Corporate Tax Guide: France
The information is valid for the entire country except where indicated. For example, in the case of Malaysia, Labuan is part of Malaysia but has a special tax regime, so this is noted.
The corporate tax rate shown is the typical corporate tax rate that a domestic corporation owned by non-resident persons would pay. The tax rate does not include withholding tax on dividends, but does include a distribution tax shown separately if applicable. Certain countries have a low corporate tax rate, but charge an additional tax when a dividend is distributed. Because this tax is paid by the corporation, and not deducted from the amount of the dividend itself, it is not a dividend withholding tax. As a result, it typically cannot be reduced by an international tax treaty.
|15% on the first 38,120 Ä - 33.1/3% on excess profit.
Additional social contribution of 3.3% on the amount of tax when corporate tax due is more than 763,000 Ä.
The basis of taxation for a corporation will typically be one of:
|Territorial. Taxation on worldwide income profit optional.
Where non-resident corporation carries on business in a country, business profits may be subject to corporate tax. In addition, a branch profits tax may apply in lieu of dividend withholding tax. This branch profits tax applies to the after tax profits, typically at a fixed percentage. An international tax treaty may reduce the rate of branch profits tax, typically to the rate provided for dividend withholding.
|Yes. 30% (75% for NCST), often reduced or cancelled by Treaty. No BP tax for branches of EU entities.
The common forms of business entity are noted. In addition, the entities which are flow through entities for U.S. tax purposes are indicated.
|SARL, SA, SAS, SCA, SCS, SNC, SCI.
Capital gains may be fully taxed, partially taxed or not at all. In certain countries, an exemption, called the participation exemption, will apply to exempt from tax a capital gain from disposition of a substantial holding of shares of a subsidiary. Where a participation exemption is applicable, it is noted together with a summary of the main conditions.
|Taxed at a regular corporate tax rate.
Participation exemption applies to capital gains on the sale of shares that represent a substantial investment. Shares must have been held for 24 months or more. The taxable basis is then 12% of the gain (i.e., an effective tax rate of 4.56%).
Certain countries allow group taxation, otherwise known as consolidated tax filing. Here the tax returns of a group of corporations in the country may be combined together, which can be useful. If group taxation is permitted, it is noted along with the main conditions.
|Group taxation is optional.
Profits and losses are aggregated within the group and the parent company is subject to tax for the whole group.
Countries offer various kinds of special exemptions and incentives. Examples are a reduced tax rate, a tax holiday, a tax credit on the purchase of equipment, special accelerated deductions for deprecation, incentives for R&D, and various others. Here the major items are noted.
Many countries have thin capitalization rules which limit or deny the deduction of interest expense in certain circumstances. For example, if debt exceeds three times equity, a proportionate amount of interest expense may not be deductible. Limitations take various forms, restricting the interest expense deduction to a percentage of profit, deeming the debt to be equity and the interest to be a payment of dividends, and various other rules which may blend of these principles. Where a country has thin capitalization rules, they are briefly described.
Many countries have transfer pricing rules. They very often follow the OECD guidelines and the arms length principle. Some countries have specific rules which apply in certain cases. In addition, some countries allow for a selection of the most appropriate transfer pricing methodology in the circumstances, while other countries follow a hierarchy of methods, with the CUP method (comparable uncontrolled price) often ranking first. The transfer pricing rules are briefly explained.
|Yes. OECD rules. No hierarchy of methods.
Burden of proof lies on the tax authorities, unless the foreign entity is incorporated in a jurisdiction with a beneficial tax treatment.
Compulsory transfer pricing documentation for companies over 400mÄ turnover or gross assets. Strongly recommended for any company.
11. CFC Rules
Many countries tax passive income earned in controlled foreign corporations (CFCís) on an imputation basis while active income is not taxed. Such CFC rules are usually complex and vary significantly in what is considered passive income, and how foreign tax paid is taken into account. Some countries approach CFC rules on the basis of whether or not the foreign corporation is resident in a low tax jurisdiction or a tax haven. This may be done through a black list of countries.
The general overview of CFC rules is described in simple terms.
|Yes. Applies to foreign controlled entities (more than 50%) that are established in a jurisdiction where the corporate tax rate is at least 50% lower than the French tax rate that would have been applicable under the same circumstances.
The French entity is then deemed to have received fully taxable dividends from the foreign entity, in proportion to its participation.
Doesnít apply to foreign entities established in the EU unless the structure was put into place to avoid tax.
Profits repatriated by way of dividends from a subsidiary to a parent company are typically taxed in one of three ways:
|Participation exemption: 95% of a dividend distributed by an entity established in the EU to a French entity that has held more than 5% of the shares for more than 2 years is exempted from tax. Effective tax rate of 1.6% maximum.
Doesnít apply to dividends from an entity based in a non-cooperative country unless it is proven that it carries out a real economic activity.
Most countries allow a foreign tax credit based on a formula, typically net foreign income over the net income times taxes payable. This limits the foreign tax credit to roughly the domestic tax otherwise applicable to the foreign income. There are numerous variations and technical rules in the details of foreign tax credit calculations. Where a foreign tax credit is allowed, the general principles are described.
|French corporate income tax is levied on profits generated by entities operated in France. Therefore, profits generated by foreign entities are usually not subject to tax in France, unless a tax treaty provides otherwise or the foreign entity operates in France through a PE, a representative, or a complete commercial cycle.
