Doing Business in France
Strongly challenged by the global economy and the industrial competitiveness of the new emergent far-east countries, made insecure by the world unpredictable financial disorder, voluntary liable for its commitments to encounter the climate changes, France is determinate to find some sustainable solutions with its European partners. Its world position is (still) strong (number 5 of the industrial states), its voice (still) influential in the world's institutions inherited from second world war, but France is aware that these assets are not of durable assurance and could be at risk.
The rejection of the proposed European constitution (25.05.2005) by a majority of electors (54,67%) will be overcome by a new concept, and no one imagine any alternative to a European common destiny.
At first - and even if France is well known from all readers - it might be worth to recall shortly of its geography, history, international connections, institutions, population, some economical and political issues, before addressing the main concern of this article about legislation and the legal environment for doing business (those in a hurry you can jump to page 4).
Geography and administration
No doubt continental France is attractive for its beautiful landscapes, within the limits of maritime, mountain and river borders (Atlantic, Northern and Mediterranean sees - Alps and Pyrenees - Rhine river) and for its enjoying pleasant and temperate weather (how long) and favourable position within the European Union (UE) member states. Not to forget the exotic and remote Overseas territories (DOM-TOM) in the Atlantic (Guadeloupe - Martinique - Guyana), Indian (Reunion) and Pacific Ocean (Papetee - New Caledonian - Wallis et Futuna - Saint Pierre & Miquelon - Mayotte).
The French metropolitan territory is composed of 96 departments each of them being administrated by an administrative body called "prefecture". These departments are themselves part of 22 regions which have a local council and they coordinate projects on the region level. The smallest geographic units are the 38.000 towns and villages called "communes" which also have a degree of local autonomy.
One recall of several periods in the last century: the involvement of France in the First World War (1914-1918) with its colonial background, the Second World War (1939-1945) with the contribution of French resistance. One shouldn't ignore the presence of France in Asia and Africa, and the independence wars in Indochina (1946-1954) and in Algeria (1954-1962). From the latest French presidents one can mention: Charles de Gaulle (1958-1969), Georges Pompidou (1969-1974), Giscard d'Estaing (1974-1981), François Mitterrand (1981-1995) and the Jacque Chirac era (1995-2007) which is now fading away since the victory in may 2007 of our new elected President Nicolas Sarkozy.
Population, living standard
About 60.5 millions inhabitants (13,2% of the European union (UE) population) and 76,7% living in urban area. One single language: French. Religion: 62% Catholics belief, 6% Moslem, 2% Protestant, 1% Jewish, and about 26% without religious belief. Part of the national wealth devoted to education: 5,6 % and for health 7,4%. Equipments for every 1000 inhabitants: cars 596- televisions 95% of population units (ménage), telephones 560, mobile telephones 737, internet users 414.
Economy, industry (15,8 % of EU - 21,4% for Germany) is still based on some important industrial assets. According to latest official figures, the French industry has performed sales for an amount of 870 milliard € (in 2004) and 86% of its exports were realized through industrial sale. French industry assures direct jobs to 3,8 millions people and indirectly 2 additional millions (sale and services activities) and industrial products exports are five time more numerous than services. One count 22.000 enterprises with employees number between 20 and 250 and 21 regions (out of 22) with enterprises counting more than 500 employees. The main branches to be mentioned are:
- Conditioning of food products: 584.000 employees
- Aircraft construction (170.000 employee i.e 4% of industrial employments) EADS-DASSAULT -SNECMA
- Ship construction: ALSTOM - DCNS
- Railway equipment: ALSTOM TRANSPORT
- Automobile production: PSA (Peugeot-Citroen) and RENAULT
- Chemical industry: SANOFI-AVENTIS
30% of employees in industries are women: 1,2 millions, and 2/3 of executive jobs in this field over the 10 last years have been taken by women.
The major difficulty for French enterprises - as admitted by the MODEF (union for employers) - remains that apart of the 40 big ones (CAC 40), little and medium size enterprises (about 700.000) are not enough profitable (25% less than German equivalent enterprises).
Energy (figure 2005) France is the second producer in the world of nuclear energy after the US. From the production, nuclear energy (used among other energy at a level of 17% for France need) represents 79%, renewed energy (river dam) 11%, fossil energy (coal) 10%, wind energy 0,1 and all other kind of resources 0,1%.
