DOING BUSINESS FRANCE

Transcription

1 BUFFAUD Avocats DOING BUSINESS IN FRANCE September , rue Vendôme Lyon Cedex 03 France Tel : +33 (0) Fax : +33 (0) BUFFAUD Avocats, SELARL au capital de , inscrite au Barreau de Lyon RCS Lyon TVA Intracommunautaire FR Toque

2 CONTENT 1. General information Constitution and population Language and currency Legal system Economy and trade agreements Transportation 4 2. Investment factors Special features Government incentives Exchange control Sources of finance 5 3. Employment regulations General collective regulations Collective bargaining agreements Employee representatives Social welfare and social security Individual employment Employment contracts 7 4. Business organisations Principal forms of business Other forms of enterprise Common rules Incorporation procedure Legal, accounting and auditing requirements Accounting and reporting Public Inspection Auditing Taxation General information Individual taxation Corporate taxation Administration Profits and losses from a 95% subsidiary Group of companies Reorganizations Other taxes Conclusion 21 2

3 1. GENERAL INFORMATION France is one of the largest countries in Western Europe. Metropolitan France, including Corsica, covers 551,000 sq. kms Constitution and population France is governed by the 1958 Constitution of the Fifth Republic, a mixture of democratic parliamentary and presidential systems of central government. The government is led by an executive branch and a bi-cameral legislative branch. The powers of local authorities are limited but in constant growth. The resident population is 64.1 million, including 3 million foreigners from every country in the world. The main cities are Paris (9 million), Lyon (1.7 million), Marseille (1.6 million), Lille (1 million), Bordeaux, Toulouse, Nantes, Nice, Rouen and Grenoble (1/2 million) Language and currency French is spoken not only in France but also in many other countries and in many international organisations. France forms part of Euroland 1 and the French franc was replaced by the Euro on January 1, Legal system The foundations of the unified French legal system date back to the Napoleonic era from 1800 to Since then, the system has been continuously amended by internal laws and decrees and international treaties. France is now a member of the European Union, and as such, a substantial part of its legislation stems from EU law Economy and trade agreements Bordered by Spain, Italy, Switzerland, Germany, Luxembourg, and Belgium, France has always been a centre for international trade and commerce. France is the world s sixth largest economy and is a leader in services and high-tech industries. France is also a member of the G-8, the European Union, the World Trade Organisation, and the OECD, confirming its status as a leading economic player in the world. 1 «Euroland» is the geographical area consisting of those countries that have joined the European single currency. 3

4 1.5. Transportation France is united by an excellent domestic and international transport system for both passengers and goods, with Paris at its heart. Dunkerque, Le Havre, Brest, Saint-Nazaire, Bordeaux and Marseille are the most important French harbours. Currently, there are over 155 airports operating in France, including 20 regional and 8 international airports. Paris has two of Europe s largest and most important international airports (Roissy- Charles de Gaulle and Orly) and five large train stations (Gare Montparnasse, Gare de Lyon, Gare d Austerlitz, Gare de l Est, Gare du Nord). The other major international airports in France are Lyon Saint Exupery, Marseille Provence, Nice Côte d Azur, and Strasbourg. 2. INVESTME NT FACTORS 2.1. Special features France is strategically situated in Europe and is the chief link between northern Europe and the Mediterranean countries. All investment requirements can be met in France, with significant financial, land, transportation, communication, and technological resources, as well as a skilled and competent workforce. France is a free enterprise economy despite the fact that the government and local authorities operate many public utilities and hold shares in certain industries. The government is actively involved in business life through the enforcement of numerous regulations, permit requirements, and welfare programs that affect most aspects of business activity. Industrial development is backed up by the Chambers of Commerce and local authorities. Universities and high-tech activities are closely intertwined. In recent years, many foreign investors, including major industrial projects, have chosen to set up operations in France. In a wide range of activities, French firms operate worldwide with a strong base in France Government incentives Full incentives and tax reductions may be granted when setting up in areas of high unemployment (i.e. former mining centres or shipyards) and fall within a tax free area. Tax reductions may be granted when creating a completely new business, or expanding an existing business. Tax credits can also be granted when investing in particular products (e.g. new and renewable energies) promoting sustainable development, or working on specific activities (e.g. research and development). 4

