Doing Business in France

2011

Contents
1. 2. 3. 4. 5. 6. 7. 8. 9. Introduction...................................................................................................2 Businessenvironment..................................................................................3 Foreigninvestment.......................................................................................8 SettingupaBusiness .................................................................................11 . Labour..........................................................................................................22 Taxation.......................................................................................................28 . Accounting&reporting.............................................................................40 UHYfirmsinFrance..................................................................................43 UHYofficesworldwide.............................................................................43

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1.

Introduction

UHYisaninternationalorganisationprovidingaccountancy,business managementandconsultancyservicesthroughfinancialbusinesscentres inover81countriesthroughouttheworld.Businesspartnerswork togetherthroughthenetworktoconducttransnationaloperationsfor clientsaswellasofferingspecialistknowledgeandexperiencewithintheir ownnationalborders.Globalspecialistsinvariousindustryandmarket sectorsarealsoavailableforconsultation. Thisdetailedreportprovidingkeyissuesandinformationforinvestors consideringbusinessoperationsinFrancehasbeenprovidedbytheoffice ofUHYrepresentatives: UHYGVA Tel: +33145007600 Web: www.gva.fr Email: gva@gva.fr YouarewelcometocontactMurielNouchyforanyinquiriesyoumay have. Informationinthefollowingpageshasbeenupdatedsothattheyare effectiveatthedateshown,butinevitablytheyarebothgeneraland subjecttochangeandshouldbeusedforguidanceonly.Forspecific matters,investorsarestronglyadvisedtoobtainfurtherinformationand takeprofessionaladvicebeforemakinganydecisions.Thispublicationis currentatFebruary2011. WelookforwardtohelpingyoudobusinessinFrance.
UHYGVA(theFirm)isamemberofUrbachHackerYoungInternationalLimited,aUK company,andformspartoftheinternationalUHYnetworkoflegallyindependent accountingandconsultingfirms.UHYisthebrandnamefortheUHYInternational network.TheservicesdescribedhereinareprovidedbytheFirmandnotbyUHYorany othermemberfirmofUHY.NeitherUHYnoranymemberofUHYhasanyliabilityfor servicesprovidedbyothermembers.

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2.

Business environment

TheFrenchConstitutionandGovernment Underthe1958Constitution,Franceisaparliamentaryrepublic.The PresidentistheHeadoftheStateandhemonitorsthefunctioningofthe democraticinstitutionsinaccordancewiththeConstitution.ThePrime Ministerisinchargeofthedaytodaypolicy. Thecountryisgovernedbyabicameralparliament.Thiscomprisesa HouseofRepresentatives(AssembleNationale)electedeveryfiveyearsby universalsuffrageandaSenate(Snat)ofdirectlyelectedrepresentatives fromtheregionsanddepartments. MetropolitanFrancecomprisestwentytworegionswithatotalofninety sixdepartments.Theregions,departmentsorcommunitiesshareinthe centrallycollectedtaxrevenues.
Valenciennes Cambrai Orlans Auxerre Strasbourg

GVA,Paris

Bordeaux StMdardenJalles Cadillac

Lyon Saint Etienne

Montpellier Avignon Frontignan Nmes Perpignan AiguesMortes GrouxlesBains Grauduroy Mze Ste Thuir

Nice Cannes

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 Thedomesticmarket Population:AsofJune2010,Francehad65.4millioninhabitants,makingit the21stmostpopulouscountryinworldandthe2ndintheEuropean UnionafterGermany.Threequartersofthepopulationliveinthecities. Area(Metropolitan):547,000sq.Km.includingCorsica. Populationdensity:97inhabitantspersquarekilometerinmetropolitan France. Currency:Euro Language:French. Theeconomy Theservicesectoraccountedfor74.2%oftotalemploymentin2010 comparedwithagriculturewith4.4%.Theindustrialsectorhassufferedan importantdeficitinforeigntradeduetotheincreasedcompetitionofFar East. Thepresentobjectiveis,amongothers,toemphasizetheFrench competitivenesstowardsearlydevelopedcountries. Economicsectors(in%ofemployment)
4,40%

21,40%

Serv ices Industry Agriculture

74,20%

ThetotalGrossDomesticProductis1,950billionEurosfor2009,which givesanincreaseof2.5%since2007 In2009,itsgrowthrateof0.6%isclosetotheEurozoneaverage(0.7%) andtheUSfigureof0.8%.

