Purchase of shares in French resident company
Transfers of shares in French SAs and SASs are typically subject to French registration duty at a rate of 0.1% of the consideration. Transfers of interests in French SARLs, SNCs or SCIs are typically subject to a registration duty of 3% of the consideration.
Transfers of shares in non-quoted real estate companies are typically subject to French registration duty at a rate of 5% of the consideration.
French tax residence
A company is treated as tax resident in France if it is incorporated in France or if its centre of effective management is in France.
Under the France-China double tax treaty (DTT), if a company is a resident of both France and China, then it is deemed to be a resident only of the state in which its place of effective management is situated.
Corporate income tax rate
The current main rate of corporation tax in France is 25% (increased by a surcharge of 3.3% for companies with corporate income tax in excess of €763,000).
Equity financing from Chinese resident parent company to French resident subsidiary
Equity contributions from a Chinese resident parent company to a French resident subsidiary are registered free from registration duties.
Withholding tax on dividend payments to Chinese parent company
Withholding tax (WHT) on payments of dividends by a French company to foreign entities generally applies at a rate of 25%.
The France-China DTT provides that WHT on dividends shall not exceed:
- 5% of the gross amount of the dividends if the beneficial owner is a company which holds directly at least 25% of the capital of the company paying the dividends; or
- 10% of the gross amount of the dividends in all other cases.
Debt financing from Chinese resident parent company to French resident subsidiary – tax deductibility of interest payments
The French resident subsidiary may be entitled to corporation tax deductions for interest that it pays in respect of the loan from the Chinese resident parent company.
However, the following French tax rules may result in tax relief for the interest expense being denied or limited, depending on the circumstances:
- the thin capitalisation rules;
- the transfer pricing rules;
- the hybrid tax mismatch rules; and/or
- the limitation of financial expenses deduction rules.
Debt financing from Chinese resident parent company to French resident subsidiary – withholding tax on interest payments
Interest payments made by a French resident corporation to a non-resident lender are generally exempt from WHT unless interest is paid to an bank account opened in a Non Cooperative State or Territory.
Intellectual property – withholding tax on royalties paid to Chinese parent company
Subject to certain exceptions, French WHT at 25% applies to royalty and other payments in respect of intellectual property including: copyright of literary, artistic or scientific work; any patent, trademark, design, model, plan, or secret formula or process; and any information concerning industrial, commercial or scientific experience.
However, relief to reduce the WHT may be available under the France-China DTT, which provides that WHT on royalties shall not exceed:
- 10% of the gross amount of the royalties; or
- in certain cases, where payments are consideration for the use of, or the right to use, industrial, commercial or scientific equipment, 10% of the adjusted amount of the royalties (meaning 60% of the gross amount of the royalties), i.e. 6%.
Intellectual property – tax treatment of licence granted by Chinese parent company to French resident company
French Value Added Tax (VAT) and registration duty may apply to an intellectual property licence granted to a French licensee.
Intellectual property – tax incentives
French tax credits may be available for research and development (R&D) activities.
The French patent box regime offers an optional reduced French corporation tax rate of 10% on profits derived from patents and similar intellectual property (subject to nexus requirements).
Intra-group transactions – anti-avoidance rules including transfer pricing
Various French anti-avoidance rules may be relevant to intra-group transactions (in addition to the anti-avoidance rules mentioned above in relation to the tax deductibility of interest payments). These include:
- the general anti-abuse rule (GAAR);
- anti-avoidance directives; and
- the transfer pricing rules.
Sales tax/VAT
French VAT may apply to goods and services provided and received by a business established in France, depending on the type of supply.
Typically, a business can offset the VAT it pays on received supplies (input tax) against the VAT it charges on its own supplies (output tax), paying or reclaiming the difference.
Certain supplies, such as some financial services and some supplies of real property, are exempt from VAT. Input tax is not deductible if the relevant supplies are used by the business to make exempt supplies.
The current standard rate of VAT in France is 20%. Depending on the nature of the supply, a reduced rate of 10%, 5.5%, or 2.1% may apply instead.
Pillar Two
France has introduced a top-up tax as part of its implementation of the OECD’s global anti-base erosion rules, which will ensure that the effective tax rate (ETR) of the largest multinational groups is 15% in each territory in which they operate.
A multinational group is within the scope of the top-up tax in a fiscal year if it has a consolidated revenue in excess of €750m (based on the consolidated financial statements of the group’s ultimate parent for that period) in at least two fiscal years of the previous four fiscal years.
Use of trading losses
A French resident company that has incurred a loss in a fiscal year can generally use that loss to reduce its liability to corporation tax by:
- making a claim to set it against total profits of the fiscal year preceding the fiscal year in which the loss was incurred (capped at EUR 1 million); and/or
- carrying it forward to set it against future profits of the same trade in future fiscal years (capped at EUR 1 million of taxable profits and 50% of taxable profits in excess of this).
Surrendering losses within group
If a French resident company is a member of a group, its income (whether a gain or loss) will be added to those of the other entities that are part of the group. The group’s total income may be a loss, in which case it will be attributed to the group companies, whether carried forward or carried back, in the same manner and within the same limits as set out above.
Payroll taxes relating to employing staff in France
In general, salaries paid to French employees of a French resident company are subject to French income tax and Social Security contributions (SSCs). French SSCs are twofold: they are borne by employees (at a rate of around 20% of the gross salary) and employers (at a rate ranging from 25% to 42% of the gross salary, depending on the company).
The French resident company is responsible for deducting the amounts owed by employees from employees’ pay and remitting them to the French Tax Authorities.
French SSCs (employee and employer portions) are withheld and paid by the French resident company to the French Social Security Authorities.
Tax issues relating to secondees sent from China to French resident company
In general, remuneration paid to a Chinese resident individual in respect of an employment exercised in France may be taxed in France. However, the remuneration is instead generally taxable only in China if:
- the secondee is not present in France for more than 183 days in any 12 month period commencing or ending in the relevant fiscal year;
- the secondee’s remuneration is paid by, or on behalf of, a non-French resident employer; and
- the remuneration is not borne by a permanent establishment or a fixed base which the employer has in France.
France has signed a reciprocal social security agreement with China but this agreement has not been ratified, therefore it cannot be applied. Chinese workers in France must therefore contribute to the French social security system through the payment of SSCs.
Specific incentives apply to encourage international mobility. France has a special inpatriate regime designed to attract employees to France by providing partial income tax exemptions, subject to certain conditions and for a limited period (up to 8 years).
Tax on disposal of shares in French resident company
Chinese resident companies are subject to French tax on capital gains realised on the sale of the shares in a French real estate entity. Chinese resident companies holding more than 25% of the shares in a French company are also subject to capital gains tax in France.
Tax rates vary from 3% to 25%.
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