5 2.3. Exchange control Generally speaking, foreign investments in France are not controlled and need only to be declared to the Ministry of Economy, except when they concern sensitive fields of activity, such as gambling, safety, data-processing, system security, national defence, and armaments (Article L to L of the French Monetary and Financial Code). The primary activities considered to be foreign investments are the creation or purchase of a new business and the take-over or purchase of a substantial share of a French company. Other activities also considered to be foreign investments include: granting loans or securities to a French company, securing patents, licensing and other business agreements, or contributing to a set of intended actions involving the take-over of a French company Sources of finance All major banks and financial institutions operate in France. The Paris Stock Exchange is active, attracts many foreign investors, and enjoys close relations with all other financial markets. 3. EMP LOYMENT RE GULATION S 3.1. General collective regulations The French Labour Code lays down the basic laws applicable to all employees and firms, regulating the working time, health and safety, trade unions, minimum wages, employee representation (employee delegates, works councils, health and safety committee, employees training, employee s profit-sharing schemes, dismissals, settlement agreements, labour disputes, negotiation of collective bargaining agreements, etc.) Since January 1, 2002, the legal working limit has been 35 hours per week. Overtime is, however, possible. The working week generally includes 35 hours distributed over 5 days (i.e hours per month). Paid holidays are generally 5 weeks per year. Employees may currently retire as of the age of 61. The earliest school-leaving age is Collective bargaining agreements In addition, this basic legislation is supplemented by collective bargaining agreements that have been negotiated between employer organisations and trade-unions representing workers and employees for each of specific branches. 5

6 These agreements are mainly binding on the firms involved in the negotiations, but decisions of the Labour Minister usually extend them to all firms and workers in the specified activity sector; e.g., chemicals, metal-working, supermarkets, fisheries, accountants, etc. Provisions of such agreements are almost always more favourable to workers than the French labour code s provisions Employee representatives In all firms of 11 or more employees, employers must compulsorily organise Employee Delegate ( Délégués du personnel ) elections. Businesses with more than 50 employees must also set up a Works Council ("Comité d'entreprise") and a Hygiene, Health, and Safe Working Conditions Committee ( Comité d Hygiène, de Sécurité et des conditions de travail ), which must be kept informed on business operations. In addition, representative trade unions may organise chapters in all firms and even appoint, under specific conditions, union delegates to negotiate an across-the-board or branch agreement, whether applicable to the industry as a whole or not. The above mentioned employee representatives are allowed several hours each month to carry out their duties and are protected against dismissal (previous authorisation must be obtained from the labour inspection). Please note that in all firms with 50 or more employees, an agreement on employee profit-sharing must be signed and a reserve fund must be established for the employees profit-share. This fund accumulates over a 5-year period before being taken out by employees Social welfare and social security All employers must register new employees with the proper social security organisations. This is obligatory for all employees, including foreigners. Social security and related systems have obligatory rules for overall contributions of around 60% of gross wages, of which around 40% is paid by the employer and around 20% is paid by the employee. These contributions cover health insurance, widow's benefits, basic and supplementary retirement pensions, family allowances, compensation for accidents at work, and unemployment insurance. Employer contributions for low-salary workers are reduced in order to encourage employment and help reduce unemployment. Free-lance workers have reduced benefits and contributions. In-kind benefits such as housing or the use of a car are included in an employee s gross income and, as a result, are charged and taxed. 6

7 3.5. Individual employment Any new employee taken on is given his/her own employment contract which states the job s duration (if limited) and salary, as well as any special employment conditions. Non-French workers have the same rights and duties as French workers. Foreigners must obtain a resident's card and a work permit. However, EU citizens do not need a work permit and can obtain resident status more easily. Employers must report the names of new employees to the social security authorities before employees are hired Employment contracts Except as defined by law, employment contracts are for an unfixed term. Various kinds of employment contracts have been introduced during the last ten years so as to enable businesses to take advantage of reduced welfare contributions. Accordingly, employers contribute significantly less in the case of low paid jobs, part-time jobs, jobs that encourage the employment of young people or the re-employment of unemployed people, as well as first employee taken on and youth training and apprenticeship schemes. 4. BUSINE SS ORGANISATION S 4.1. Principal forms of business It is of the utmost importance for the foreign investor to select the appropriate business form, after taking into account the main features of each Société à Responsabilité Limitée - SARL (Limited Liability Company) This company form can be incorporated with 1 to 100 partners. A SARL which has only one partner is called an Entreprise Unipersonnelle à Responsabilité Limitée (EURL). As of August 1, 2003, and except for legal and regulatory provisions related to some specific activities, the share capital of a SARL is freely specified by the articles of incorporation, without any legal minimum requirement. The share capital can be contributed with one fifth at incorporation and the balance within the 5 following years. The partners can also choose a variable capital and carry out withdrawals while respecting a minimum equal to one tenth of the capital fixed by the articles of incorporation. The partners liability is limited to their share capital contributions. One or more managers (individuals only) are given authority to run the company. 7

