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France country profile - 2019

France country profile - 2019

Key tax factors for efficient cross-border business and investment involving France.

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EU Member State

Yes.

Double Tax Treaties

With the following countries, territories and jurisdictions:

Albania Ethiopia Malawi Serbia
Algeria Finland Malaysia Singapore
Andorra French Polynesia Mali Slovekia
Argentina Gabon Malta Slovenia
Armenia Georgia Mauritania South Africa
Australia Germany Mauritius Spain
Austria Ghana Mayotte Sri Lanka
Azarbaijan Greece Mexico St. Martin
Bahrain Guinea Monaco St. Pierre & Miquelon
Bangladesh Hong Kong SAR Mongolia Sweden
Belarus Hungary Montenegro Switzerland
Belgium Iceland Moldova(a) Syria
Benin India Morocco Taiwan
Bolivia Indonesia Namibia Tajikistan
Bosnia & Herzegovina Iran Netherlands Thailand
Botswana Ireland New Caledonia Togo
Brazil Israel New Zealand Trinidad &Tobago
Bulgaria Italy Niger Tunisia
Burkina Faso Ivory Coast Nigeria Turkey
Cameroon Jamaica North Macedonia Turkmenistan
Canada Japan Norway UAE
Central Jordan Oman Ukraine
African Rep. Kazakhstan Pakistan UK
Chile Kenya Panama US
China Kyrgyzstan Philippines Uzbekistan
Colombia(a) Rep. of Korea Poland Venezuela
Congo Kuwait Portugal Vietnam
Croatia Latvia Qatar Zambia
Cyprus Lebanon Quebec Zimbabwe
Czech Rep. Lithuania Romania  
Ecuador Libya Russia  
Egypt Luxembourg(b) Saudi Arabia  
Estonia Madagascar Senegal  

 

Note: (a) Treaty signed but not yet entered into force

. (b) New treaty signed but not yet entered into force

Most important forms of doing business

Société Anonyme (SA), i.e., a corporation.

Société par Actions Simplifiée (SAS), i.e., a simplified joint-stock company.

Legal entity capital requirements

No capital requirements for establishing a SAS. However, capital requirements apply to a SA (EUR 37,000).

Residence and tax system

Test of residence of a company: official registered head office and/or effective place of business and management. French resident companies are taxed on French source income only (territorial system). Specific rules for partnerships.

Compliance requirements for CIT purposes

Fiscal year is the civil year, but companies are free to have a different financial year. Companies subject to CIT must file a tax return within three months of fiscal year-end or by the second business day following May 1 if the company's fiscal year ends on December 31.

Corporate income tax rate

The French corporate income tax rate will be progressively reduced from 33.33 percent to 25 percent. The schedule for the phased-in application of the progressive reduction should be as follows:

  • In 2018, a 28 percent tax rate applies for taxable profit up to EUR 500,000. Profits exceeding EUR 500,000 remain subject to a corporate income tax rate of 33.33 percent.
  • For financial years commencing as of January 1, 2019, a 28 percent tax rate applies for taxable profit up to EUR 500,000. Profits exceeding EUR 500,000 will be taxed at a rate of 31 percent. However, a rectificative finance bill for 2019 could postpone the reduction of the CIT rates as from 2019, maintaining the applicable rate at 33.33 percent in 2019.
  • For financial years commencing as of January 1, 2020, the 28 percent rate of corporate income tax will become the new standard rate for all profits.
  • For financial years commencing as of January 1, 2021, the standard rate of corporate income tax will be reduced to 26.5 percent.
  • For financial years commencing as of January 1, 2022, the standard rate of corporate income tax will be reduced to 25 percent.

A reduced rate of 15 percent on profits up to EUR 38,120 may apply to SMEs under certain conditions.

Social surcharges apply to large companies whose CIT exceeds EUR 763,000. The surcharge of 3.3 percent is levied on the part of the corporate income tax that exceeds EUR 763,000.

As from January 1, 2019, a 10 percent tax rate applies to the net income derived from the licensing and sub-licensing of qualifying patents and to the net gains derived from the transfer, to non-related entities, of qualifying patents, provided that they have not been acquired less than two years before. The net income and the net gains are determined after the deduction of R&D costs and after the application of a “nexus” ratio comparing the qualifying expenses to the total expenses. The qualifying expenses are the R&D expenses incurred for the creation and the development of the intangible asset by the taxpayer himself or by non-related entities. The total expenses are the qualifying expenses and the expenses incurred by related entities incurred for the creation and the development of the intangible asset. This regime is applicable upon election.

In FYs ending between December 31, 2017 and December 30, 2018, exceptional contributions of 15 percent levied on the gross amount of CIT (i.e. before the offset of available tax credits, tax reductions or any other tax receivable) apply to entities whose revenues exceed EUR 1 billion.