France, who is not blessed by the creator for underground resources but still enjoy a lively agriculture business (world number 1 for vine, 1 for sugar-beet, 5 for wheat, 7 for corn).
18 milliard euros are being invested yearly in research and development. 1 from 2 industrial enterprises launches a new product or new process each year. France occupies the fourth position among within the UE for the quality and designs.
Training and educational level
60% of young new recruits have at least the baccalaureate (abitur = end of high school degree) level, and according to official data 38% of young students at the end of their engineer scholarship find a job after a trainee period time.
Nevertheless an urgent improvement is needed since 35% of the active population (between 25-64 years old) have not reached the second level of secondary school (27% in Germany- 16% Japon and UK - 13% USA) 40% of the active population has a level inferior to the first technical schooling (CAP-BEP).
Qualified specialist Solicitor for Public Law admitted to the Bar of Koblenz since 1992 only 12% of the population has acquired a university or high school diploma. In the ranking list of the 100 best world universities there are 4 French universities. The first one Paris VI occupies place number 45 (Paris XI: ranking 64, Strasbourg I : ranking 96, ENS Paris: ranking 99)
France International membership commitments
COI (Indian Ocean commission, due to the possession of Mayotte and La Reunion), European Council, CEMB (Council of Baltic states, as an observer) OCDE, OIF (Organisation of French speaking states), WTO (world trade organisation) ONU (United nation) OSCE ( Organisation for security and cooperation within Europe) OTAN (Nato), UE (European union).
Few of France economical and political concerns
Based on the Kyoto agreement, France has committed herself (since 16.02.2005) to reduce its consumption of CO2 by 75% until 2050.Some important decisions are expected to be adopted on the 22.10.2007 and to be checked in 2009.
Among its active population of 27,6 millions, France had 24,9 millions employed and 2,7 millions unemployed in 2005. Among the active population 4% were in agricultural activities, 24% occupying in industrial jobs and 72% in services. One fourth of any young person under 25 years is unemployed. 73% of all jobs creation are determinated by a labour contract for a certain period of time. (50% five years ago) The average retiring age is in France 57,5 years old. A big concern remains the integration of young people: In 2005, seven years after having left school in 1998 one quarter of the young people still had not found a stable job (CDI: job for indeterminate period) seven years later.
With the ageing population combined to an extension of life duration time France will have to chose between three solution: lower retirement pension with higher contribution from the active, welcoming more foreigners to work, extending the age limit for retirement allowances to 70 years. (These two last solutions seem non-avoidable)
Disposition to the European constitution
There exist some contradictory dispositions: French do not trust the liberal economy credo (main reason for their rejection of the European constitution in 25.05.2005) and still expect strong state involvement to assure them some protection. The French are at the same time aware that the national level is not sufficient to counterbalance all the danger of world disorder, and expect some collective European response to encounter some of globalisation disastrous effects. The word neo-protectionism is being heard more often now.
As an echo to Montesquieu witty irony (1721): (Ah! Ah! You are Persian? What an extraordinary thing! But, how can one actually be Persian?) the question is now being reversed: "But, how can someone actually be French?" ("Mais comment peut-on être français - Liberation front line july 2007).
Although many French citizens have some foreign background (like our new President, stemming from the principle of the jus solis) and although France welcome foreigners as visitors (and/or foreign clients), there are permanent discussions about foreigners difficulties to integrate (for jobs, and educational). The acceptation of new foreigners (apart of the EU) will be much more selective in the future, and emphasize about their abilities to master French language.
On part of France's population, mostly originating from its former colonies (visible minorities is the new concept), and living in the suburb of big cities (Paris-Lyon-Marseille) are still in great difficulty to be normally integrated to the system.
The new ministry department (ministry for migration, integration, national identity, and co-development) is by itself an indication of the French actual contradictory dispositions.
The economical growth goal of about 2.25% in 2007 will not be reached, more probable 1.80%. That means some insufficient margin for economical initiative next year (only achievable when upper to 2%). Decrease of civil servants 12.000 in 2007 and less 22.700 in 2008.