8 Managers are responsible for drawing up the annual accounts and the management report, and for convening the Partners General Meeting (PGM). They are appointed by the articles of incorporation or by the PGM. They are not necessarily partners of the company. Please note that only large SARL must appoint a statutory auditor to audit their annual accounts. Indeed, an SARL falls under such requirement if it exceeds two of the three following criteria: - balance sheet : turn over (VAT excluded) : number of employees : 50 If not, the SARL is exempt from this requirement. The PGM approves the annual accounts and is responsible for major decisions. The latter involves the amendment of the articles of incorporation, as well as the prior approval of agreements between the company and its non-partner managers when no statutory auditor has been appointed. Except as prohibited by law, partner decisions may be taken by a single private deed signed by all the partners, in replacement of the PGM. The disposal of shares, which requires the prior approval of the PGM, must be notified by a bailiff to the company or filed with the company s corporate register, as well as with the Clerk of the Commercial Court. From a tax perspective, the transfer of shares is subject to registration duties of 3% based on the purchase price (or market value if higher) minus a tax allowance that is equal to the product of 23,000 times the percentage of total company shares transferred Société par actions simplifiée SAS (Simplified Joint Stock Company) The SAS form can be created by one or several shareholders. As of January 1, 2009, and except for legal and regulatory provisions related to specific activities, the minimum share capital of an SAS is freely set by the articles of incorporation. It cannot be listed on a stock exchange. The share capital can be contributed with half at the time of incorporation and the balance within the 5 following years. The shareholders liability is limited to their share capital contributions. An SAS has a flexible organisation that is suitable for small and medium sized businesses, as well as for fully-owned subsidiaries. It is represented by a President who may either be an individual or legal entity. The President may be assisted by General Managers and Delegates in conditions freely set out by the articles of incorporation. 8

9 The articles of incorporation set the rules of internal organisation (type of management, repartition of powers, means of collective decisions, shareholders information) within the specified legal requirements. When there are at least two shareholders, clauses concerning share transfers (prior approval or non-transferability) and the exclusion of shareholders may be set. Only large SAS have to appoint a statutory auditor to audit their annual accounts. Indeed, an SAS falls under such requirement if it exceeds two of the three following criteria: - balance sheet : turn over (VAT excluded) : number of employees : 20 If not, the SAS is exempt from this requirement. The transfer of shares may be completed with the signing of an ordre de mouvement (share transfer form) and reported within the "registre des mouvements de titres" (share transfer register). It may, however, pursuant to the articles of incorporation, be subject to prior approval of the shareholders or any other competent body as set up by the articles of incorporation. From a tax perspective, the transfer of shares is subject to registration duties amounting to 0.1% of the purchase price (or market value if higher) from the first euro Société Anonyme - SA (Joint Stock Company) This company form requires a minimum of 7 members who contribute a minimum capital of EUR 37,000 whether or not funds are raised from the general public. The share capital can be contributed with half at the time of incorporation and the balance within the 5 following years. The shareholders liability is limited to their share capital contributions. Two types of management structures are possible in a SA: Directeur Général (General Manager), with a Conseil d administration (Board of Directors) including 3 to 18 directors (shareholders or not depending on the condition set up by the by-laws). The General Manager may also be the Chairman of the Board but this is not compulsory; he may be assisted by Delegates; Directoire (Executive Committee) including 1 to 5 members (7 for a listed company) with a Conseil de surveillance (Supervisory Board) that includes 3 to 18 directors (shareholders or not depending on the condition set up by the by laws). 9

