France

(ii) Societe en nom collectif (SNC): This is basically a general partnership where all parties are jointly and severally liable for debts with profits being ascribed pursuant to the partnership agreement. This structure, as with an SP, may result in a greater risk to a wealthier partner than to a poorer partner. Further, unlike an SP an SNC is a separate legal entity which must register with the commercial court, always inform third parties of it's existence and maintain it's own accountancy records

(iii) Societe en commandite (SC): This is the French equivalent to an American limited partnership with both general and limited partners. A general partner is one who manages the limited partnership and is fully liable for his actions. A limited partner, on the other hand, has no liability other than the sum(s) that he agreed to invest in the partnership. Apart from the above, the requirements and obligations of an SC are almost identical to those of an SNC

(iv) Societe civile: These are partnerships which are normally fiscally transparent and are used for non-commercial real estate acquisition and management, professional, agricultural and research bodies. For fiscal transparency, S.I 655 of the code generale des impots (see also sections 1845 -1871) must be satisfied. The specific requirements being: That the activity in question is only carried on in France and, that the modis operandi is not of a commercial nature which, of course, does not exclude private property acquisition and, that no services will be supplied to third parties other than specifically related to the
performance of the non-commercial activity. The registration requirements and legal obligations relating to a societe civile are closely related to a Sarl but rather than two shareholders there must be two partners. There are no specific capitalisation requirements and equity investments (be they in cash or kind) will be represented by parts d'interet (de facto share representations), which will be evidenced in the partnership agreement. Of particular interest to foreigner partners is the societe civile immobiliere (SCI) which, because of the fiscally transparent nature of these vehicles, may circumvent local corporation and inheritance taxes, the legitima portia principle and the capitalisation requirements of a Sarl but unfortunately not capital gains tax

Registering a Branch of a Foreign Company in France

In France, the branch of a foreign corporation registered with the commercial court, is called a succursale. In essence, it must satisfy the same criteria demanded of a local Sarl save that: There are no minimum capitalisation requirements. An important consideration country with the relatively high capitalisation demands of France and, there are no specific auditing requirements as there can be for larger Sarl's, and, the succursale is not a different legal entity to it's mother company. Obviously, all local
French legal criteria must be satisfied but it should be noted there might be additional tax treaty and accountancy benefits.

INVESTING IN FRANCE WITH A UK COMPANY THE ADVANTAGES

In general, the establishment of a United Kingdom company with a registered 'branch¹ (a succursale) in France can afford significant benefits over and above a society anonyme (SA) or a societe a responsabilite limited (Sarl). In particular, a UK company is not subject to the 'special branch tax* of 25% levied over and above the normal corporate tax rates (see above) which may apply to other countries where there is no similar government protocol. In synopsis, a British succursale will have the under mentioned advantages

(i) Branch operations in France will be subject to the same standard corporate tax rates applicable to indigenous entities. There are no branch withholding taxes and,

(ii) the cost of registering a British limited company is a fraction, even after additional special costs are deducted (see below), of those relating to a French company and,

(iii) branches of foreign companies are only subject to the capitalisation requirements applicable in the mother country. In the case of the United Kingdom, a single subscriber company can be capitalised with as little as UK£1,00* and,

(iv) branch registration fees are significantly lower than those for either a SA or Sarl and,

(v) branches do not have to satisfy the normal requirement that all board and shareholder meetings are minuted and,

(vi) there are no annual auditing requirements although proper company accounts must be maintained for general tax assessment purposes. The rules and regulations relating to such records are very similar to those for a Sarl. Most importantly it should be noted that a foreign company can, by registering a succursale, avoid the requirement to submit annual audited accounts (applicable to all medium to large undertakings) which would automatically apply if it was decided to register either a Sarl or an SA.

REGISTRATION PROCESS: To register a succursale for a British company in France it is normally only necessary to lodge a certified translation of a pre-apostilled Memorandum & Articles of Association with the Tribunal de Commerce. In addition, details of the local gerant (manager) will be required so that a carte de commerant (commercial identity card) can be issued. Legally, the French branch, apart from any specific requirements required to satisfy French law, will be governed by British common law principles whilst the succursale turnover will be shown in the British company's annual accounts. Of course, the exact taxable liability in each country will be governed by the British/French tax treaty but in general any income earned in France will be subject to French taxes

 As already indicated the French system of taxation is basically territorial therefore it is often possible that income earned abroad can be protected from French taxation by establishing a foreign 'branch' or 'subsidiary', hi general, because of French anti-avoidance provisions, these entities should not come from a stigmatized jurisdiction and should be able to demonstrate bona fide local management and control. The exact choice of jurisdiction will depend on the type of business being conducted and what if any tax treaty benefits are being sought For example, it would not be advantageous to establish an entity in a country, which does not have, or has an unfavourable treaty, with the income supplying jurisdiction. If this was the case, then even if the branch or subsidiary was subject to low taxes, such benefits could be mitigated by high withholding taxes. In respect to the question whether a branch or subsidiary should be established this will often depend on the applicable tax treaties and in particular if branch activities will be covered by the 'host' country's treaty network. Finally, before making an election, the image and not only the legality of the structure should be considered. For example, a French computer company may find it legally only necessary to establish a Cypriot company (which has an excellent treaty network) to process orders from Eastern Europe. However, for both image reasons (there being few Cypriot computer companies) and because the French/Cypriot tax treaty discriminates against Cypriot offshore companies* it may be better to use an Irish non-resident company as a respectable trading front with a 'branch' in Cyprus. The branch of the Irish non-resident company in Cyprus (in most cases) still being able to avail of the favourable tax treaties negotiated by Cyprus with Russia and Eastern Europe.