Losses typically can be carried forwards for a period of years, and sometimes can be carried back. Losses may be segregated into capital losses and non capital losses.
|Ordinary losses and capital losses are segregated.
Ordinary losses can be carried forward indefinitely. However, the carry-forward is capped to 1MÄ plus 50% of the taxable profit in excess of 1MÄ of any given year. Losses may also be carried back to the previous year up to 1MÄ (this provision has been challenged before the Constitutional Council and declared unconstitutional).
Capital losses can only be offset against capital gains of the same nature.
It is not practical to list all of the tax treaties which a country has in a simple guide like this. Accordingly, a link is provided in each case to the tax treaties.
Some countries have entered into Tax Information Exchange Agreements (TIEA).
Treaties are more and more containing provisions that limit benefits (LOB provisions).
Withholding tax rates vary considerably from treaty to treaty, and countries may have domestic exemptions applicable in certain circumstances (for example copyright royalties, interest paid to armís length persons, etc.). A table shows the typical rates but cannot adequately summarize all of the details. The applicable treaty should be consulted.
17. Taxation Year
Some countries allow for the selection of year-end while other countries specify a particular year-end which all business entities must have. Normally the taxation year cannot exceed 12 months. Where it can exceed 12 months, this is noted.
|Generally, 12-month calendar year but a different year-end date can be chosen. Tax year can be shorter or longer in certain cases (e.g., setting-up of a company)
This is the due date for filing a tax return. Where extensions are available, this is noted.
|Due on May 3rd of the following year (varies from one year to another) or within the three months after the year-end for a non-calendar financial year.
19. Tax Instalments
The typical tax instalment requirements are noted.
|Yes. Quarterly instalments calculated on the previous yearís earnings.
Penalties apply for late payments, plus interest.
20. Payment of Tax
This is the date when the corporate tax owing for the year must be paid. It may be different from the tax return filing due date.
|Final instalment is due at the latest on April 30th of the year following the calendar year or within three months after the year-end for a non-calendar financial year.
This is the period after which the tax department cannot in normal circumstances reassess a taxation year. It is sometimes referenced to the end of the taxation year and sometimes to the date of the first assessment of that taxation year.
|Usually at the end of the third year following the year in which tax is due. Can be extended to 10 years under certain circumstances.
Tax authorities have four years from the issue of a notice of collection to collect taxes.
If a country has exchange controls, this is noted, together with the main requirements.
A VAT tax system typically provides that the supply of goods and services is classified as taxable, tax exempt, or zero rated. Where a business is engaged in an activity which is taxable, it must charge VAT on its revenue, and can claim a refund of VAT on its expenditures. Where the activity is exempt, it does not charge VAT on its revenue, and cannot claim back VAT paid. Where the entity is engaged in activities which are zero rated (typically agriculture, food services and exports), then it can claim back VAT which it has paid on its expenditures, and does not charge VAT on its revenue.
If a country has a typical VAT system, this is noted. If a country has no VAT system but a sales tax system, this is indicated. Some countries may have a mixture, and taxes may apply at different levels (federal and state for example).
|General rate is 20%. Reduced rates are 2.1%, 5.5% and 10%.
Stamp duty, or land transfer tax, can apply on such things as the transfer of shares, land, or the issuance of bonds or debentures. This is described together with the applicable rates.
|Generally, only for transfer of real estate and businesses or shares in a company that is mainly composed of real estate assets.
Rate is generally 5.09%. Several mechanisms exist to reduce it.
Other transfers may be subject to a nominal stamp duty.
25. Capital Tax
If capital tax is payable, this is described. Capital tax may apply in specialized industries, such as banking and insurance, even if a country does not generally apply a capital tax to corporations.
|Capital duty of 375 or 500 EUR in case of capital increase.
26. Other Taxes
Where significant, other taxes are noted.
|Taxes on certain specific activities (e.g., gambling) or real estate when UBO not disclosed.
Anti-Avoidance Rules take many forms, the most common ones are a general anti-avoidance rule, treaty shopping limitations, the requirement for economic substance (or a business purpose in carrying out transaction) and specific anti-avoidance rules for particular purposes. A very brief overview of the anti-avoidance rules is described.
Where a non-resident person holds shares of a corporation established in the country listed, the capital gain which results may be taxable or not taxable depending on the circumstances and, possibly, the existences of an international tax treaty. The general rules are noted.
|5% tax on the sale of shares of real estate companies. 3% on the sale of shares of SARL or SNC. 0.1% on the sale of shares of any other form of company (except if listed).
The sale of a business ("fonds de commerce") is subject to a 3% tax on the portion of the price between 23k EUR and 200k EUR, 5% on the exceeding part of the price.
Where a corporation is acquired through the purchase of shares, sometimes a step up is allowed so that the cost of its assets can be revalued. The main rules are briefly summarized.
|Yes, unless option for the contrary in the case of a share-for-share exchange.
30. Use of Rulings
In some countries, rulings are commonly used (and sometimes even required). In other countries the system is either unavailable or not commonly used except in special circumstances.
|Only in certain specific situations: existence of a PE in France, validation of a transfer pricing policy, etc.
Other important aspects of the tax system are noted.