The new elected President who can rely on a comfortable majority within the French parliament, and a ruined opposition on his left, must now show some his ability to keep his advantage. The next election to come, will concern the renewal of towns authorities (elected maires).
French legal institution and judicial system
There has been in France an unbroken tradition of written constitution, since the 1789 Revolution (14 can be listed).
Even though legislation is the central feature of French legal system, - at least in the domain of private law - (for more than 100 statutes are produced in an average annual session of parliament), many other sets of rules and regulation are created every year, by ministers and various administrative bodies. French also has a special public law known as "administrative law" which is a kind of judge-created law (by the Conseil d'Etat).
Legislative sources can be classified under four main sorts, namely: 1-"Constitution"- 2-Treaties- 3- "Lois" (parliamentary statutes) 4- "Règlements" (government regulations).
An important aspect of French legislation is that legislative sources are organised in accordance with the principle of hierarchy whereby a norm lower in the hierarchy must conform to the norms at a level higher position. This organisation of legal norms in France establishes the constitution at the top of the pyramid with constitutional law having greater value than treaties. Treaties are superior to parliamentary statutes, which are in turn over government regulations.
The Constitution being at the top of the pyramid means that the parliament can only enact legislation in accordance with constitutional norms. It is the purpose of our "Conseil constitutionnel" established in 1958 to ensure conformity with the constitution of Parliamentary statutes. Article 55 of the constitution provides that duly ratified treaties take precedence over domestic parliamentary statutes.
The legislative process in France originates from the French parliament which consist of two houses, the "Assemblée Nationale" (577 members) and the "Sénat" (321 members).
Before any legislative proposal, known as a "Projet de loi" (governmental bill) or "Proposition de loi" (private member's bill), can become a "loi" it must pass through, this two houses. Before any bill can become law, its promulgation by the President of the Republic must take place within 15 days. The President of the Republic may at his discretion, refer the bill to the "Conseil Constitutionel" for constitutional review (this power is also vested to the Prime Minister, the President of both houses of parliament and a group of 60 members from either of the two houses.
French law, as most civil law systems is codified. There is an unbroken tradition of codification stemming from the Napoleon era. Although to-days codes do not have the same prestige, they are still regarded as the primary source of law and serve as essential working instruments for any French lawyer. Apart from several famous Codes like "Code Civil" "Code de la santé publique" etc.., a number of new codes have been drafted by the "Commission Supérieur de Codification, they includes for example the "Code de la consommation" and the "Code de la propriété Intellectuelle".
Complementary to statutory and code provision as source of law is of course the statutory interpretation of legislation by French judges. The methods of interpretation are too complex to be dealt with in such short presentation, but one should keep in mind that French judges effectively contribute to the law-making process (jurisprudence). According to the French legal tradition it can be said that jurisprudence is subordinate to the legislation in many situation they complement one another.
Foreign persons having to deal with French legal system (for investing, consulting or litigation problems) will need the services of a lawyer, accountant, or some other advisers to be secure of any undertaking.
At the end of 1991, two types of person within the legal profession worked as lawyer ("conseil juridique" and "avocat"). These two professions were united into one profession, called "avocat". Since then, all "avocat" are legally considered qualified not only to give advices and prepare or ascertain the validity of certain documents for administrative purposes but also to plead in most French court. Anyhow specialized lawyers are still required to address the "Conseil d'Etat" (highest administrative court) or address the judge of the "Cour de Cassation".
Lawyers and persons from accounting profession who are also dealing at a certain degree in providing some legal advice cannot be organized together in common premises for reasons of confidentiality. Any secret conveyed to a lawyer is covered by a confidentiality obligation. An accountant on the contrary is compelled to inform the authorities (generally the tax authorities) if he discovers a fraud within the information or documents conveyed to him by his clients.
The French notary ("notaire") is a specialized legal profession for the preparation and validity of certain types of legal documents, such as deeds transferring real property or real property rights, also in matters of inheritance or matrimonial contract.
Starting a new business in France
or just expending ones own activity
Any non-resident individual or corporate who wishes to expand its activities into France needs at first to be fully aware of its level of ambition and objectives to decide the appropriate business strategy and/or organisation form to be started.