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Becauseofthefinancialcrisis,theeconomysloweddowninallareas. Althoughtheglobaleffectwasinternationallyhigh,Francebenefitedfrom itsrelativelylittleexposure(comparetoothermoreexposedcountrieslike USA)andkeepastrongpublicspendingpolicyinothertomaintainahigh levelofdemand. Unemployment Unemploymenthasincreasedsince2008toreacharateof10%ofthe activepopulation,whichishigherthantheEuropeanaverage(9.6%). PricesandInterestRates Insupporttotheglobalefforttopreventcollateraleffectfromthecrisis, interestrateforthesecondquarter2010amountedto3.3%,which representsasignificantdecreasesince2008(4%). Theinflationratefor2010isof1.6%comparedtothe2009ratesof0.5% andthe2008rateof3.6%. Foreigntradeandthebalanceofpayments In2007,theexchangesstillprogressinFranceaswellasintheEuropean Union.Theexportshavedecreasedby17%andtheimportsby15%.The threebestclientsofFranceareGermany,SpainandItaly.Germanyis alsothebestsupplierofFranceaheadofItalyandBelgium. In2009,theFrenchcommercialdeficitamountedto42billioneuros,versus 54billioneurosfor2008. Tourism,asanyotheractivity,sawitsleveldecreasein2009by4.3%.The balancealsokeptdecreasingfrom8.5billioneurosin2008to7.4billion eurosin2009.Francestillremainstheworldsmostpopulartourist destination,havingwelcomed74millionvisitorsfromabroadin2009 TheFinancialSystem Centralbank On1June1998,anewinstitutiontheEuropeanCentralBank(ECB)was setuptoimplementasinglemonetarypolicytheEuro.Itsheadquarters isinFrankfurt.TheECBandthenationalcentralbanksofalltheEU memberStatestogetherformtheEuropeanSystemofCentralBanks (ESCB). ThebasictasksoftheESCBaretodefineandimplementthemonetary policyoftheEuroarea,conductforeignexchangeoperationsunderthe

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communitysforeignexchangepolicyandholdandmanagetheofficial foreignreservesoftheMemberStates.Itshouldbenotedthat,inthefield offoreignexchangepolicy,thereissharedresponsibility. Inadditiontothesinglemonetarypolicy,theESCBisalsoresponsiblefor ensuringthesmoothoperationofpaymentsystemsandforcontributingto theeffectivenessofthepoliciesimplementedbythecompetentauthorities forprudentialsupervisionofcreditinstitutionsandforthefinancial systemstability. TheBanquedeFranceisanintegralpartoftheEuropeanSystemof CentralBanksdefinedbytheMaastrichTreaty.Itparticipatesinthe performanceoftasksandachievementofobjectivesassignedtothis systembytheTreaty. Commercialbanks Thecountryscommercialbankcategorynowincludesawiderangeof institutions: Majordepositbanks(banquesdedepots)withextensivedomestic andinternationalnetworks; Formermerchantbanks(banquesdaffaires)withfewerbranchesin Francebutstronglinkswithindustry,andastronginternational orientation; CreditAgricole,thelargestinstitutionprovidingbanking servicesandothercooperativeandmutualservices; Foreignbanks,numberinggenerallythroughlocalbranches. Otherfinancialinstitutions AnumberoffinancialinstitutionsinFranceofferawidevarietyof financialservices.Theseinclude: Savingsbanks Leasingcompanies Venturecapitalfirms Governmentsponsoredfinancialinstitutions,whichprovidecredit facilitiestoexportingcompaniesandtosmallandmediumsized businessesforfixedassetsfinancing. Shorttermfinance Shorttermfinanceiseasytoobtainfromspecializedinstitutionssuchas banks:discountingofbills(escompte)isthemostcommonlyusedmethod offinanceinFrance;overdraftorloanfacilitiesaresourceswhichareused lessfrequentlyinFrancethaninothercountries. Othermethodsoffinancingareavailablesuchas:assignmentofdebtsand factoring.

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 Financialcrisis Although2009wasaroughyearintermsofgrowth,employmentand touristicattraction,theFrenchfinancialsystemwaslessexposedtothe crisisthanmostotherEuropeancountries.

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3.

