Liaison Office in France
The push for a pro-business France is set to continue into 2018, with Macron delivering a speech in a mix of English and French at the World Economic Forum. He declares that France is a strong contender in the global market with a focus on “big innovation”.[i]
Wealth tax has been slashed by 70%[ii] in 2018, a clear move to attract entrepreneurs from across the world. A survey in late 2017 of 156 executives of U.S. groups’ French divisions “showed 52 percent were now planning to add more staff in France over the next 2-3 years, compared with only 21 percent a year ago”[iii], a clear demonstration that France’s policies are working. These incentives, coupled with a tumultuous political landscape in the US, result in many looking towards France as the next place to expand their business. The pro-business environment can benefit any foreign entrepreneur, but the choices one faces may be confusing when starting out in France.
While it may seem that the logical first step to setting up a successful business is to incorporate, this may not be the case. When a business incorporates in France, its three defining characteristics are that the business has a permanent establishment, it is entirely autonomous from the parent company outside of France, and it automatically invests in capital share. As a result, there are numerous financial obligations that companies have to comply with in order to incorporate. Often, businesses that lack experience in the French tax system struggle with the large quantity of bureaucracy that accompanies these obligations. The business, once incorporated, must pay corporate tax, VAT, and CET (property tax). Further, they are subject to French labour law which is typically more costly to the employer than in the UK or United States.
Of course, all of this is appropriate if you are moving your entire business to France, but are certain you want to get your operations fully up and running immediately? Without any experience of the French market, are you certain of how your business will function within it? If it is the right model for the French market? Whether it will succeed? Incorporating your business is an expensive choice if you are unsure about the above.
The option of opening a liaison office instead is certainly worth considering, as the risks of incorporating do not apply. A liaison office serves a very different purpose to incorporation. It is not a permanent establishment; it is a fixed place of work with no commercial activity carried out in it. This means it does not run on a profit. The financial obligations of a liaison office are far fewer than when incorporating- no corporate tax, no VAT, no CET. To many, this can be a weight off their shoulders when dipping into the French market. While the business must still comply with French labour law, and pay local property tax, setting up a liaison office ultimately requires a significantly smaller amount of capital.
The benefits of establishing a liaison office for your business are exactly what incorporating cannot offer. Marketing is the primary tool the liaison office offers a business from abroad. The chance to test the market in an analytical manner is invaluable for businesses that are inexperienced in French business and culture. The office can provide the parent company with data and insights about the French market, and how the parent company could successfully enter it. Moreover, the liaison office can conduct market research analysis on behalf of the parent company, allowing the international business to attain in depth and personalised knowledge on how best to proceed in France. Advertising directly from the liaison office can also increase the company’s visibility, an important part of establishing your brand from abroad.
Certainly, a business with the aim of establishing discreetly must first set up a liaison office. But a soft entry into the French market is not solely confined to those looking for minimal visibility. If you are interested in the idea of expanding into France, but you are not 100% sure about the relevant steps to take, testing the market with a liaison office is the perfect start.
Whether this article has clarified that you are ready to incorporate, or you now believe a liaison office fulfils your needs, Maupard is here to help. With 30 years’ experience, we provide expert accounting services that will help you expand your business or start-up into France in an efficient, quality, and personal manner.