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What you need to know
ContactLiaison office, branch or subsidiary: how to choose?
Answer: In order to establish a business in France, does a foreign company have to systematically create a subsidiary company? In other words, can we find solutions more flexible, less expensive? : Liaison office, or a branch. The answer to this question depends not only on the means that will be deployed in France, but also the fiscal conventions of double taxation. And if the foreign company creates a liaison office, it has to be very strict concerning its operations.
If the foreign company simply wishes to have contacts, collect information, give information for the mother company’s account, or assume the advertising of it, a liaison office in France will suffice. The liaison office cannot endorse commercial activities; otherwise it will lose its status and become a branch. Consequently, the employees must never sign any order form. They have to be signed by the mother company’s representatives in the country of origin.
Concerning commercial law, the liaison office must do a statement of existence at the Register of companies: Registre du Commerce et des Sociétés (RCS), and appoint a liaison office representative in France, who can either be an employee of the foreign company, or a representative with a proxy.
Concerning the social aspect, the company will have to pay social taxes for the employees in France (45% of the pay wage). In principle, the employees are in charge of the deposit and the payment of what is declared, except if the company appoints a representative in charge of these formalities.
Concerning fiscal law, the liaison office does not have a literal existence. The charges of the liaison office are in principle deductible from the taxable income of the foreign company in its country of origin. However, if the liaison office has in fact commercial activities (see above), it can be requalified as a permanent establishment. In that case, in order to retrieve the French VAT that has burdened the prices of goods and services bought in France, the foreign company must appoint a fiscal representative in France.
If the activity within France is commercial, the mother company has to create a new branch. In order to do so, it has to register to the RCS in the 15 days following its opening, and appoint a representative for France. If the representative is not an EU citizen, he must, most of the time acquire a trader’s card (carte de commerçant), which is an authorization to do trade. Finally, every year, the foreign company has to file the annual accounts translated by a sworn translator to the aforementioned RCS.
According to the French tax regulations, the branch is considered as a permanent establishment, which designates for the purpose of tax treaties between countries of the OECD, a fixed establishment of business where the company practices all or a part of its activity: Are in particular permanent establishments, headquarters, transformation plants, construction sites which in time exceed 12 months. Are not considered as permanent establishments, non-commercial activities as storage, exposition, delivery, transformation by another company, etc.
Consequently, the branch is subject to corporate tax according to the common law rate. To determine its fiscal income, the accounting income needs to be restated, mainly to take into account that the branch is only an extension of the foreign company, which cannot be considered as a different legal entity. Moreover, the VAT of importation from countries belonging to the EU is not due. However, it must be paid for importation from other countries. For this purpose, the company has to appoint a fiscal representative.
Finally, the company can create a subsidiary company; which is detached from the mother company. The income is taxed in France (see Milestones when setting up a business in France).
Jean-Claude ARMAND and Partners advices you to choose the establishment structure in France (liaison office, stable establishment, subsidiary company).