For ULN purposes that usually addresses middle size companies I will focus on three levels of possible business expansion in France:
It can be merely the hiring sale manager who will prospect the French market without creating any corporate or investing in any organised French corporate (1). It can be through the acquisition of an existing French enterprise (2).
It can be by the creation of a subsidiary (3).
1. Any organised French corporate
In first hypothesis, a labour contract for a sales manager and any other needed staff can be managed from abroad if there exist enough confidence (no real possibility of controlling the working time) and communication facilities with the person chosen (it would be wise to have at least on manager at the headquarters office speaking fluently French)
The contract is necessarily subjected to French law and the pay roll can be managed by an accounting office in France (our office can always advise for such needs) in order to enable the fulfilment of all legal obligation. To meet the need of employers being abroad without any subsidiary in France and to enable them to fulfil the registration and quarterly contribution for their employees in France, a special department of the social institution called URSSAF has been created in Alsace (Schiltigheim).
The hiring of a French sales manager will require the services of a French lawyer for the drafting of the labour contract (employee with executive position) with appropriate adjustment to comply with all legal constraints and further the involvement of an accountant (or accounting office) to manage the monthly pay roll and help the employer to comply with all quarterly contribution obligation.
2. Acquisition of an existing French enterprise
The foreign investor can envisage acquiring a business ("fonds de commerce" which has been translated as "good will" or "ongoing concern") rather than start a completely new business.
Foreign investors have to be aware of some implications triggered by a simple agreement to buy and sell of a ongoing concern. First of these is the tax cost associated wit such acquisitions: 4.8 percent of the price amount over 23.000 €, and the unilateral option to purchase also attract registration duties (75 €).
Specific formalities need to be respected by the buyer and seller of an ongoing business which means that such transaction need to be reviewed by a lawyer to avoid very annoying consequences, at least the sale could be declared void.
Taxation: The tax administration will expect from the acquirer of an ongoing business to comply with all tax declaration imposed upon a person who opens a new business. The sale of assets does not trigger any VAT liability, except for the sale of new goods. If the sale is effective during the calendar time, the seller remains subject to the business licence tax for the entire year, and the acquirer will only be liable for the business licence tax at the beginning of the following year. A prorating of tax obligation can of course be anticipated in the acquisition agreement.
Social law: All labour obligations imposed on the seller are automatically transferred on the acquirer, meaning that all labour contracts related to the transferred assets will be assumed in their entirety by the acquirer of the ongoing business. If the seller has a labour-management committee, this committee will have to be consulted regarding the sale of business assets.
3. The creation of a subsidiary
The creation of a subsidiary (according to the commercial code is considered as subsidiary a company which is owned for more than 50% by another company). The setting of a French company which implies the objective of a lasting investment is a complex matter. For these reasons the purchasing of a shelf company is not worth to be envisaged. The time consuming to adjust the corporate articles, and all other main structural criterion (capital, name, decision making) just discourage for adopting such a solution.
More important for a foreign investor will be to decide whether its subsidiary will be organised as an SA or an SARL.
Since the SA kind of corporate is typically used for larger enterprises (with a minimum of seven shareholders and 37.000 € previous paid-in capital before it can be registered) we prefer to focus on the smaller business type of enterprise SARL (limited liability company) which is more appropriate for any starting project.
Setting of an SARL- The organisation of an SARL is subjected to the same fundamental legal requirements a for any company contracts (consent among the parties, legal capacity of these parties, a specific and licit purpose.) and the same formal conditions as for any commercial company:
- Drafting of articles of organisation
- Capital subscription in a bank (the amount of capital is free since august 2003
- Location for the head office (for instance any office specialized to provide addresses)
- Signature of the articles
- Decision about management nomination
- Publication of an official notice in a legal news paper
- Filing the articles with the clerk of the commercial court
- Registration and other filings to be undertaken through a formality centers
- Starting of operation with a right to withdraw the funds
(personal tax, - company -tax - VAT)
Concerning persons who do not have their fiscal residence in France.
These persons are only liable to pay some personal income tax to the French tax administration if they have revenues originating from French sources.
Persons who do not have their fiscal residence in France but own a property on French soil are liable to pay some taxes:
Either related to revenue originated from French sources
Either if they do not receive any of such revenue, on a lump general basis equivalent to three times the renting value of their property;
People having their fiscal residence in France are liable to tax all their revenue from wherever they come from (from France and from abroad).