In FYs ending between December 31, 2017 and December 30, 2018, exceptional contributions of 15 percent levied on the gross amount of CIT (i.e. before the offset of available tax credits, tax reductions or any other tax receivable) apply to entities whose revenues exceed EUR 1 billion. In FYs ending between December 31, 2017 and December 30, 2018, additional contributions of 15 percent levied on the gross amount of CIT (i.e. before the offset of available tax credits, tax reductions or any other tax receivable) apply to entities whose revenues exceed EUR 3 billion.

Withholding tax rates

On dividends paid to non-resident companies

30 percent unless a lower rate under application of a DTT applies. A rate of 0 percent may apply to dividends paid to qualifying EU/EEA parent companies as well as to qualifying collective investment vehicles. A reduced rate of 15 percent applies to non-profit organizations.

A 75 percent rate applies for dividends paid to non-cooperative jurisdictions (unless justification is provided).

The applicable rate in 2019 will remain 30 percent. As from 2020, the domestic WHT rates on dividends will develop as follows:

  • 2020: 28 percent;
  • 2021: 26.5 percent;
  • 2022: 25 percent.

On interest paid to non-resident companies

0 percent. 75 percent for interest paid to non-cooperative jurisdictions (unless justification is provided).

On patent royalties and certain copyright royalties paid to non-resident companies

33.33 percent. As from 2019 the applicable rate should develop as follows: 

  • 2019: 31 percent;
  • 2020: 28 percent; 
  • 2021: 26.5 percent;
  • 2022: 25 percent. 

However, a rectificative finance bill for 2019 could postpone the reduction of the CIT rates as from 2019, maintaining the applicable rate at 33.33 percent in 2019.

A rate of 75 percent is applicable for fees for technical services paid to non-cooperative jurisdictions (unless justification is provided). 

On fees for technical services

33.33 percent. As from 2019 the applicable rate should develop as follows: 

  • 2019: 31 percent;
  • 2020: 28 percent; 
  • 2021: 26.5 percent;
  • 2022: 25 percent. 

However, a rectificative finance bill for 2019 could postpone the reduction of the CIT rates as from 2019, maintaining the applicable rate at 33.33 percent in 2019.

A rate of 75 percent is applicable for fees for technical services paid to non-cooperative jurisdictions (unless justification is provided). 

On other payments

15 percent on artistic income. WHT on wages under certain conditions (various rates apply).

Branch withholding taxes

30 percent except within the EU and can be reimbursed or partially reimbursed subject to conditions.

The applicable rate in 2019 will remain 30 percent. As from 2020, the domestic branch WHT will develop as follows:

  • 2020: 28 percent;
  • 2021: 26.5 percent;
  • 2022: 25 percent.

A rate of 75 percent is applicable if the non-resident company is located in a non-cooperative jurisdiction.

Holding rules

Dividend received from resident/non-resident subsidiaries

Exemption method (95 percent or 99 percent):

  • participation requirement: 5 percent of the share capital for shares with both voting and financial rights;
  • minimum holding period: two years;
  • taxation requirement : subject-to-tax requirement.

+ New limitation (implementation of PSD).

Dividends received from companies located in non-cooperative countries cannot benefit from the participation exemption (unless justification is provided).

Capital gains obtained from resident/non-resident subsidiaries

Generally subject to standard tax rate. Reduced rates apply to specific gains:

  • an 88 percent exemption applies to gains on the sale of substantial shareholdings held for more than 2 years (except if based in non-cooperative jurisdictions - unless justification is provided);
  • a 19 percent tax rate applies, subject to conditions, on capital gains on the disposal of shares in listed real estate companies;

Tax losses

Losses may be carried forward indefinitely. However, the amount is limited to the first EUR 1,000,000 of profits and 50 percent of the profits in excess of EUR 1,000,000. 

Corporate taxpayers also have the option, with certain restrictions, to carry losses back for 1 year to set them off against the previous year's profits up to EUR 1 million, in which case they are entitled to a tax credit. The tax credit may be used during the following 5 years. If it is not used within the 5 years, the tax credit may be refunded in the sixth year.

Tax consolidation rules/Group relief rules

Yes, the income of a group of companies may be consolidated. Under the tax group regime (intégration fiscale), the income and losses of resident companies within a 95 percent group may be aggregated and taxed in the hands of the parent company of the group. Horizontal tax consolidation is possible under certain conditions.

Registration duties

Fixed (from EUR 125) or proportional (max. 5 percent).

Transfer duties

On the transfer of shares

The transfer of stocks is subject to the financial transactions tax (0.3 percent) or transfer duties (0.1 percent with, under certain conditions, possible exemptions for transfers between related companies). The transfer of shares is subject to transfer duties of 3 percent above an exempt amount of EUR 23,000. The transfer of shares in real estate companies is subject to transfer duties at 5 percent.