INTEREST & DIVIDENDS: Dividends are received net of a deduction for tax. This tax credit is deductible when calculating income tax payable.

RENTAL & OTHER INVESTMENT INCOME: Rental income rules apply for royalties, with the exception of royalties from industrial income which are taxed at the rate of 16%, plus social contributions at 7.5%

LOSS RELIEF: The general rule is that losses from one category of income may be offset against profit in another category. However, restrictions apply to rental losses, professional losses, and capital losses on quoted stocks and bonds. Losses may be carried forward for 5 years to be offset against future profits

SOCIAL CHARGES: Social charges are payable at a rate of 18% to 20% (depending on retirement fund contributions) on salary, bonuses and benefits in kind. These give an individual the right to a pension, unemployment benefit, daily compensation in the event of disruption to professional life, family allowance, full professional accident coverage and partial/total reimbursement for medical treatment. In addition, it is usual for an employer to augment the social security system by making contributions into a mutual fund, an insurance company, which will make up any shortfall in state reimbursement of medical expenses. The rate for employers is 35% to 45%.

GENERAL SOCIAL CONTRIBUTIONS: Following a change in legislation, since 1 July 1993, an additional social contribution is charged currently calculated at 7.5% of 95% of gross salary (defined as including taxable benefits in kind and bonuses). In addition, for passive income and capital gains, a 1% surcharge is also added. Unlike other social charges, the CSG contribution is not deductible when calculating taxable income.

DIRECTORS:Directors* fees are subject to social security and CSG contributions if the director is either the president of the company or general manager (and a member of the Board of Directors) and has a contract of employment or is an appointed representative

CAPITAL GAINS TAX: Capital gains are taxed at a rate of 16% plus CSG contributions of 7.5%. The first €3,000.00of gain is exempt from tax. Gains on the sale of listed and unlisted shares, bonds or related funds are taxable if the total proceeds are greater than €150,000.00. If total proceeds from money market or mutual fund investments exceed €90,000.00 capital gains are payable. Special rules apply to self-employed tax residents. For self-employed tax residents engaged in commercial activities, long-term capital gains from the disposal of a company's assets are taxed at 16%, plus social charges of 7.5%. For self-employed tax residents engaged in professional activities, long-term capital gains from assets used in their professional activities are subject to the same treatment. Self-employed farmers use the same rates but special rules do apply. There are also some exemptions for small business and in other particular circumstances.

 

REAL PROPERTY AND SHARES IN REAL ESTATE COMPANIES: The sale of a principal private residence is generally exempt from tax. Gains from a second residence may also be exempt if inter alia they do not own the principal private residence (see French Property Acquisition pages 109 to 114). If no exemption applies, gains from the sale of real estate held for two years or less are taxed as ordinary income. If held for greater than two years, the gain is calculated by using an inflation adjusted price and then reduced by 6% for every year over two years that the property has been held. To calculate the tax payable in this case, one fifth of the gain as calculated above is added to the tax payers* income. The tax payable, calculated as described above, is assessed including and excluding the taxable gain. The difference between the two figures is then multiplied by five to give the total tax payable on the gain

INHERITANCE TAX: Generally, if the deceased was resident in France, tax is payable on all world-wide net assets. For non-residents, only French assets are taxable. In France, as in most other civil law countries there is 'forced heirship¹. However, as has been explained in the French property acquisition chapter it may be possible to circumvent these problems with correct planning

PERSONAL IT ALLOWANCES: The rate of tax depends on the relationship of the recipient to the deceased:

 

The rules for residence for social security purposes are different to those for income tax, if the person is a national of a country with whom France has concluded a double tax treaty. Often it is the nationality, which determines residence, especially for EU nationals. Since French rates of tax are generally lower than in the UK, but social security rates substantially higher, tax savings may be achieved by being resident for income tax purposes but non-resident for social security. However, the substantial benefits of the French social security system will be lost

There are certain types of income, which are exempt from income tax. A particular example of this relates to a French resident working for a French established employer but who works and gets taxed in a foreign country. This income may be exempt if: the employee was engaged in construction, engineering, exploration or extraction for more than 183 days in a 12 month period and, the employee can prove that tax paid in that country was at least 2/3rds of the tax that would have been payable in France. Bonuses paid for foreign duty for this class of person may be exempt even if the above conditions are not satisfied.

(ii) NON-CONTROLLED: Where a French entity remits income, no matter the reason - i.e. in trade, dividends, interest or royalties - to a jurisdiction where the tax rate is less than two thirds of the existing French rate (currently 33.3%) then again such payments will not automatically be offset against French taxable income (see Article 238A CGI). Thus, a French company dealing with any low tax jurisdiction, but in particular a tax haven jurisdiction, even if it is totally innocent, must be ready to defend it's disbursements. In fact, so successful has Article 238A been that many French companies, especially larger entities, will not deal with de jure 'havens' because of the potential problems with the fiscal authorities.

The raison d'etre behind the said legislation is merely to try and prevent the more obvious and simple methods of tax mitigation. Methods which most tax consultants would deem to be 'sailing too close to the wind' of tax evasion. However, the job of the French tax inspector becomes far more difficult if more judicious jurisdictions are employed. Certainly, 'front line' tax havens should never be used whilst if treaty shopping is being conducted it is probably best to consider, if possible, other member states of the European Union especially 'cohesion' states such as Portugal/Spain or the more sophisticated and developed tax planning jurisdictions such as Ireland, Luxembourg or the Netherlands, all of which have received approval for their incentives/company structures. In such circumstances it would be politically difficult for France to question such transactions given it's own state policy and the creation of DATAR.