Corporate tax in France As a foreign company establishing itself: under which conditions are you subject to corporate tax in France?
If you are looking to expand your activities in France, you will find yourself subject to corporate tax if you have set up a Permanent Establishment.
The sources of income that are subject to corporate tax in France are: on the one hand, those generated by “business carried out in France” , and on the other, those that fit the criteria set out in the international Non-Double Tax Treaties.
The sources of income listed in these treaties are those that are generated by commercial or industrial activities that fit the criteria of the term “Permanent Establishment” . These are:
- Continuity: this activity must be carried out on a regular basis. Consequently, any installations at a fair or exhibition do not apply.
- Autonomy: this activity is carried out independently. In this case, a purchasing or sales office that solely executes orders from the foreign company does not apply.
- Source of income: the activity must generate income. Premises that simply store or display goods do not apply.
However, even though the tax treaties define a PE as a “permanent premise of business”, it is not necessary for the activity to be conducted via material means. An employee alone, that is dependent on the foreign company, can be considered as an establishment if he/she has the power to engage the company in his/her name (he/she is authorised to negotiate all of the elements within a contract, he/she can hire staff…) all within the framework of his/her core mission. On the other hand, construction sites open for more than 12 months are an exception to this fixed premise principle.
Unlike other countries, our French domestic law states that income generated from business conducted outside of France is exempt. Consequently, only the sources of income that are linked to/traceable back to the Permanent Establishment are included with the calculation of the company’s corporate tax. Income generated by the foreign company is not included in accordance with the exemption principle.
The PE is subject to the same conditions as those that apply to resident companies, with some particularities (additional tax on income generated by foreign companies that are not a member of the EU, the potential to deduct amounts paid to the headquarters of the foreign company, etc.). Therefore the following can be applied:
- A corporate tax rate equal to 15% for income between 0 and 38,120 € and 33% for income above 38,000 €.
- The same tax credits (Research Tax Credit, Commercial Prospection Credit, Competitive Corporate Tax Credit, etc.), various abatements and deductions (in the case of donations, sponsorships, extra-depreciation, etc.).
In conclusion, a premise is not considered as a PE as long as the activity carried out there is limited to auxiliary or preparatory activity conducted on behalf of the foreign company (research, scientific research of a particular market, advertising without contact with the clientele, purchase of goods, etc.) and as long as they are dependent and not distinguished from the foreign company.
Further to this, it is important to note that a PE is advantageous in the following ways: firstly a PE makes it possible to start business in France without being detected by competitors due to the fact that no financial statements have to be published, secondly the PE is still eligible for an R&D credit tax or JEI status just like any other innovative company, and finally, a PE provides the parent company with a higher level control over the IP implemented in France, if any.
If you are currently looking to set up a low business profile in France, and are therefore thinking about incorporation as most businessmen would, it is important to note that setting up a Permanent Establishment could actually be the most convenient and discreet option for you. Here at Maupard we would be more than happy to advise you on this matter and show you the way forward.
Do not hesitate to contact us via telephone +33 (0) 1 53 93 94 20 or [email protected]. Our team of experts will happily assist you with any queries you might have.