France is one of the biggest markets of the European Union. According to statistics, France has a nominal GDP of 3.1 trillion Euros, holding the 7th rank in the global GDP growth index rank. France’s GDP quantification indicates that it is an economically progressive country.
If you decide to expand your business in France by setting up a subsidiary, you must consider multiple factors. For example, you must select the particular type of subsidiary that fits your business needs, ensure legal compliance with the country’s laws, and hire employees, among other things.
This detailed guide will walk you through the process of setting up a subsidiary in France. We’ll also talk about the taxation of foreign subsidiaries in France, their benefits, and the setup process.
What are the Types of Subsidiaries in France?
The subsidiary system in France offers multiple entity options to handle the parent company’s operations in France.
A subsidiary business in France can be of the following types:
French joint-stock company (société anonyme – SA)
This company requires a minimum of 7 shareholders. The company founders can either be individuals or legal entities. The initial share capital for a joint-stock company is 37000 Euros which the joint-stock company can later extend to limited liability between shareholders.
French limited liability company (société a responsabilité limitée – SARL)
The incorporation of an LLC company requires only two shareholders. No more than 100 legal entities or individuals can form this type of company in France. It does not demand a minimum share capital and is suitable for small to medium-sized businesses.
Simplified stock corporation (société par actions simplifiée – SAS)
This company type is similar to a joint-stock company. The only significant difference is that here, shareholders must appoint a President. SAS requires only two partners for company formation.
French sole proprietorship (enterprise individuelle)
This company type has a sole owner/founder. A sole proprietorship is the best option for individuals wanting to exercise complete control over their business. All liabilities and obligations will fall on the business owner. No minimum share capital.
Commercial partnership (société en nom collectif – SNC)
At least two partners are required per the provisions of a partnership business. The company liabilities are on these two partners to the extent of their personal assets. No minimum share capital is required. The partners must conduct all commercial activities under the company’s trade name.
Branch office
Foreign companies can set up a branch office in France. This company type is entirely dependent on the parent company. The parent company applies for the registration of its branch office to the trade register in France. The only difference between a branch office and other company forms is that the parent company has complete control over the branch office. Hence, it will also bear all the liabilities. A branch office is ideal for investors who want to invest long-term in France.
How to Set Up a French Subsidiary?
While incorporating a foreign subsidiary in France, you must consider numerous essential factors. The general guidelines for setting up a subsidiary in France are –
- First, you must choose the company type you want to set up. At this stage, decide whether you would like to have trade agreements or trade relations.
- Decide the company name and check its availability on Institut National de la Propriete Industrielle (INPI) website.
- Register and trademark your company name and logo to prevent other businesses from using your business name or logo for commercial purposes.
- Open a commercial bank account to deposit the share capital and conduct business transactions.
- Set up a physical workplace in France by renting or leasing an office space.
- Publish the incorporation of your French company in the Official Gazette.
- Register your company for social security, taxes, insurances, loans, etc.
- Submit all the necessary documents to the Centre de Formalities des Enterprise.
- Get your company books stamped in the commercial court.
Benefits of Setting Up a Subsidiary in France
Now that you know how to set up your subsidiary in France and its tax regime, here are a few benefits of a subsidiary company in France:
A flexible form of business
A French subsidiary is independent of its parent company. Thus, the subsidiary company’s operations need not adhere to the parent company’s approval.
Tax advantages
The French government treats subsidiaries just as any other new company or startup requiring financial assistance. It offers multiple tax incentives to subsidiaries.
Attractive business location
Since France is one of Europe’s biggest markets, foreign investors setting up subsidiaries in France get plenty of business expansion opportunities.
Affordable labor cost
The labor cost in France is comparatively lower than that of a few other European Nations. Plus, it has a skilled and qualified workforce.
No requirement for share capital
Except for a setup of a joint-stock company, there is no minimum capital requirement for any other company types in France.
Asset protection
Your personal assets are not linked to the company assets, and hence, they remain fully protected. The business must only use the company assets per the liability of the shareholders.
Freedom of operations
The subsidiary company does not compete with its parent company. Hence, there is no extra pressure on the subsidiary company to perform at par with its parent company.
Documents to Prepare When Opening a Subsidiary in France
To incorporate a foreign subsidiary in France, you must submit the appropriate documents to the trade register.