10 The Board of Directors (or the Executive Committee) convenes the Shareholders General Meeting (SGM), fixes the agenda, draws up the annual accounts and the management report, and appoints and dismisses the legal representative. Some particular operations are subject to the prior approval of the Board of Directors (or the Supervisory Board), notably the signing of agreements between the SA and any of its directors (or Executive Committee/Supervisory Board members), and the granting of a security to guarantee third party debts. The SGM approves the annual accounts, allocates profits, appoints and removes directors (or Supervisory Board members), appoints the statutory auditors, and approves or rejects agreements made between the SA and any of its directors (or Executive Committee / Supervisory Board members). All extraordinary decisions (i.e. decisions entailing the amendment of the articles of incorporation) are of the sole competency of the extraordinary SGM (e.g. share capital increase or decrease, transfer of corporate register, change in corporate name or closing date, transformation, winding-up, etc.). The transfer of shares may be completed with the signing of an ordre de mouvement (share transfer form) and reported within the "registre des mouvements de titres" (share transfer register). It may, however, pursuant to the articles of incorporation, be subject to prior approval of either the Board of Directors (or the Supervisory Board) or the SGM. From a tax perspective, the transfer of shares is subject to registration duties amounting to 0.1% of the purchase price (or market value if higher) from the first euro Groupement d'intérêt économique GIE (Mutual Economic Interest Group) Within a GIE, profit making is rarely the objective. In many cases, it is a consortium structure, designed to pool the efforts of several firms in a specific field; for example, technical research. Each member has unlimited joint and several liability Société en participation (Undisclosed Partnership) The public is often unaware of an undisclosed partnership s existence - only its managers are actually known and they appear to be acting in their own names. The company has no corporate identity and no published records. It is deemed to be a general partnership with unlimited joint and several liability when its existence is made public, but it is not reported on the Trade and Company Registry. 10

11 4.2. Other forms of enterprise Other structures may also be considered, such as a Société en commandite simple / par actions (limited partnership), Société civile immobilière (non-trading partnership), Groupement européen d intéret économique (European Economic Interest Grouping), or other various associations and types of agricultural partnerships Sole proprietorship Sole proprietors are individuals in business on their own account. They must be listed on the Trade and Company Registry of the nearest Commercial Court. Non-EU citizens must file a statement with the Préfecture of the region in which they are considered to carry on business and obtain a temporary residence card if they plan to live in France. They are responsible for the business and are by principle personally liable for their business debts on the whole of their patrimony. The sole proprietors are entitled - under special conditions - to separate their professional patrimony from their personal one by creating an EIRL ("Entreprise Individuelle à Responsabilité Limitée", i.e. Limited Liability Sole Proprietorship), which - legally speaking - is not a company nor a legal entity; it is just an allocated patrimony in order to limit the exposure of the sole proprietors' private patrimony. This special option shall be published in a legal register The opening of an agency or a representative office A representative office is not a legal entity and does not have administrative and financial independence. Its purpose is only to prospect and inquire about business opportunities on behalf of foreign companies contemplating investment in France. The absence of commercial activity excludes it from liability for income taxation and VAT. If a representative office employs staff, it must be registered with social security organisations Branch A branch is a permanent secondary establishment of a foreign business. Under French law, a branch has no legal identity and neither its assets nor its liabilities are separate from those of the foreign company. Nevertheless, a branch is required to: register with the Trade and Company Registry within 15 days of its opening and provide two copies of the certified French translation of its articles of incorporation; file a set of the company s annual accounts with the Trade and Company Registry where the French branch is registered; pay taxes on its profits derived in France. The branch system is seldom chosen by foreign companies, which usually prefer to set up a subsidiary. 11

12 4.3. Common rules Foreign managers Only managers, who are not EEA citizens and who plan to live in France must obtain a temporary residence card from the Préfecture (i.e. government administration) of their residence in France Filing of annual accounts French companies must file their annual accounts with the "Registre du Commerce et des Sociétés" (Trade and Company Registry) where anyone can get a copy for a small fee. A summary of these statements is obtainable online. However, small companies can ask for the confidentiality of their annual accounts so that they are not disclosed. 5. INC ORP ORA TION PROCE DU RE All businesses must be registered with the Registre du Commerce et des Sociétés" (Trade and Company Registry) held by the Clerk of the Commercial Court. The Trade and Company Registry requires certain documents (in French or with certified translation) that state the purpose of the business; i.e., the obligations and commitments of the founders, directors (or partners), and members of the company or business. A copy is sent to the tax authorities and social security organisations by the Centre de Formalités des Entreprises which is in charge of liaising with all the French competent authorities. All businesses must provide the Trade and Company Registry with their name, address and accounting year, and must supply information about tax options and social security options. Individuals must provide their identity and marital status. Companies must supply detailed information about management, share capital, articles of incorporation and shareholders. Companies must register their articles of incorporation with the Tax authorities and publish a standard advertisement in a legal gazette. All employers are registered with the proper social security institutions, which serves to protect employees in cases of illness, accident, maternity, retirement and unemployment. 12