On the transfer of land and buildings

5.09 percent (+ notary fees). Possibility for district councils to increase to 5.80665 percent indefinitely as from March 1, 2016. A 0.6 percent rate applies on sales of offices within the Ile-de-France.

Stamp duties

Yes, depending on transactions.

Real estate taxes

Yes.

Controlled Foreign Company rules

Profits made by a controlled foreign entity (i.e. 50 percent held subsidiary or 5 percent if French entities jointly hold more than 50 percent) or a permanent establishment subject to a favorable tax regime in its local jurisdiction are subject to tax in France. A safe harbor clause may apply under specific conditions (notably, within the EU).

Transfer pricing rules

General transfer pricing rules

Yes, transfer pricing rules exist and supporting documentation and tax returns are required. Penalties apply if documentation is not available.

Services, Interest and royalties paid to a recipient established in a tax shelter are not tax deductible unless the paying entity proves that such payments relate to genuine transactions and that they are charged at arm’s length.

Documentation requirement

Yes: "light" transfer pricing documentation and a country-by-country report must be filed every year, plus possibility for the administration to require information on foreign rulings, consolidated accounts, and cost accounting.

Thin capitalization rules/Interest Limitation rules

Yes.

Minimum taxation of interest at the level of the lender (Article 212, I-b of the French Tax Code);

As from January 1, 2019, new rules limiting the deductibility of net financial expenses have been introduced.

A general limitation on the tax deductibility of net financial expenses (tax deductibility of net financial expenses may be limited to the highest between EUR 3 million and 30 percent of the company’s adjusted EBITDA (earnings before interest, tax, depreciation and amortization ); furthermore, an additional deduction of 75 percent of the non-deductible net financial charges under the above-mentioned rules is available when the equity / assets ratio determined at the level of the company is equal to or higher than the same ratio computed at the level of the consolidated group (as determined under accounting consolidation rules).

If the intragroup debt/equity ratio of the company exceeds 1.5, the amount of the deductible financial charges would be calculated as follows:

  • The general limitation of the greater of EUR 3 million or 30 percent of the company's adjusted EBITDA would be applied to the financial charges corresponding to the external debt plus the portion of the intragroup debt up to 1.5 of the equity. 
  • A reduced limitation of EUR 1 million or 10 percent of the adjusted EBITDA, whichever is greater, would be applied to the remaining part of the financial charges. 

The above thin capitalization restriction will not apply if the company is able to demonstrate that its debt/equity ratio is at least equal to (or lower by less than 2 percentage points than) the same ratio computed at the level of the consolidated group (as determined under accounting consolidation rules).

All of these measures would be applicable at the level of the company subject to corporate tax on a stand-alone basis, or directly at the tax group level when the company is part of a group. Deduction of financial cost relating to the acquisition of a company becoming a member of a tax consolidated group (Charasse amendment).

General Anti-Avoidance rules (GAAR)

Yes. The French tax authorities are entitled to make tax reassessments based on abuse of legal provisions (fictitious or exclusively tax-driven transactions).

GAAR according to the Anti-Tax Avoidance Directive (ATAD) have been introduced by the finance bill for 2019.

As from January 1, 2019, non-genuine schemes put in place with the main objective, or with one of its main objectives, being to obtain a tax advantage that goes against the object or purpose of the applicable tax law can be ignored by the tax authorities. An arrangement is defined as non-genuine if it is not put in place for valid commercial reasons that reflect the underlying economic reality.

Specific AntiAvoidance rules/Anti Treaty Shopping Provisions/Anti-Hybrid rules

Yes. Abnormal act of management theory (transaction depriving the enterprise from revenues it should have normally received).

Specific rules apply to payments/transactions with non-cooperative jurisdictions.  A SAAR was introduced in the French Tax Code by the Amended Finance Act 2014 (implementing Directive 2014/86/EU) to neutralize the effect of hybrid mismatches.

SAARs according to the amended Parent-Subsidiary Directive have been introduced.

Advance Ruling system

Yes.

IP / R&D incentives

Enterprises conducting fundamental or technical research in France or abroad may qualify for a very favorable R&D tax credit under certain conditions.

The licensing and transfer of patents are favorably treated (upon election: reduced 10 percent rate on the net proceeds determined after deduction of R&D costs and the application of the “nexus” ratio).

Other incentives

Yes.

VAT

The standard rate is 20 percent, and the reduced rates are 10, 5.5 and 2.1 percent (specific rules apply within the Overseas territories - DOM, and Corsica).

Other relevant points of attention

No.

 

Source: French tax law and local tax administration guidelines, updated 2019.

Contact us

Séverine Lauratet

FIDAL(*) in France

T: +33 1 46 24 30 30

E: severine.lauratet@fidal.com 
 

Bruno Bacrot

FIDAL(*) in France

T: +33 1 46 24 30 30

E: bruno.bacrot@fidal.com

 

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and KPMG member firms.

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