complex procedural and substantive constraints particularly in the case of multiple dismissals

Professional advice should always be sought prior to any measure envisaged.

  • Working Time in France

The standard French working week is 35 hours. This legislation has been relaxed with the introduction of a quota of 220 additional hours per year. Overtime is paid at a premium rate. French workers enjoy 5 weeks paid holidays per year (in addition to bank holidays).

7. Commercial contracts

Like its continental European neighbours, France is a civil law country. This means that its legal system relies on written codes of statutes. The main codes are the Civil Code which regulates contracts and individuals, the Commercial Code which applies to commercial transactions and companies, the Criminal Code and the General Tax Code. There are also Procedural Codes (for civil and criminal procedures), as well as more specific codes (like the Intellectual Property Code). All of these Codes can be found on the official website Légifrance[1].

While English contracts attempt to regulate every details of the contractual relationship, from ’cradle to grave’, most French contracts will be shorter and rely instead on legal statutes to fill in the gaps. The French Civil Code regulates for instance most aspects of French contracts. In a short French contract, the scope of what is left to be agreed by the parties is therefore more limited than in common law countries. It is important to take legal advice on the terms of the contract because you will need to be aware of the stipulations of the Code Civil and others in order to understand what you have agreed to.

8. Property

To buy real estate in France is important to keep in mind certain key distinctions. A purchaser will usually be asked to reserve a property at an early stage. He will be asked to sign a first agreement (the “compromis de vente”) and pay a deposit which will vary depending on the type of the property. Usually the purchaser can expect to pay around 10% of the price. He will later (usually within two months of the signing of the “compromis”) have to formalise the transfer of property by signing a deed of sale (“acte de vente”) in front of the notaire.The compromis de vente is already a fully binding contract (not just an option). If the purchaser decided later to withdraw, his risk would not only be to lose his/her deposit. He could also end up having to pay the full price of the property. The first contract is close to the notion of exchange of contracts in England.

For tax and inheritance purposes French law applies to real estate located in France (even if owned by non French resident). It is therefore important that, before signing any document, the purchaser decides the best way of structuring his purchase with regard to tax and inheritance. An error could indeed prove expensive if he decides later to change the ownership of the property (possible tax transfer charges for example).

The costs associated with buying in France depend on the type of property. Costs will usually be an additional 7.5% to 25% on top of the purchase price. It will be for the buyer to pay for the registration fees (“droits d’enregistrement”) and for the seller to pay for any Capital Gains Tax.

In general an estate agent will take around 10% of the price for a resale. Unlike the notaire’s fees, these estate agent’s fees are negotiable and they may be paid by the buyer or be included in the price (i.e. paid by the seller). Make sure that the contract is clear about who will eventually pay for the estate agent’s fees or you might end up paying an additional 10% which you did not budget initially.

9. Litigation and disputes

Legal procedures may be slower in France than in England. However, the cost of justice is also usually lower. The judicial system is independent. Property and contractual rights are enforced by the French civil code. Judgments of foreign courts are accepted and enforced by courts in France once they have been “declared executor” by a French judge through “executor” proceedings (Art. 2123 of the French Civil Code and Art. 509 of the Civil Procedure Code). However, in some civil cases and in bankruptcy cases, foreign judgments are recognized and enforced by French courts without executor proceedings.

10. Repatriation of funds

All inward and outward payments must be made through approved banking intermediaries by bank transfers. There is no restriction on repatriation of capital. Similarly, there are no restrictions on transfers of profits, interest, royalties, or service fees. Foreign-controlled French businesses are required to have a resident French bank account and are subject to the same regulations as other French legal entities. The use of foreign bank accounts by residents is permitted.

France has little effective foreign exchange control regulations. For exchange control purposes, the French government considers foreigners as residents from the time they arrive in France. French and foreign citizens are subject to the same rules. Residents are entitled to open an account in foreign currency with a bank established in France and to establish accounts abroad. Residents must report the account number for all foreign accounts on their annual income tax returns. French-source earnings may be transferred abroad.

As part of the international effort to combat money laundering and the financing of terrorism, France’s banking regulations have undergone several changes, which affect the handling of checks, as recommended by the Financial Action Task Force. Additional changes are expected. France sometimes uses its powers under national law to execute asset freeze orders against terrorists, as well as operating within EU structures.

The message for the British entrepreneur looking to set up in France is not to be daunted by myths and clichés about French bureaucracy and overprotective French employment regulations on the one hand and over romanticise the ‘French way of life’ on the other hand. It is important to take professional advice from accountants and avocats (solicitors/barristers) early on in the life of the business to ensure not only that your business is legally compliant but also that the rules work for you instead of against you.

The material contained in this article is provided for general purposes only and does not constitute legal or other professional advice. Appropriate legal advice should be sought for specific circumstances and before action is taken.

© , October 2011

Please contact:

Emmanuelle Ries

DD +44 (0)20 7553 9938

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