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This chapter is not exhaustive and is limited to broadly outline the tax consequences of the main events occurring when doing business in France. It does not constitute a tax advice or a client - attorney relationship. Materials are not suitable for tax analysis. Visitors are invited to consult a tax lawyer before taking any decision.
 Self employed
“EURL” or Private Limited Company with a sole shareholder
Limited liability companies
Corporations
Partnership
Agent/commissionaire
Branch
Others (limited partnership, partnership limited by shares)
Societas Europaea
European Cooperative Society
SUIR (Venture company)
“SAS” or Simplified stock Company
SEL (Corporation for professions)
Real estate Companies
Fiducie
 Self employed
The entrepreneur involved either in commercial or non commercial activities is taxable on the profits derived from such activities. The related profit should be declared on the annual income tax return along with other revenues if any. Should this activity trigger a loss, it can be offset against the entrepreneur's other revenues. The entrepreneur is taxable on the net revenues.
Be aware that a loss triggered by commercial or non commercial activities which are considered as non professional activities can only be offset against profits derived from the same activity or the same category of revenues the year it occurs and the five following years.
The entrepreneur is financially liable on his whole estate.
Since 2003, entrepreneur’s can place his/her main residence out of the reach of his/her business creditors by publishing a notarized public statement indicating that his/her main residence cannot be seized.
“EURL” or Private Limited Company with a sole shareholder
The tax regime applicable to the EURL is the one applicable to its sole shareholder:
- if the sole shareholder is an individual, all the profits generated by his business will be subject to the income tax.
- if the sole shareholder is a corporation, the EURL will be subject to corporate tax. This regime may also apply upon election.
The financial liability of the sole shareholder of a EURL is limited to his contribution.
“SARL” or Private Limited Company with several shareholders
SARL is subject to corporate tax on the profits derived from its activity. The tax regime applicable to the compensation paid to an active partner is the same as for salary income i.e. benefiting from standard deductions of 10%. This tax regime applies even for active partners holding a majority of shares "majority manager".
However, for social taxes purposes, although compensation paid to a minority manager is subject to the social security system for employees, the compensation paid to a majority manager is subject to the rules applicable to self employed. SARL is subject to corporate income tax.
SARL whose shareholders are family members can elect for the regime applicable to partnership i.e. the partners are taxable for income tax purposes on their pro rata shares of the partnership earnings. This election is subject to specific conditions and the tax consequences of such an election should be carefully analyzed.
Since 2003 the shareholders of a SARL are free to decide the amount of the stated capital (minimum capital required of 1 €).
Corporations
Stock Company or “SA”
The French stock company called "SA" is subject to corporate tax on the profits derived from its activity. The shareholders employed by the SA are subject to salary income tax on their compensation. Dividends received by French individual shareholders are taxable in the category of investment income. Foreign investors are entitled to the avoir fiscal if provided by the applicable tax treaty. Dividends received by companies are taxable according to corporate tax rules.
Partnership
Partnerships' profits are deemed to pass through to its members for tax purposes. Therefore, these profits are not taxable at the entity level but the partners are taxable on their pro rata shares of the partnership earnings. Should the partnership generates a loss, this loss passes through to its members as well and may be used to offset their income.
The possibility to offset losses against other income, may be restricted, e.g. when the activity carried out in the partnership is not considered as a professional activity (other restrictions might apply) (Self employed).
The tax rules applicable to determine the taxable result depend on very complex rules requiring an in-depth analysis of the activity carried out by the partnership and the tax regime applicable to the partners. The taxable result is allocated to each member according to his pro rata shares in the result and is taxed at their level.
Tax rules applicable to look through entities apply to general partnership called "SNC", non trading companies, joint ventures, limited partnerships only for the general partners (Others).
Some partnerships may elect for corporate tax. Such election is subject to several conditions. A careful analysis is necessary to avoid any adverse tax consequences.
Agent / Commissionaire
An agent is acting on behalf of his principal and has the authority to conclude contracts in the name and on behalf of his principal. He receives compensation calculated generally in proportion to the turnover he helps to generate. He is entitled to an indemnity may the contract with his principal be breached.
The commissionaire operates in the same conditions as an agent. He negotiates and concludes contracts in his own name or in the name of his company. He is compensated in proportion of the turnover he generates. However he is not entitled to an indemnity may the contract with his principal be breached.
The way agent and commissionaire operate raise the following issues:
- Transfer pricing issues (commission rate)
- Application of specific VAT rules
- Registration duties issues related to the ownership of the clientele developed by the agent or the commissionaire
- Revenue recognition issues
Branch
Should a company intend to expand its business either in or outside France, this company can create a branch.
A branch is not a legal entity. Profits derived from its activity are added to the profits generated by the head office if the branch is located in France. Business relationships between a French branch and its French head office are not subject to VAT as the head office and the branch are part of the same legal entity.
If a French company creates a foreign branch, profits derived from the foreign branch will not be subject to French corporate tax as it applies only to enterprises tax resident in France (application of the territorial rule).
Losses generated by a foreign branch of a French company may in some cases offset French income.
Profits derived from a foreign branch are generally subject to taxation in the country where the branch is located except if the applicable tax treaties provide otherwise.