Foreign investment

Exchangecontrols TheacquisitionandcreationofaFrenchbusinessbyaFrenchnonresident (EUresidentornot)hasbeenfreeofexchangecontrolsince1996. However,foreigninvestmentsinFrancebynonresidentsmustbe reportedtotheFrenchTreasurywhentheyareearnedout. ForeigninvestorsshouldbeawarethattheFrenchExchangeControl authoritieshaveawidecontroloverthetypesofinvestmentsinexisting Frenchenterpriseswhichmaybeconsideredasdirectinvestmentsand thereforesubjecttotheabovereportingrequirements. Transactionssubjecttoexchangecontrolformalitiesmayconsistofloansor financialguarantees.Ingeneral,however,aforeigninvestorwillonlybe deemedtobemakingadirectinvestmentinFrancewhenheacquiresat least20%ofthecapitalofaquotedFrenchcompany.Theacquisitionof 33.33%isdeemedtobecontrolledforthesepurposes. Investmentsineconomicsectorsthatareconsideredsensitive(public healthandsecurity,manufacturingortradeinweaponsormilitary equipment)arestillsubjecttoapriorauthorizationeveniftheyoriginate fromtheEU. Mergersandotherreorganizationschemes(spinoff) Reorganizationsandacquisitionscanbeeffectedthroughmergers.Even thoughitisarelativelycomplexandtimeconsumingprocedure,ithasthe advantageoffallingwithinwelldefinedtaxrulesandallowinga comprehensivetransferofassetsandliabilities,generallywitha retroactiveeffectgoingbacktothebeginningofafiscalyear. Suchaschemeisapplicabletostraightforwardmergers,withliquidation oftheabsorbedcompany,aswellastopartialcontributionofassetswhere thecontributingcompanyremainsinexistence.Thislaterschemeisoften utilizedtotransferadivision. Thetaxcodeprovideswhatittermsafavourablesystem(option).The contributedassetshavetoberegisteredinthebeneficiarycompanyin accordancewiththeFrenchaccountingregulation(Accountingstandard CRC200404): Amergerbetweenaffiliatedcompaniesandoptiontothe favourablesystem:thecontributedassetsareregisteredatthenet

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bookvalue.Inthiscase,thefavourablesystemconsistsinthe temporaryexemptionfortheabsorbedcompanyofthenetcapital gains.Inreturn,thebeneficiaryhastofulfilsomeobligationsto allowthefuturetaxationofthecapitalgains(suchasspecific declarationofexemptedassetstojointotheannualtaxreturnand covenantinthemergeragreement). Amergerbetweennonaffiliatedcompaniesandoptiontothe favourablesystem:thecontributedassetsareregisteredatthereal value.Inthiscase,thebeneficiarycompanyhastoreinstallinits annualtaxableincomecapitalgainsspreadoverafiveyearperiod (15yearsforbuilding,plantationorfittingsoflands).The cumulativedeficitsoftheabsorbedcompanyarenowtransferred withnolimitationtothebeneficiarycompanyifthefollowing conditionsaremet: o Previousapproval(automaticright)bythetaxauthorities; o Optiontothefavorablesystem; o Undertakingtokeeptheabsorbedcompanygoingforthree years. Afteroptiontothefavourablesystem,contributionstotheabsorbing companyaresubjecttoafixedregistrationdutyof375Euros(capital< 225,000Euros)or500Euros(capital>=225,000Euros). Ifthefavourablesystemdoesnotapply,theabsorptionofonecompanyby anotherwouldbeconsideredfortaxpurposesasawindingupofthe targetcompanyresultingintheimmediatetaxationofalldeferredincome andunrealizedcapitalgains. Legalconsiderationsforamergermaybecomplex,sophisticatedand expensive.Investorshavetoconsiderhowtheywillproperlydischarge theircontractualobligations.Yetthemostdifficultpartofamergerprocess isappraisingthevalueofcontributedassets,aswellasthetradingvalueof theabsorbingcompany.Forthispurpose,oneorseveralmerger appraisers,whoarethirdpartyexperts,areappointed.Itisessentialto considertheirfindingsbeforeproceedingwithanymergerprocess. Ingeneral,Frenchappraisersarereluctanttocertifyanyvalueforgoodwill andotherintangibleassets.Inadditiontothisdifficultvaluationprocess, mergersrequireathoroughreviewofaccountingandlegalissues,which usuallytakesanaverageofovertwomonths.

