Opening a permanent establishment in France: SAS or SARL
In recent years, France has taken measures to increase its appeal to foreign investors.
Various corporate tax credits, especially in the range of research, and a liberalisation of French business have changed the commercial landscape. Introduction of new company regulations has made business structures more flexible (especially with the SAS form), incorporation and dismantlement easier and cheaper. France’s long-established assets such as excellent infrastructure, a skilled workforce and a highly developed banking sector has created more welcoming business environment, meaning that there has never been a better time for you to export your business to France.
A key decision to be made when incorporating an entity in France, is to choose the most convenient type for your business and its requirements. Making the wrong decision can lead to costly and time-consuming formalities, so in this article, we’ll explain the primary characteristics of the two entities, which one to choose, and why.
SAS (Société Par Actions Simplifiée)
This is a relatively new type of entity in France and has been increasingly popular with incoming investors (it is most similar to an Ltd. in the UK and an LLC in the USA). An SAS can be setup by one or several individuals or entities and shareholders only bear the cost of the company’s losses up to their cash contribution to the company.
- Social status of the director: The Chairman of the SAS, whether a partner or not, is subject to the general social security system if they receive renumeration
- Tax status of the business: The SAS is subject to corporate tax. However, there is the possibility of subjecting the SAS to income tax for a temporary period of 5 years
- Visibility of the company: An SAS reflects the image of a commercial company
- Management: Rules of operation can be freely described in the bylaws
- Audit: Statutory auditor required if the SAS controls the equity of one or more companies, if the SAS is itself controlled by one or more entities or if 2 of the 3 following thresholds are exceeded:
- Turnover over €2,000,000 excluding tax
- Balance sheet total exceeding €1,000,000
- Average number of employees above 20.
- Dividends: Submitted to some social contributions, but not to all of them; therefore the rates is much lower than that for the SARL
SARL (Société A Responsabilité Limitée)
The SARL, a Limited Liability company, is a very common legal form for companies in France. It has existed for a long time and therefore has a tradition as the default choice for start-ups in France. If there is one sole shareholder, they are known as the “Associé unique” and their company is considered as a EURL (Entreprise Unipersonnelle à Responsabilité Limitée). If the company is an EURL and the sole shareholder is an individual, its revenues will be taxed through personal income tax.
It is a much more rigid structure than the SAS and is suited to very small businesses, rather than to SMEs looking to expand and evolve. Shareholders may be required to pledge personal assets as collateral for start-up loans.
- Social status of the director: The managing partner is subject to the self-employed persons scheme (TNS) if he/she is a majority shareholder.
- Tax status of the business: SARLs can opt to be subject to income tax for a maximum temporary period of 5 years (or unlimited in the case of a family limited liability company) or subject to corporate tax.
- Visibility of the company: The SARL tends to give the image of a small family company
- Management: Rigid operating rules, determined by the French Commercial Code.
- Audit: Statutory auditor required if 2 of the 3 following thresholds are exceeded:
- Turnover over €3,100,000 excluding tax
- Balance sheet total exceeding €1,550,000
- Average number of employees above 50.
- Dividends: Subject to social security contributions as a salary
In the majority of cases, we would recommend an SAS rather than an SARL due to the flexibility of the governance rules, the efficiency of the social contributions regime and the bank liability. As a incoming investor, you may need support on the ground from people who are French, who understand the set-up process and have worked closely with the French administration for years. Based in the heart of Paris, with nearly 30 years of experience behind us, we can provide the starting support that your commercial project in France needs.