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French Corporate Taxation - a brief overview

I - Direct taxation

1. Corporation Tax

French limited liability trading companies, the Société Anonyme (SA), the Société par Actions Simplifiées (SAS), and a majority of the  Sociétés à Responsabilité Limitée (SARL), are subject to the Impôt sur les Sociétés (I.S.) being the French equivalent of Corporation Tax.

This Impôt sur les Sociétés is payable upon the net profits of the corporation and the rate is currently fixed at 33.33%, to which two potential surtaxes are added, the first of 3.3% and the second of 5%  which brings the effective tax rates to 34.33% or 36%.

The net taxable profit is the trading income as determined in the financial statements prepared in accordance with generally accepted French accounting standards, subject to adjustments concerning inventories, reserves, capital allowances, relief for tax losses, and groups of companies.

2. Other significant direct contributions and taxes affecting companies

These are necessarily approximations as there are multiple criteria, but social security contributions, sometimes known in the US as payroll taxes, are levied on gross salaries at circa 50% for the employer, and circa 20% for the employee.

Thus on a gross salary of 100, the overall cost to the employer would be circa 150, whereas the net salary received by the employee would be circa 80. Moreover, a separate additional tax known as the Contribution Sociale Gnralise (CSG) being a generalised social security contribution or tax is also levied on all income at a rate of 7.5% in most cases.

Over and above the CSG, there is a further contribution or tax known as the Contribution au remboursement de la dette sociale (CRDS) being a tax aimed at paying off the huge deficit of the French social security system and which is due on all income at the rate of 0.5%.

These contributions are included in social contributions or payroll taxes levied on salaries, but may also apply separately to employee severance packages for instance.

3. Local business tax

In addition to the above French national taxes, there is also a local business tax, somewhat euphemistically known in French as the Contribution conomique Territoriale (CET) or local economic contribution which is payable by all French business entities, be they companies or individual undertakings. In essence the CET is made up of two separate parts, each of which has its own distinct basis for calculation, the first part is known as the cotisation foncire des entreprises (CFE) based upon the taxable value of the real property occupied by the business and the second part is known as the cotisation sur la valeur ajoute des entreprises (CVAE) which is calculated on a sliding scale up to 1.5% as a percentage of the turnover of the entity in question

II. Indirect taxation

1. Value added tax (VAT or TVA in French)

Subject to very limited exceptions, all economic activity in France is subject to VAT.

VAT is though not held to be an expense for the company, as the argument is that input VAT can be offset against output VAT.

There are several different rates which are currently applicable, and the standard rate is 19.6% but as from 1 January 2014 this standard rate will increase to 20%.

From 2014, the intermediate rate which was at 7% will increase to 10% and the lower rate will be reduced from 5.5% to 5%

There is also a special rate of 2.1% applicable for example to medication which is reimbursed by the French Social Security system and the French Government has made no announcement for the moment as to any proposed increase in this particular regard

The collection of VAT and the form-filling associated therewith is considered nevertheless by many to be a considerable burden upon the company, especially upon small and medium sized entities.

In addition, great circumspection needs to be granted to the VAT aspects of international and intra-European Union transactions.

It is however to be noted that EU based companies are no longer required to appoint a tax representative in France for most VAT-related issues.

2. Stamp or Registration duties.

Stamp or registration duties are payable on transactions which relate for example to stocks/shares and real estate as well as the intangible assets of all business entities.

They are also applicable to leases, donations, successions, and some specific types of contracts.

Rates vary from 1% to 15% and they are in general payable by the purchaser or the tenant, but payment may also be claimed from the vendor in certain cases.

III. International Transactions

A number of tax rules prevent or penalise indirect transfers of profit abroad, repatriation of profits originating from a Tax Shelter, and unjustified transfers of tax residence by individuals who are ostensibly French resident. The legislation on transfer prices is similar to that of the other European Union countries. Further the bilateral and multilateral treaty network is very much developed, with 91 different countries and it is noteworthy in this context that the former Soviet Republics count as one. The foregoing is not intended to be exhaustive and for specific information on French Tax Law please click here .