Following Macron’s promise to make France "a start-up nation", France seems ready to compete with Silicon Valley as a hub for entrepreneurs.
France knows that the best way to stimulate its economy is by investing in start-ups and small companies. For this reason, France has the most generous tax credit schemes and government subsidies in Europe, making it the ideal place for start-ups and small companies to invest.
The French have a penchant for bureaucracy and paperwork which means there are a few extra hoops to jump through. Here, Rotimi Akindeinde, business developer at Maupard Fiduciaire in Paris, a firm which specializes in helping small businesses do business in France, explains more about these challenges and how to tackle them.
What are the options for starting a business in France as a self-employed individual?
When looking to setup a business as a sole-trader, the best two options are to apply as a micro-enterprise or as an SAS. As a micro-enterprise, you are just subject to personal income tax. A micro-entrepreneur is excused from professionally declaring their profits but must declare the annual amount of gross sales through the annual revenue declaration form.
It’s worth noting that the micro-enterprise status has a turnover limit of €33,000, so if you think your business will take you over this threshold, you’ll need to incorporate a business in France. At this point, you best bet would probably be the SAS option, but depending on the nature of your business, one of the other frameworks could be more advisable. It is also worth noting that before incorporating, representation through a Liaison office or Branch can be a cheaper way to start out in France on a remote basis. We can help you decide which form would work best for your business.
So how do you go about incorporating a business in France?
If you need your business to be a visible entity in France (for billing purposes, credibility or financial visibility) you’ll want to incorporate in some way. Incorporation is essentially registering your business so that you are formally recognized by the various administrations in France. When it comes to incorporation, we advise registering VAT in advance, filing your rulings for tax incentives and setting up your administrative address, even if there is no business yet. The main choices for which type of business to incorporate are the following.
SARL – société à responsabilité limitée – this is a private limited company which much have at least two shareholders – (likely to be business partners).
EURL - entreprise unipersonnelle à responsabilité limitée – this is also a private limited company – but which can only have one single shareholder. This shareholder – can also be the manager or can appoint someone else as a manager (won’t be shareholder). If the EURL’s single shareholder is a company then the EURL will be subject to corporate tax. If the single shareholder is an individual and is also the manager, then you can apply for the microenterprise status for the EURL. If the shareholder is an individual (as against a company) but not the manager, the EURL will be subject to income tax.
SA – société anonyme – equivalent of a Plc. Has a board etc. Has the option of being publicly listed.
SAS - Société par actions simplifiée(a more modern legal framework - the most simplified form of a company in France where shareholders (at least two) control the company - subject to corporate tax. Easier to run and manage than SA, but cannot be publicly listed.
SASU - Société par actions simplifiée unipersonnelle – same as the SAS but one single shareholder. Subject to corporate tax.
In France, what makes this process difficult is that the tax administration and social security services require a range of corporate information to ensure the reliability and legitimacy of you and your business. This information, most of which will be required in French, will include information on associates/managers, financial forecasts, and details of all of the owners/stakeholders of the business. It’s also worth noting that having a corporate bank account in France will make incorporation a whole lot easier.
What about opening a corporate bank account?
In the US or the UK, setting up a corporate bank account is usually quick and easy. However, in France, thanks to recent regulations, it can take a few months to open an account, so plan ahead and start early. The process of opening a corporate bank account is very similar to incorporating a business, in that it will include the collection of a range of corporate and personal documents.
Also, we strongly recommend you open this account with enough capital to cover your initial opening costs, and to ensure your balance is always positive.
At some steps along the way, you will be required to come to France to meet the representatives at the bank.
However, despite these inconveniences, the lucrative opportunities in the French market certainly make this process worth it. And look at it this way; if it was easy, your competitors would already be here.
If you opt for a business framework that is subject to private income tax (as against corporate tax), a personal bank account could be advisable. However, if your business framework is subject to corporate income tax, it would be advisable to have a corporate bank account.
Could you tell us a bit about corporate tax in France?
