Having the simple yet powerful word “Paris” associated with your brand or company can help your marketing approach tremendously. Fashion designers aren’t the only ones who want the symbol of France’s national capital on their brands and promotional items. Foreign investors, particularly financial institutions, routinely visit Paris to establish a foothold in the French market.

It is relatively simple to open a subsidiary in France. Because it is an extension of an existing (parent) firm, it has no legal identity. It reports to its parent company, which is financially accountable.

What you should know

A subsidiary based in France will have its legal status. The foreign firm owns a significant portion of the capital. The foreign firm is not liable for the activities of the French company. It safeguards it entirely in the event of the subsidiary’s insolvency. This is especially attractive to Accounting firms as there is little shared risk. You may be wondering how the language barrier might affect your company. Contrary to popular belief, Paris is a cosmopolitan city, and an english speaking chatered accountant in Paris will help your business feels like operating at home.

Audit accounting firm for the French subsidiary

You should understand the demands of international clients and have experience helping them in all areas of French accounting practices. Your team of professional accountants should guide clients through all aspects of audit, accounting, reporting, consolidation, taxation and payroll services. You should be used to working with international standards. Standards like EU and UK practices, as well as International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP).

The benefits of establishing a subsidiary in France 

There are various benefits to holding a subsidiary in France, including the government’s backing in the event of expansion. In addition, the tax system is quite favourable. Usually, a subsidiary must pay all taxes and VAT as if it were a regular company. However, there can be various exemptions made due to France’s numerous treaties.

Withholding taxes on dividends sent to a firm based in an EU nation were previously free.  It was only free provided the parent company owned at least 10% of the subsidiary’s capital. If you have to pay withholding tax on dividends in 2021, you can get a tax exemption. This is only if the receiver represents an EU-based company. The company has to own atleast 5% of the shares in the French legal entity for at least two years.

Suppose the company is outside the EU, the withholding tax on dividends formerly set at 25%. However, due to France’s extensive network of double tax treaties over the years, exemptions or lesser taxes may be allowed. Until the end of 2020, the withholding tax on dividends was imposed at a rate of 12.8 percent.  This is for cases where the recipient is a non-resident individual. Where the recipient is a non-resident company it is at 28 percent. The latter tax is now down to 26.5 percent as of January 1, 2021.

The conditions for forming a subsidiary in France are as follows:

As previously stated, the subsidiary company might be a limited liability corporation that is private or public. The following are the prerequisites for forming a subsidiary company under a private limited liability corporation:

• 1. French law requires a minimum share capital of one euro. Nevertheless, the foreign business must determine the exact amount required;
• 2. In the subsidiary company, at least one director who is not a French resident must be chosen;
• 3. The director can be a corporate entity, i.e., the parent firm can be a director of its subsidiary;
• 4. In France, the subsidiary does not require a company secretary, which is a significant benefit;
• 5. Unlike the branch office, the French subsidiary must have a corporate bank account established in this country.

In public enterprises, the subsidiary might be a simplified joint-stock company (SAS). This has the same lenient criteria as a private company (SARL). The requirements regarding shareholding and management structure are more complex for a joint-stock company. So it is the most minor used business type for establishing a subsidiary in France.

How to Form a French Subsidiary

When attempting to establish a subsidiary in France, first stage is to draft the articles of association. It should be in front of a notary from a foreign country. The articles must include the basis for establishing a subsidiary, manager’s responsibilities, the company’s name and address, and other provisions. Suppose the prospective manager is not a French citizen or a member of the European Economic Area. In that case, he will need a residence permit (based on skills, knowledge, and commercial activity) and a long-term visa. Checking the intended name with the French Patent and Trademark Office is another obligation that must be fulfilled before incorporation.

It is necessary to open a bank account and deposit the required share capital (37,000 EUR in case of a joint-stock company and any amount for a limited liability company). An announcement of the French subsidiary’s registration must be in the Official Gazette. The company must then file the required documentation with the Centre de Formalities des Entreprises. The final step establishing a subsidiary in France is purchasing business books and have them stamped at the Commercial Court clerk. It takes a week of checking the name and presenting the essential documentation with the regulatory authorities. The French subsidiary may commence commercial activity after a week of checking the name and submitting the vital documentation.

Documents required for establishing a subsidiary in France

For a subsidiary’s registration in France, they require the following documents:

• information about the parent company from its home country’s Trade Register;
• the company’s articles of association, which must be registered in France;
• a rental agreement that specifies the French subsidiary’s legal address;
• the name and address of the parent company’s agent in France, as well as the letter of appointment.

Final Word

Expansion of your company into new markets is an exciting moment, full of new potential and challenges. France is a vast and active market with its own set of customs and financial practices. This may seem daunting, but it will take your firm to the next level. And having an accounting partner like Vachon Associes will make it easier.