13 6. LEGAL, AC COUNTING AND AUDITING REQU IREME NTS 6.1. Accounting and reporting The "Code of Commerce" (French Commercial Code) contains very precise regulations with regards to the legal, accounting and reporting requirements for companies and businesses. Many of these regulations are based on European regulations and apply to all business entities, with more detailed information depending on the size (as measured by assets, turnover and staff) and the legal form of the business. Financial statements produced in France follow French Generally Accepted Accounting Principles (French GAAP). However, because of the globalisation of the economy, high profile financial fraud cases, and a need for better corporative analysis of businesses, French GAAP tend to be standardised with the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), which is now the new GAAP of the EU. The Code Général des Impôts (French Tax Code) supplements the French Commercial Code on many points: use of the French language, computer back-ups, currency rates and records. Financial statements must be drawn up in accordance with French law and GAAP, and should properly reflect the company's financial position and results Public Inspection As a general rule, any limited liability company (SA, SARL, SAS) must file its annual accounts with the Trade and Company Registry to be made available for public inspection. Tax returns are treated similarly to the annual accounts reporting documents and are systematically monitored Auditing Some companies, including SAs, large SARLs and SASs under the above mentioned conditions, are required by law to have their annual accounts audited by statutory auditors, who are appointed for a 6 fiscal years period. A statutory audit should be differentiated from an agreed audit, which is contracted between willing parties and can be terminated at any time by either party. 13

14 7. TAXATION 7.1. General information Fiscal year The official fiscal year runs from January 1 st to December 31 st. However, any business can usually elect for a different fiscal year, provided its length corresponds to a 12 rolling months period Structure The Finance Ministry is responsible for collecting main taxes. All taxes are authorised by the Finance Act which is voted upon annually by Parliament. The Finance Act may be modified by additional acts during the year. International tax treaties and agreements (EU and bilateral) may override French law. France is generally considered to be a country of mainly indirect taxation, as VAT and similar taxes included in the price of goods and services (e.g. foods, oil, tobacco) contribute more to the budget than income tax. In addition to taxes, companies must bear in mind social security contributions as they are paid principally by employers, with a contribution by employees Individual taxation An individualis taxable on his/her worldwide in France if he is tax resident of France, i.e. if he/she meets any of the following criteria: if his/her home or principal abode is in France, or if France is his/her principal place of residence, or if his/her center of economic interest is in France, or if he/she carries his/her profession, activity or employment in France, unless they are of a secondary importance Income tax is paid on all family sources of income, using a family quotient system. The tax scale ranges from 14% to 45%. High income taxpayers are also liable for an additional tax calculated on their gross reference taxable income (3% for single taxpayers for the portion of gross reference taxable income between EUR 250,000 and EUR 500,000 and 4% for the portion exceeding EUR 500,000; 3% for married taxpayers for the portion of gross reference taxable income between EUR 500,000 and EUR 1 million and 4% for the portion exceeding EUR 1 million).. 14

15 Earnings and salaries Taxable income is based upon salary and in-kind benefits after deduction (withholding tax) of most compulsory contributions: social security, unemployment and pensions. Deductions for tax purposes include genuine working expenses (subject to restrictions) or a flat-rate relief of 10% for traveling expenses, documentation, special clothing, and meals Business profits ( Bénéfices industriels et commerciaux ) The tax levied on income from industrial and commercial activities is generally calculated in the same way as corporation tax Professional profits ( Bénéfices non commerciaux ) Professional income only includes profits earned by individuals in independent professional activities. Lawyers, notaries, doctors, nurses, boxers, and chartered accountants must calculate and declare in principle their net profit based on fees received and expenses paid, including social security contributions Capital gain on real property ( Plus-value immobilières ) Gains on real property are taxed at a flat rate of 19% (plus a 15.5% compulsory social contribution).taxable gains can be gradually written off for investments held between 5 and 22 years, or beyond. A supplementary tax apply to capital gains in excess of EUR 50,000 (tax rates range from 2% to 6%) Dividends and interest Interest and dividends are taxed at the ordinary income rates (plus a 15.5% social contribution). However, qualifying dividends benefit from a 40% deduction Other sources of income There are special rules for profits derived from farming, property, and securities Losses Losses are first set off against income of the same kind. The balance, if any, is in many cases, deducted from net overall income of the same year, otherwise. it can only be carried forward to be deducted from future profits of the same kind Standard deduction Standard deduction limits are primarily for spouses and children, gifts to charitable institutions, accounting fees for very small firms, dependent relatives, and domestic help. 15