If you have a permanent establishment in France (a fixed and registered location that carries out business in France), unlike other countries, only the sources of income that are linked to this Permanent Establishment are included in the calculation of the company’s corporate tax.
Income generated by the foreign (UK/US company) is exempt. The corporate tax rate is thus 33%. The tax year is from 1st January to the 31st December. So, for the tax year 2017, the final corporate tax deadline is 15th April 2018. This must be paid online.
We’ve heard a lot about the French FEC File, could you tell us more about it?
For most businesses registered in France, you are now required to produce a FEC file (computerised accounting entries file). In the event of a tax audit, this file must be provided to the tax auditor at the first meeting. The FEC file must be provided from the fiscal year 2014. It should be issued by your accounting software and must be compliant with French accounting standards, and be in French. Failure to produce a fully compliant FEC file can result in a fine of either €5000 per audited year, or 10% of the amount reassessed by the French taxman, whichever figure is more.
Are there any tax incentives available for businesses in France?
France has some of the most generous tax credit schemes and government subsidies in Europe, making it the ideal place for start-ups and small companies to invest.
The JEI (Young Innovative Company) status and the CIR (Research Tax Credit) allow firms to enjoy significant tax exemptions such as 30% of all R&D expenses up to 100 million euros. These scheme is so lucrative that Google and Microsoft have decided to set up their R&D (Research and Development) centres in Paris. We recommend introducing a ruling request for R&D credit tax before starting your project.
Could you tell us about the Inpatriation Scheme?
The “régime d’impatriation” aims to encourage country managers and other international employees to come and work for French firms. This scheme offers significant income tax exemptions, wealth tax exemptions, and social contribution exemptions. So, it’s definitely work looking into this to see you if you meet the conditions.
What about paying social security contributions?
If you are a foreign company without an establishment in France, you are considered a non-resident employer and if you want to recruit an employee operating in France, you’ll have to pay French social contributions.
The French administration requires a local contact to reply to any correspondence related to social declarations. You can designate a contact residing in France to fulfil your reporting obligations and pay social security contributions due for your employees in France.
As an employer, you may appoint a representative to fulfil these social obligations. This representative will be personally liable for the prompt declaration and payment of the amounts due. It is worth noting that in France, the non-resident employer cannot appoint an employee of his company as a representative.
How should non-residents claim back their tax?
In case of an error in the main base or the actual calculation of taxes, the taxpayer or their representatives can submit a claim to the administration in order to obtain a compensation.
The Article R*196-1 of the Tax Procedures Book foresees a compensation period that expires on December 31st of the second year after the collection starting date (date that is stated on the tax notice) for the income tax or for the notification of the assessment notice (l’avis de mise en recouvrement – AMR) for the wealth tax. If you receive your income tax notice in September 2017, you can make a claim until 31 December 2019.
Any last nee-to-know information on doing business in France?
Have the right supporting documents ready, and in French (this includes, all official personal documents, financial forecasts, balance sheets for UK entity (if any), information on all stakeholders, company strategy, etc.)
For documents that need to be translated into French, Maupard offers a translation service.
The French administration is very formal and if you lack the requested supporting documents, it can be considered disrespectful, let alone insufficient. Being prepared will add to your competitive advantage and anticipating administrative delays will help you meet your own deadlines. The market can be competitive - understanding regulations can often be the difference between success and failure.
As long as you have official documentation, not being French is not a disadvantage in itself. France is keen to be considered an international destination for business. The advantage of being French is that you are more likely to be familiar with the numerous required procedures and organisations.
Also, on a practical level, being/speaking French, you will have no problems communicating with the relevant administrations.
Maupard Fiduciaire are an English-speaking business advisory boutique based in Paris. They specialise in helping SMEs and small businesses do business in France and have been operating in this sector for more than 30 years. They offer a range of business development products, as well as accounting, tax advice, payroll,l and audit services. As cross-border business specialists, they aim to provide everything you need to do business in France, all in one place.
To visit their website CLICK HERE.