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Dueto1992EUDirectiveonmergers,ifeithertheabsorbedorthe contributedcompanyislocatedinFrance,noFrenchtaxwillbeleviedon capitalgainsobtainedfromcrossborderreorganizations.Howeverabetter approachispossible.Itconsistsofpurchasingallthesharesofasubsidiary andwindingitup. Asaresultofthewindup,allassetsandliabilitiespasstothesole shareholder,withoutamergerprocess.However,themaindisadvantageis thatthereisnoretrospectiveaffectandadversetaxconsequencesmay result.

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4.

Setting up a Business

ForeigninvestorswhointendtoconductcommercialactivitiesinFrance canchoosefromawiderangeoflegalentities.Thechoicewilldependon businesspriorities. Soletrader Therearefourpossiblewaysforanindividualtogointobusiness: Asasoletrader(entrepriseindividuelle); AsasoletraderofanEIRL(EntrepriseIndividuelle ResponsabilitLimite); AsthesolepartnerofanEURL(EntrepriseUnipersonnelle ResponsabilitLimite); AsthesolepartnerofanSAS(calledSASUSocitparActions SimplifieUnipersonnelle).

Thesoletrader Asoletraderisconsideredtobeanindividualwhocarriesonabusiness onaregularbasis.Thesoletraderiswhollyresponsibleforhis/her businessandevenhis/herpersonalpossessionsmaybeusedasa guaranteeincaseoffinancialdifficulty. AutoEntrepreneur(verysmallsizedcompaniescalledmicroenterprises) Since1January2009,theFrenchgovernmenthasmadeiteasiertoforma smallsizedcompanyinrespectoflegalandfiscalprovisions: Registrationtothebusinesscourtisnotnecessary; Paymentofincometaxwithdeductionatsource; Paymentofsocialcontributionwithdeductionatsource; Exemptionfrombusinesstaxfortwoyearsafterformingthe company.

Thisfiscalplanisreservedtomicroenterpriseswhoseturnoverhasto beunder80,000eurosforcommercialbusinessandunder32,000eurosfor services.ThesecompaniesarenotliableforVAT. Thepaymentofincometaxisdeductedatsourceasfollows: Commercialactivities:13%ofannualturnover Servicesactivities:23%ofannualturnover.

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 EIRL(effectivefrom2011) Thesoletraderaffectsspecificpossessiontohisorherbusinessbyan officialstatement.Onlythesespecificpossessionsmaybeusedas guaranteeincaseoffinancialdifficulty. EURL(EntrepriseUnipersonnelleResponsabilitLimite) TheEURLisaSARL(privatelimitedcompany)withonlyonepartner.The legalrequirementsarebasicallythesameasfortheSARLandare describedbelow. Theliabilityofthesinglepartnerislimitedtotheamountofitsinvestment. CommonFrenchlimitedcompanies Publiclimitedcompany(SocitAnonymeS.A.) TheFrenchlegalformclosesttoaUScorporationistheSocitAnonyme. TheincorporationofaSocitAnonymerequiresaminimumofseven shareholdersandaminimumcapitalof37,000Euros(225,000Eurosifthe sharesaretobequotedonthestockexchange). Atleast100%ofthesharecapitalmustbesubscribedatincorporation;only 50%mustbepaidatthesetup. Theliabilityofshareholdersislimitedtotheamountoftheirinvestment. Theshareholdersmeetatleastonceayeartoapprovetheannualfinancial statementsandtodecidewhetherprofitswillbedistributedorretained. Directorsormembersofthesupervisoryboard(Conseildesurveillance) andstatutoryauditors(CommissairesauxComptes)arealsoappointed anddismissedbyshareholdersingeneralmeeting.Statutoryauditorsare engagedforasixfinancialyearperiod. Simplemajorityrulesapplyatannualshareholdersmeetings.Ifmajor decisionshavetobemade,suchasamergerorachangeinthearticlesof association,anextraordinaryshareholdersmeetingmustbeheldand qualifiedmajorityruleapply(twothirds). Management Daytodaymanagementcanbestructuredintwodifferentways.AnSA mayeitherhaveaBoardofDirectors,aChairman(Prsidentduconseil dadministration)andaChiefExecutive(DirecteurGnral)oran