16 Other local taxes Local income tax is paid by people owning property or occupying a flat, house, farm, land, etc Personal wealth tax ( Impôt de Solidarité sur la Fortune ) A private wealth tax is payable by all residents with non-trading assets (by household) over EUR 800,000 as of January 1 st. There are many exemptions: works of art, business assets (sole proprietors, working partners, and executive shareholders). Wealth is taxable at the following progressive rates: Taxable wealth Exceeding EUR Not exceeding EUR Rate % 0 800, ,000 1,300, ,300,000 2,570, ,570,000 5,000, ,000,000 10,000, ,000, Individuals who move their residence to France and who have not been French tax residents during the preceding five years benefit from a wealth tax exemption on their foreign assets for five years Corporate taxation Tax rate In principle, all business companies are subject to corporate income tax. Branches of foreign companies are also taxable. In some cases, even non-profital associations may be liable for this tax. Most partnerships and joint ventures are subject to Corporate Income Tax. Rather, their profit is divided between the partners, each partner being taxed on his share. The standard rate for corporate taxation is 33.33%. However, small and medium sized businesses are taxed at the lowered rate of 15% of the business's profits if the turnover represents less than EUR 7,630,000. This lowered rate applies to benefits up to EUR 38,120 per 12-months period. Benefits which exceed this threshold are taxed at the standard rate. 16

17 Each company may decide the date of the end of its financial year and may modify this date, as provided for by law. If a change in this date occurs, a fiscal cut-off date may be imposed within 12 months of the preceding year-end. A surtax of 3.3% is assessed on the corporate tax (for an effective tax rate of 34.43%). This surtax is imposed on the portion of corporate tax due exceeding EUR 763,000 but does not apply to companies whose annual turnover is lower than EUR 7,630,000 provided 75% of the company is, at least, owned by individuals) Tax Credit Many tax credits can be used to reduce the Corporate Income Tax burden. Specifically, newly established businesses located in specific areas (recently acquired struggling businesses and emerging technologies businesses) can take advantage of specific tax exemption elections. The most significant tax credits are the following: Tax Credit for Research and Development: The tax credit for R&D expenditure equal to 30% of qualifying expenses related to operations of R&D up to EUR 100 million, and 5% for such expenses above EUR 100 million Tax Credit for competitiveness and Employment (CICE): The CICE is computed on the basis of salaries that are below 2.5 times the minimum wage ( for 2016). The rate is 6%. Higher wages do not give rise to the CICE, even for the amount under the threshold Taxable profit Taxable profit is net income, after deducting allowable expenditures (cost of goods sold, expenses properly incurred for the benefit of the company's business, depreciation and provisions). Certain expenses are not deductible: the Corporate income tax itself, certain provisions, excessive salaries and fringe benefits, non-business expenses, luxuries (private yachts, racehorses, hunting), fines and penalties. Capital expenditures can only be deducted through depreciation. Spending on company cars is only deductible up to EUR 18,300 per vehicle. Capital expenditures must be written off over the expected life of the asset. 17