French residents file their tax declarations as part of a fiscal household as a matter of law. The account for a number of individuals in the household, the tax code computes tax using family coefficients, which are allocated based on the family shares. For instance, a fiscal household composed of a married couple and three minor children (coefficient:4) with 35.000 € in taxable income will be taxed at the same total rate as four individual each receiving 8.750 € that year.
French company tax is assessed on the earning of "capital companies", a category which includes the SA, the SARL, the SAS and the SCA.
Since 1993, the standard French corporate tax rate has been 33. 1/3 % rate on the income of corporations.
A 3% surtax is imposed on corporate incomes. It is assessed on a French corporate taxpayer's tax due at the standard corporate tax rate of 33. 1/3 % or due at the reduced long-term capital gains rate of 19 %.
A "social" surtax is imposed at a 3 1/3 % rate on the earnings of larger corporate income taxpayers. This only concerns corporation having a turnover that exceed 7.630.000 per year.
Minimum Annual company tax: The tax code imposes a minimum annual tax on corporate taxpayers (imposition annuelle forfaitaire: IFA) that is distinct from company tax. The IFA (2007) due by a company depends on its turnover.
Less than 400.000 € turnover 0€
400.000 € to 750.000 € 1.300 €
750.000 € to 1.500.000 € 2.000 €
1.500.000 € to 7.500.000 € 3.750 €
For other data question your legal adviser
Regarding of French tax securities income (revenu mobiliers) in France exists five categories of income:
- Dividends and other income distributions from share in French companies
- Income from negotiable bonds and assimilated instruments
- Interest income from bank deposits, advances and loans,
- Income from financial instruments (taxed under rules that are distinct from those for bonds and advances)
- Income from foreign securities
All of the above categories are distinguishable (for tax purposes) from income generated from employment or from business activities. They are considered as income from capital.
The earning of a company-tax entity are calculated under the same tax accounting rules applied to an individual who earns income in an industrial and commercial profits enterprise (called "benefices industriels et commerciaux").
Valued- added Tax
France has two regular VAT rates
- standard rate: 19,6 %
- reduced rate: 5,5 %
Example of VAT on a French business: Given a French business purchases some materials for its business for 100.000 €. This will be accounted: 100.000 € + (VAT at 19,60%) 19.600 = 119.600 € .
Although the definitional scope of VAT is designed to be broad, the territorial application of the tax is strictly regulated to prevent intra-EU distortions of competition. The criteria used to determinate whether a transaction is or not taxable in France depends on whether the transaction involves a delivery of goods, a supply of services, or "immaterial" transaction.
For supplies of services, the general territorial rule is that the price for services is taxed in France when the supplier is established in France. (this rule has significant exceptions concerning physically locatable services, immaterial services, and services relating to intra-community deliveries of goods).
Labour law: The employment contract is the basis which stems the rights for an individual to benefit from all the disposition of French labour law rules. The standard employment contract is said to be the indeterminate term contract, the short-term, and temporary worker under specific conditions. Once the contract become definite (after a trial period) the individual can only be dismissed for cause (real and serious) or for economic reasons.
Since November 2003 a residence permit is no longer required for citizens of the European Union and of the European Economic Area. This principle is actually restricted for the new members (01.05.2004) who do not benefit within the EU for a transition period of five years the freedom to travel and establishment rules.
The termination of an employment contract: Each party to an indeterminate employment contract has a unilateral right to terminate the agreement which is called "licenciement = dismissal" when the decision is met by the employer, and called "demission = resignation" if the decision is from the employee. Whatever the cause for the contracts termination is(with exception of a grave fault), the employee must continue to work during the noticed period after the decision of any party to terminate the contract has been made official.
By restricting the lawful uses for fixed terms and temporary worker contracts, the labour code generate a pressure on employers to hire individuals on indeterminate period. This has been a main topic of discussion during the election period, and the actual President has strongly committed himself to introduce more flexibility in the system and to stimulate the hiring of young people actually unemployed which could also be dismissed more easily.
The government is in favour of a unique standard labour contract (which would combine the advantages of all previous standard labour contracts adding security for employees and flexibility for employers), but there are doubts about the feasibility of such objective.
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