Setting up a foreign company in France : Options before incorporating ?
NOT READY TO INCORPORATE ?
Perhaps you are just at the stage of exploring the French market opportunities, or the number of employees you are thinking of hiring does not merit opening an office or branch in France.
Are you certain you want to get your operations fully up and running immediately? Without any experience of the French market, are you uncertain how your business will function within it? Is your business a « good fit » for the French market? Will it succeed? If you fit this description there are two ways to proceed.
Starting your French business activity with no permanent establishment in France
Two choices are avalaible to you :
- Having an employee(s) working in France with Representative of a foreign company status (RFE)
- Operating a Liaison Office in France.
Representative(s) of the foreign company : RFE
- The representatives of the foreign company must be hired by the entity and they can carry out (primarily) prospecting and advertising activities.
- The employer must meet several social and tax obligations related to the activity of the employees in France (non-exhaustive list) :
- Registration of the entity in the National Center of the Foreign Firms (Centre National des Firmes Etrangères) ;
- Preliminary statements for the hiring of the employee(s) ;
- The nominative social declaration(s)(ie. Déclaration Sociale Nominative)
- Payment of any obligatory social contributions to the relevant French social bodies
- Declaration and payment related to Withholding tax if applicable to the non-resident employee.
- The representative – employee of the foreign firm (RFE) – doesn’t have the right to exercise a commercial activity on behalf of the foreign company (except in specific cases provided for in the international tax convention applicable).
For instance, the representative is not legally authorized to sign commercial contracts in the behalf of the company.
International agreements on taxation and social security coverage
It’s highly recommended to determine the existence of :
- An international tax convention between France and the corporations’ country of residence ;
- An international convention on Social Security between France and the corporations’ country of residence.
The company must not hold a separate accounting for the French activity. Indeed, the expenses related to the activity in France should be integrated within the accounts of the corporations’ country of residence.
To sum up, the representatives of the foreign companies RFEs, can meet the needs of foreign firms that would like to hire employees in France, while limiting their business activity in France.
What are the benefits ?
The liaison office does not carry out any commercial or industrial activity. As with the representative of the foreign company, the liaison office exercises prospecting and advertising activities for the most part. If you are interested in the idea of expanding into France, but you are not sure about the relevant steps to take, testing the market with a liaison office is a good solution to start with.
So, it has the benefits of a fixed place of work, with prescribed non commercial business activities, that frees it from financial obligations that incorporated businesses fall under :
- No corporate tax
- No VAT
- No CET (property tax)
While the business must still comply with French labour law, and pay local property tax, setting up a liaison office ultimately requires a significantly smaller amount of capital investment.
In the case the French office does not meet the required conditions above, it’s subject to business taxes (VAT, income tax…) under the same conditions as French companies.
Moreover, the office can proceed with a VAT refund request related to its expenses, following the process applicable to companies without any permanent establishment in France. Moreover, the office is liable to local housing tax, but it should be noted that the liaison office does not own property in its own right.
Furthermore, the office is temporary established in France. After five years of existence, the closing of the liaison office or its transformation into a permanent establishment should be considered. After 5 years the Liaison Office is under greater scrutiny from tax authorities to prove it’s non-commercial status.
If you wish to continue in a non permanent status we recommend using the « rescrit fiscal » process to avoid the risk of penalty following a tax audit. Indeed companies benefit freely from the tax rescript procedure in which French tax authorities give their opinion on the taxation situation of the company.
Regarding the formalities to register the liaison office in France, a statement of existence has to be sent to the Business Formalities Centre (ie. Centre de Formalités des Entreprises). This registration will allow the office to obtain a SIRET number. This number will link the office with the public administration. However, the registration in the Trade Register is not necessary. The liaison office should designate a legal representative (employee or self-employed worker).
Regarding accounting requirements, it’s recommended to hold a separate accounting for the French activity (while not mandatory). However, in principle the liaison office is not subjected to income tax.
To sum up, the liaison office can be an interesting solution for foreign companies that are seeking to establish themselves in France and test the French market. However, the liaison office is not meant to be a lasting situation. After five years of existence, the closing of the liaison office by the foreign company should be considered in order to evolve towards a permanent establishment in France.
Whichever legal model you choose for your company….Primexis is ready to advise , guide and and assist your entry into France !
Bienvenue en France !