18 Tax losses can be carried forward indefinitely provided no change in the activity. The amount of losses used in a given year may not exceed EUR 1 million plus 50% of the taxable profit above that amount for such fiscal year. Companies may also carry back losses against undistributed profits from the prior fiscal year. The carry back results in a credit tax that may not exceed EUR 333,333. The addition or termination of a business that infers a decrease or increase of 50% or more of either the revenue or the average headcount and fixed assets may jeopardize the loss carryover and carryback Capital gains Capital gains derived from the sale of fixed assets are subject to Corporate Income Tax at the standard rate. However, capital gains derived from the sale of qualifying participations are subject to a rate of 4,56%. Capital losses incurred with qualifying participations are forfeited. Capital gains derived from sales of participating interest in companies that are predominantly real-estate companies are subject to tax at the standard rate of 33.33% (19% for listed real-estate companies) Dividends Profits received from a 5% subsidiary If the mother company holds at least 5% of the share capital of the distributing company. dividends received are 95 % exempted from corporate income tax,. In general, a 30% withholding tax is imposed on dividends paid to non-residents but it may be reduced or eliminated by tax treaties. In addition, under the EU Parent-Subsidiary regime, dividends distributed to EU parents companies are exempt from withholding if, among other conditions, the recipient holds 10% or more of the shares of the French subsidiary for at least two years. Distributed profits paid into uncooperative states are subject to a 55% withholding tax Additional 3% contribution on dividend French or foreign companies liable for corporate income tax in France that distribute dividends or deemed dividends are subject to an additional 3% tax. However, Small and medium-sized companies and companies that distribute dividend within French tax consolidated groups are exempt. 18

19 Interest In general, interest payments are fully deductible. However, there are certain restrictions (High rate limitation, Thin capitalization rules, general limitation deduction of 75% of the net financial expenses No withholding tax is imposed on interest paid to non-residents. (Except a 50% withholding tax on interest on qualifying borrowings paid into uncooperative states) Royalties Income derived from licensing of patents or patentable rights and capital gains realized on such intangible assets held for at least two years (unless the disposal takes place between related companies) are subject to a reduced 15% corporate income tax rate. Royalties paid to non-residents are theoretically subject a 33.33% withholding tax, unless otherwise stated in a tax treaty. However, as a result of the implementation of EU interests and royalties Directive, qualifying royalties paid between EU associated companies are exempt from withholding tax Administration In general, companies must file a tax return within the three months following the end of their financial year. Corporation tax is prepaid in four instalments. The balance is due within four months following the end for their financial year Profits and losses from a 95% subsidiary Group of companies When a French parent company holds at least 95% of the capital of other French companies, the group can elect for the French tax consolidated group regime and be assessed for tax purposes as a single company (with certain advantages and drawbacks) for a 5-year period, renewable without limitation for the same period of time (i.e. tax consolidation system). All companies are liable for corporate income tax at the standard rate,, and must have the same accounting year. No more than 95% of the parent company can be held by another entity liable to corporate income tax Reorganizations On election by the companies involved, mergers, spin-offs, spin-offs and dissolutions without liquidation may qualify for a special rollover regime. 19

20 7.7. Other taxes Value added tax (VAT) VAT is charged on all sales and imports of goods and services for consumption in France. It is usually refundable on exports. Four rates apply: standard, reduced, exempted. The standard rate (20%) is applied to most goods and services. The reduced rate (5.5% and 10%) covers agricultural products (e.g. food) and cultural products (e.g. books), public transport, sales of prepared food products There are even lower rates for periodicals, medicines, etc. VAT can be recovered by businesses on all goods and services with certain exceptions; e.g., entertaining expenses, petrol, upkeep and repairs to private cars, travel, presents worth over EUR 65, etc Contribution économique territoriale (CET) (Local Economic Contribution) The CET is comprised of two distinct elements: business property tax and business value added tax Cotisation foncière des entreprises (CFE) (Business Property Tax): Those liable for the CFE are individuals, corporate bodies, or companies without a legal personality that engage in a taxable activity (a regular activity of selfemployment practiced professionally in France). The amount of the CFE is calculated by multiplying the rental value of property subject to property tax (land, buildings, facilities...) by the tax rate set by local authorities Cotisation sur la valeur ajoutée des entreprises (CVAE) (Business Value Added Tax): The CVAE is payable by individuals or corporate bodies as well as companies without a legal personality that engage in France in an activity that is liable to CFE taxation and whose turnover exceeds 152,500. The amount of the CVAE corresponds to a percentage of the value added of the company (0.5 to 1.5% of the added value depending of the turnover of the company with possibilities for deductions) Tax on buildings With some exceptions, corporate bodies (French or foreign) which own buildings in France must pay an annual tax of 3% on the net worth on January 1 st of those buildings. 20

21 8. CONC LUSION We hope that we have provided you with a valuable synopsis of the main characteristics of doing business in France and I remain at your entire disposal to further enhance your understanding of these characteristics. Welcome to France! Franck Buffaud Partner September