Here is a checklist for the incorporation of a foreign subsidiary in France for foreign investors planning to set up a subsidiary in France:
- Resident permit
- Personal information documents like passports and IDs
- Duly filled forms issued by the trade register
- Memorandum of articles of association (for a ‘Company’)
- The partnership deed or agreement (for partnership firms)
- Information about the company directors (for SAs, SARLs, and SAS companies)
- A bank account statement showing the deposit amount of the share capital
- A registered lease contract or domicile contract
- Bank certificate proving the paid-up capital
What Business Forms Can French Subsidiaries Take?
In France, foreign subsidiaries may be joint-stock companies, LLCs, simplified stock corporations, sole proprietorships, commercial partnerships, and branch offices.
The most common type of foreign subsidiary in France is the private limited liability company, also called the French SARL. Since this business entity demands no minimum share capital and can be formed by only two members, it is an excellent option for expats entering the French market for the first time.
However, the choice of the subsidiary entity depends on your business needs. So, before setting up a subsidiary in France, you should visit the INPI website and understand the general and legal requirements for different business forms.
France Subsidiary Laws
For subsidiary company formation in France, you must follow the domestic laws, including –
- You require at least two members or a corporate entity to form a subsidiary.
- The minimum share capital must be at least one Euro
- You must appoint a manager for your subsidiary company who must be a French resident or an EEA resident.
- The maximum capacity of the shareholders of the company will be 100
- The liability of the shareholders will be limited to their capital contribution
- You must acquire a resident permit and a work/business visa.
Going by these legal requirements, you can understand that the subsidiary laws in France are pretty liberal and pro-business.
Post Incorporation Compliance
In France, it is not compulsory to incorporate subsidiaries from a legal point of view, yet it is always recommended to incorporate your subsidiary company in a foreign city. After incorporation, you wish to deal with the subsidiary company’s proceedings, you can decide.
Suppose your subsidiary fails to generate sufficient profits and desired results. In that case, the parent company’s loss will be limited to its investment only, provided the parent company did not take up the responsibility/guarantee for any contracts and loans of the subsidiary.
After incorporating your subsidiary, you must prepare separate financial statements. However, you must ready the consolidated financial statements at the end of each accounting period.
Taxes on Subsidiaries in France
France provides affordable tax schemes to foreign companies. Here are the details about the taxation of foreign subsidiaries in France.
Corporate tax
For non-EU companies, the withholding tax is 25%. This tax is levied on the company’s total income and net profit. For the limited liability companies, the minimum amount is EUR 3,000, while for the joint-stock corporations, it is EUR 1,750.
Value-added tax (VAT)
Every French company is subject to a 20% Value Added Tax or VAT. However, for sole traders and partnerships, there is a threshold of EUR 30,000. Traders earning less than EUR 30,000 are exempt from VAT but must pay income tax between 23% to 50%.
Withholding tax
Withholding tax is levied at 25% for interest earnings of a company, along with any income sourced from security earnings.
Tax Incentives for Businesses Setting Up a Subsidiary in France
France values foreign investors and ensures that subsidiary businesses in France do not need to bear the burden of double taxation. Thus, you must know about these tax incentives before your subsidiary company forms in France:
Parent subsidiary regime
Per the French constitution’s recent amendments to the parent-subsidiary regime, foreign subsidiaries can claim up to 95% to 99% exemption on dividend receipts.
Group corporate tax
Any two foreign companies can group to pay the corporate tax. The only condition is that the parent company must hold more than 50% of its subsidiary company’s shares.
Other Important Considerations
Setting up a subsidiary in France is one of the most common options for long-term investment plans. As mentioned earlier, a limited liability company is the most appropriate form of a subsidiary company for foreign investors. An LLC is entirely separate from the parent company, and not liable for its (subsidiary company) debts and obligations.
When operating a subsidiary in France, it is crucial to stay compliant with the local laws to avoid legal hassles. Also, remember that the incorporation and registration process may take months to complete, delaying your business operations. After incorporation, you must also hire employees for your French subsidiary and manage them effectively for optimal revenue generation. Thus, it’s best to hire a legal consultant or a global PEO–EOR firm to manage your subsidiary company’s HR and compliance requirements.
The incorporation of a foreign subsidiary in France involves certain costs. So, be prepared to accumulate the requisite funds through proper budget planning.
How Multiplier’s Employer of Record Can Help You Hire & Expand in France?
The incorporation of a subsidiary company in France offers several advantages. It gives you a global market platform for overseas business expansion. However, the setup process involves much paperwork following a lengthy registration procedure. That’s where Multiplier comes in.
As a global EOR firm, we can shoulder the responsibilities of documentation, thus, allowing you to focus on the more pivotal business aspects. Our experts can help you onboard employees, even without setting up a subsidiary in France. We can handle employee payroll and manage your international team(s).