» Agent

The subsidiary may be an agent, acting only on behalf of the parent, which itself signs the sales contracts. The position of the subsidiary is perfectly clear, since it only receives a commission, while the margins generated by sales in France are taxed in the parent company's home country. However, care should be taken in drawing up the "agent contract" between the parent and subsidiary, since this determines the territoriality of profits made by the parent company.



» Distributor

A subsidiary may also act as a distributor, buying products from the foreign parent company (with or without exclusive rights) and reselling them in France. The profits it makes in this way are declared and taxed in France. Royalties may be payable to the parent. Taxation is not the only consideration in drawing up the contract between the parent and the subsidiary. If the subsidiary plays a significant role in organizing distribution or is involved in after-sales services, a distribution contract is preferable from a legal, commercial and tax point of view.



» Other contracts

Other contracts for specific types of service.

In addition to transfer pricing of goods, which must take place at market prices, contractual allowance may also be made for other types of payment for services, provided they are actually rendered. Such payments include:

• management fees
• patent and brand royalties
• interest on shareholders' loans (for tax purposes, a ceiling is set on interest rates and the amount of shareholders' loans may not exceed a certain proportion of the subsidiary's capital stock).
• cost-plus



» Corporates Taxes

• Tax rate

Excluding temporary surcharges, two rates are applied: a standard rate of 33.33% and a reduced rate of 15% for:

- Long term capital gains
- Profits inferior to 38 120 € with a capital fully paid and owned at least at 75% by individuals

Long term capital gains on a real estate sales are taxed at 19%.

• Alternative minimum tax

This tax is to be paid by all companies with a turnover above  1 500 000 €. It can vary from 3 750 € to 110 000 €.


• Corporation tax

The French corporate income tax system is based on the principle of territoriality. Therefore:

   - Net profits earned by foreign based subsidiaries and permanent establishments of French companies are not subject to French tax until these profits have been actually repatriated to France and distributed by the French company to its shareholders;

   - Non-resident foreign corporations are subject to corporate tax if they conduct business in France.

Under domestic law, the conduct of business arises where it is carried out through an autonomous establishment. Under tax treaties, the conduct of business is deemed to arise when it is carried out through a permanent establishment of a foreign legal vehicle. It can be either a fixed place of business or a dependent agent who is usually empowered to contract on behalf of a non-resident.


• Social Security Contribution

This tax is to be paid by all companies that pay more than € 763,000 tax at the rate of 3.3%.



» Value Added Tax

• VAT a neutral tax for business

Value-added tax (VAT) is a tax on the consumption of goods and services and is paid by the consumer. It accounts for over 50% of French fiscal revenues. Businesses are only charged with collecting the tax on sales, and deduct the VAT they have paid on purchases and investments from the amount collected. If VAT paid on purchases exceeds VAT collected on sales, the resulting VAT credit is reimbursed to the business on application. The standard rate is of 19.6% with a reduced rate of 5.5%.


• All EU member states have adopted VAT

In 1993, VAT became a pan-European tax, charged in the country receiving the goods. VAT rates are set by individual member states and thus differ from country to country.


• Some exports exempt from VAT

Banking, financial and insurance transactions, teaching and some real-estate rentals are the main services that are exempt from VAT as well as exports.


• Goods:
   - Food (excluding most beverages)
   - Agricultural products
   - Books.

• Services:
   - Passenger transport
   - Hotel accommodation
   - Canteens, press agencies
   - Amusement parks, theaters, concert halls, travel agencies.


• Special rate: 2.1 %
   - Daily newspapers, periodicals,
   - Pharmaceutical products that are wholly or partially refundable under the Social Security System.



» Other Business Taxes

The CET (Contribution Economique Territoriale) is composed of:

- The CVAE: Contribution sur la Valuer Ajoutée des Entreprises. It is due by companies with a turnover above 500 000 €. The tax rate ranges from 0% to 1.5% of the company added value.

- The CFE: Cotisation Foncière des Entreprises. It is calculated on the rental value of the real estate used by the company.

The real estate tax is due by companies that own real estate

» Headquarters & Logistics Centers

Like other countries in Europe, France has adapted its fiscal system to take into account the requirements of multinational corporations interested in setting up headquarters or logistics centers.

Such entities may enjoy a favorable tax regime, with assessments made on a cost-plus basis. Taxation is calculated on the basis of a fixed rate of margin based on their operating costs and which is the object of a ruling negotiated with tax authorities. In general it is between 6% and 10% of total ordinary operating expense.

These centers have a specific purpose: they are set up to provide specialized services, with headquarters allowed to handle only management, administrative, coordination and control functions, and logistics centers limited to packaging, labeling and distribution.

Services must be provided only to companies within the same group. Such an approach based on prior determination of margin rules out the risk of reassessment that might otherwise exist for such activities, assuming that earnings might be repatriated.

The centers are subject to taxe professionnelle as provided by French law. Headquarters can also enjoy exemptions linked to the regional planning priorities mentioned above. Finally, under tax rules offsetting the cost of expatriation, both headquarters and logistics centers may pay special compensation that is partly or fully exempt from income tax to their expatriate employees. To qualify, they must file a request with the authorities.



» Tax Treaties

FRANCE has a comprehensive series of tax treaties. The terms of each are not identical and, before investing in FRANCE, the relevant treaty or treaties should be examined carefully.

Dividends distributed by a French company to a person resident outside France are subject to a 25% withholding tax. Under the tax treaties, this rate is normally reduced to 15% or 5% for corporate shareholders above a certain amount of shares held. Dividends payable to residents within the EU are not subject to any withholding tax, provided certain conditions are adhered to.

Interest distributed by a French company to a person resident outside France is subject to a 15% withholding tax. Under tax treaties, this rate is normally reduced to 10% or 0%.
Royalties, fees, and income from the rental of equipment paid to a non-resident are subject to a 33 1/3% withholding tax. Under the tax treaties, this rate is normally reduced to 5% or 0%.

[top]