France Tax & Business Guide - Deloitte

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Basic facts
Population 60.9m Inflation 2.0% (2006)*
Main languages French GDP per head US$36,675*
Currency Euro (ƒ) GDP growth 2.0% (2006)*
Economic communities European Economic Area, EU, WTO, OECD
GDP sources 2.2% agriculture, 20.6% industry, 77.2% services
*Economist Intelligence Unit estimates.
Political environment

France is governed by the constitution of the Fifth Republic, under which the president (currently Jacques Chirac) and the prime minister (Dominique de Villepin) share executive power. The president is elected by universal suffrage for a five-year term.

The centre-right government headed by the Union pour un mouvement populaire (UMP) has a large majority in parliament. New elections are due in 2007 (presidential in April-May and legislative in June).
Foreign trade and investment
Exports US$482.0bn (2006)* Imports US$530.2bn (2006)*
*Economist Intelligence Unit estimates.

Leading export markets: Germany, Spain, the UK and Italy.

Major exports: Intermediate goods, capital goods, and motor vehicles and transport equipment.

In an otherwise open economy, agriculture and Ïcultural productsÓ remain protected.

Foreign investment is welcomed in most industries, in particular investment that creates jobs, contributes new technology or increases exports.
Business and financing
Business forms Joint stock company, limited liability company, branch

The company form most frequently used by large companies is the joint stock company (soci»t» anonyme, or SA). Large groups also use a recently introduced form of stock company, the SAS (soci»t» par actions simplifi»e). An SAS may have only one shareholder, and may have flexible governance policies and efficient capital control rules. Smaller firms, particularly sales subsidiaries, often use the limited liability form (soci»t» á responsabilit» limit»e, or SARL). An SARL with a sole shareholder is known as an entreprise unipersonnelle á responsabilit» limit»e (EURL). A subsidiary SA or an SARL is the usual form of business organisation for a foreign investment.

Foreign companies sometimes use branches for headquarters or start-up operations, but these are unlikely to be eligible for state aid and tax breaks.

Paris, the capital, is the financial centre.
Labour environment
Unemployment rate 9.1% (2006)* Minimum wage ƒ1,254.3 (monthly)
*Economist Intelligence Unit estimate.

The working week is 35 hours.

Trade union membership is 8Ò15% of the workforce.

Foreigners face no employment restrictions, provided that they hold the necessary residence and work permits.
Taxation
Corporate tax
Main rate 33.3% basic rate, plus social surcharge of 3.3% on tax liability exceeding ƒ763,000

Resident and non-resident companies are taxed on profits arising in France. The corporate tax rate for most companies is 33.3%. A 3.3% social surcharge also applies when the global corporate income tax charge exceeds ƒ763,000, yielding an overall effective corporate tax rate of 34.43%. A minimum tax applies. Small and medium-sized companies are subject to a reduced rate.
Individual tax
Progressive rates up to 48.09%

Resident individuals are taxed on worldwide income; non-resident individuals are taxed on income arising in France. A person is resident if his/her home or principal abode is in France, the employment is in France (apart from temporary employment) or the centre of economic interests is in France. Personal tax rates rise progressively to 48.09%. Foreigners arriving to work in France can benefit from a special tax regime for expatriates, subject to certain conditions. As from 2007 (relating to assessment year 2006), the top rate of individual income tax will be reduced to 40% and a 60% ceiling on the total amount of tax (including the individual income tax, net wealth tax and local taxes) paid by individuals will apply.
Capital gains
Generally taxed as income, but preferential rate may apply

Capital gains derived by companies are taxed as income at the normal rate (33.3% plus surcharge); a special regime is applicable for the disposal of shares of a 5%-or-more-owned subsidiary where the shares have been held for at least two years. For fiscal years starting on or after January 1st 2007, such gains are 95%-exempt (except for participations in real estate companies); 5% of the gain remains taxable as ordinary income, the effective tax rate on the capital gain being 1.72% (5% x 34.34%).

Taxable capital gains of individuals include gains from the sale of immovable property, land and securities. Gains from real property that exceed the annual exemption are taxed at an effective rate of 27% and reduced by 10% for each year of ownership beyond the fifth year. Gains on the sale of a principal residence are exempt. Gains from securities are taxed at an effective rate of 27%, provided the total amount of the sale exceeds ƒ15,000. As from 2006, the taxable capital gain on securities is reduced by 1/3 for each year of holding, starting from the sixth year of shareholding. (As the first holding period starts January 1st 2006, so the first full exemption will be possible as from 2015.)
Indirect tax
Standard rate 19.6% Other rates 5.5%, 2.1%

The standard rate of value-added tax (VAT) is 19.6%. A lower rate of 5.5% applies to most food and agricultural products, water, books and newspapers, hotel rooms and medicines. A preferential 2.1% rate applies to certain medicines reimbursed by the social security system. Exemptions include financial and insurance services, medical supplies, education and training. The registration threshold for VAT is ƒ27,000 or ƒ76,300, depending on the type of business.
Tax administration and compliance
Tax year Corporations: accounting year; Individuals: calendar year

Companies must have a financial year-end in each calendar year. The tax year must last 12 months, calculated by reference to the taxable income of the previous year. Companies pay four instalments on account of current-year corporate tax liabilities. The final payment of tax is due with the self-assessment tax return, within three months of the end of the tax year. Employment income of individuals is taxed by advance payments of tax.
Additional tax information
Withholding taxes Dividends 25%, Interest 0%, Royalties 33.33%. Rates may be reduced under the provisions of an applicable tax treaty or under EU directives.
Tax treaties France has more than 110 tax treaties.
Dividends Taxable except when the participation exemption applies for companies; for individuals, only 50% of dividends are taxable.
Revenue protection There is transfer-pricing, thin-capitalisation and anti-tax-haven (CFC) legislation.
Groups Tax consolidation is possible for corporate income tax purposes.
Incentives Research and development; regional; overseas departments.
Other taxes Annual minimum lump-sum tax, Branch profits tax (not applicable for companies located in the EU), Construction tax, Customs and excise duties, Insurance tax, Inheritance and gift tax, Local business tax, Net wealth tax, Registration duty, Payroll tax, Real estate tax on non-resident entities.