Profits generated in France by a French branch of a foreign company are generally subject to French corporate income tax. These profits are subject to a branch tax i.e. they are deemed distributed and therefore subject to a withholding tax. Tax treaties provide generally for double taxation relief. Branch is a French concept which may overlap with OECD permanent establishment rules.
Others (limited partnership, partnership limited by shares)
Limited partnerships are called "SCS" and limited stocks partnerships are called "SCA".
Unless they elect for corporate tax, limited partnerships apply two sets of tax rules.Earnings attributable to general partners ("les commandités"), are determined according to pass through entities tax rules while earnings attributable to the other partners are determined according corporate tax rules.
General partners are subject for income tax purposes on their pro rata shares of the partnership earnings according to section 8 of the French tax code.
Parts of the earnings attributable to the other partners are subject to corporate income tax at the entity level (section 206-4 of the French tax code).
According to French tax law, limited stocks partnerships are subject to corporate income tax.
Societas Europaea
The Societas Europeae “SE” is the first European legal form of company. It enters in force in France on July 27, 2005. SE is a per se corporation. It allows cross-border activities of European enterprises.
European Cooperative Society
The European Cooperative Society "SCE" statute provides a perfect legal instrument for all types of companies from different EU member states who want to carry together certain activities in common while preserving their independence e.g. market access, R&D, economies of scale…
SUIR (Venture company)
See Private assets.
“SAS” or Simplified stock Company
Simplified stock company called “SAS” follows the same tax rules as SA (See above). Legal rules to set up a SAS are more flexible than for a SA. For example, SAS can have a sole shareholder which can be either an individual or a corporation.
SEL (Corporation for professions)
Regulated professions (Physicians, Dentists, Lawyers, CPA etc…) are allowed to incorporate their practice as SELARL (SARL for professional(s)), as a SELAS (SAS for professional), SASU (SAS with one shareholder) or a SELAFA (SA for professionals). The main drivers for the selection of the legal structure are the organization of the practice and the volume of the business. By-laws must comply with the rules organizing the related profession.
Real estate Companies
Decree on definition of real estate companies was finally published in official gazette. It stipulates that a company is a real estate company when fixed properties, right on fixed properties, leasing on real estate or shares in other real estate companies, represent more than 50% of the current value of all its assets. Buildings assigned to the operations of the real estate company are excluded.
Fiducie
The introducing of the « Fiducie » i.e. Trust concept into the French law required a modification of the French civil code and French tax code in order to remain tax neutral e.g. avoid taxes based on the transfer of assets between two estates. As for Anglo-Saxon Trust, the Fiducie is an operation by which one or more “Constituants” transfer assets or rights to one or more “Fiduciaires”. Such transferred assets or rights belongs to an estate separate from the estate of the Fiduciaire(s) whom manage them according the provision of the Fiducie contract for the benefit of one or more beneficiaries. The Fiduciaire (s) must give the assets or rights back after a period which may not exceed 33 years.
The Constituants must be entities subject to corporate income tax (The Fiducie is then unavailable for individuals). In addition the Fiduciaires must be a bank, an insurance company, a monetary or financial institutions approved by the Government.
Even if the Law does not provide a definition of the purpose of the Fiducie, it states clearly that a Fiducie contract is void when its purpose is a gift to the beneficiary.
The Fiducie is created by law or by contract. The owner of the assets is no longer the Constituant. The assets belong to an estate belonging to the Fiduciaire although this estate remains separate from the own estate of the Fiduciaire.
Except in few cases, the creditors of the Constituants and/or of the Fiduciaires cannot seize the assets and rights transferred to the Fiducie.
The contract determines the following: assets and rights transferred, the duration of the transfer, the tasks of the Fiduciaire and the scope of its administrative and management powers on the assets and rights transferred.
If not registered within one month with the Tax office of the Fiduciare, the Fiducie contract is void. A national Fiducie register is created.
The Fiducie is tax neutral.
This tax neutrality is two folds: to avoid any hurdle to the development and the operating of the Fiducie and to provide no tax incentive in favour of the Fiducie.
Tax neutral when assets and rights are transferred to the Fiducie. Depreciable assets may be depreciated on market value (Capital gain on transfer of assets are recaptured in the tax result of the Fiducie) or on net book value on the remaining depreciation period.
Taxation of the result of the Fiducie. The tax result of the Fiducie is calculated according to the rules applicable to partnerships. The tax result is calculated at the level of the Fiducie while the Constituant is the taxpayer, not the Fiduciaire. When they are several Constituants, the allocation is made proportionally to the market value of the assets and/or rights transferred to the Fiducie.
The Constituant adds the turnover made by the Fiducie to its own turnover.
Transfer of assets/rights to the Constituant is also tax neutral. Would an asset and/or right not be transferred to the Constituant, it would be then taxed as a sale.
To not be void the Fiducie contracts must be registered. Registration duty (Taxe de Publicité Foncière) of 0.715 % or flat fee apply when real estates are transferred.
The Fiduciaire is liable of VAT on operations of the Fiducie. The services rendered by the Fiduciaire are subject to VAT (e.g. management fees).
Fiduciaire is liable of municipal taxes. Transfers do not modify the tax basis of the assets for municipal tax purpose.
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