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ExecutiveBoard(Directoire)workingunderthecontrolofasupervisory board(Conseildesurveillance). BoardofDirectors TheBoardofDirectorsmustbecomposedofaminimumofthreeanda maximumof18members(Administrateurs).Theyareappointedforthree yearsforthefirstonesdesignedbythearticlesofincorporation.Their tenurecanbeextendeduptoamaximumofsixyearswhentheyare appointedduringthecourseofthebusiness. Since1January2009anewlaw(loipourlamodernisationdelconomie) canceledtheobligationfordirectorstohaveatleastoneshareofthe companyexceptifitslaiddownbythememorandumandarticlesof association. TheBoardofDirectorsappointsthePresident(whomustbean individual),whoisinchargeofthemanagement,theorganizationandthe presentationoftheBoardactivitiestotheshareholdersmeeting. ThePresidentandtheChiefExecutivehavebroadpowerstoactonbehalf ofthecompany.TheChiefExecutivecanbeelectedamongtheBoard members,butmaynotbeaBoardmemberofthecompany.TheChief Executiveisresponsibleforthecompanysmanagementandcanbe assistedbyoneormoredeputymanagers. ExecutiveBoardandSupervisoryBoard TheExecutiveBoard(Directoire)hasamaximumoffivemembers(seven inquotedcompanies)whoarenotnecessarilyshareholders.Theyare generallyappointedforfouryearsbytheSupervisoryBoard(Conseilde surveillance)whichiscomposedofthreetoeighteenmemberswhoare electedbyshareholdersatageneralmeeting. TheSupervisoryBoardhaspermanentcontrolovertheExecutiveBoard anddefinesmajorbusinessgoals. SAS SASisaspecificsimplifiedtypeofSAsetupbyaminimumofone shareholder(individualorcorporation).Since1January2009,nolegal minimumcapitalisrequired.SASmayproveusefulinsettingupajoint venturebecauseitsarticlesmaybelessonerousthanthosethatnormally applytotraditionalSAs.

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Theshareholdersarefreetochooseinthearticlesofassociationthe structureofmanagementanditsfunctions.Nevertheless,aPresidentmust beappointedtorepresentthecompany. Since1January2009,nostatutoryauditorisrequiredinsmallsizedSAS (turnover<2millioneuros,balancesheet<1millioneuros,staff<20). Privatelimitedcompany(SocitresponsabilitlimiteorSARL) SARLmayhavenomorethan100shareholders.Shareholdersareliablefor theircapitalcontribution.Asacommonpractice,standardsharecapitalis 7,500euros,20%mustbepaidupatthesetup.Itcouldbereducedatonly 1euro. SARLisrunbyoneormoremanagers(Grants),whomaybeappointed bythearticlesofincorporationorbyamajoritydecisionofshareholders. Theymaybechosenamongtheshareholdersthemselvesoramongthird parties.IfthemanagerisanonEUcitizen,heorshemustobtaina residencepermitorreceiptofstatementattheprefecture(administrative authority).Themanagermakesallmanagementdecisionsonbehalfofthe companyandhe/shemaybeheldpersonallyliableunderciviland criminallaw. Theshareholdersexercisetheirrightsatshareholdersmeetingstoapprove theconductofthebusinessandtomakemanagementdecisions. Shareholdersresolutionsrequireasimplemajorityvoteforapproval unlesstheychangethearticlesofassociation,inwhichcasea66%majority isrequired. NostatutoryauditorisrequiredinsmallsizedSARL(turnover<3.1 millioneuros,balancesheet<1.55millioneuros,staff<50) Partnerships GeneralPartnership(SocitennomcollectifSNC) Ageneralpartnershipisacommercialcompanyforminwhichallofthe associatesareconsideredasmerchantsandjointlyandseverallyliablefor thepartnershipsliabilities. Despitethissignificantdrawback,SNCsareoftenusedbecauseoftheir flexibility(nominimumsharecapital,noBoardofDirectors,minimumof twopartners,possibilityofdividendrightsexistingindependentlyof votingrightsandcapitalcontributions).

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TheSNCisnotdirectlysubjecttoincometax.Profitsaretaxableaspartof eachmemberincomeinproportiontohis/herinterestinthepartnership. LimitedPartnership(SocitencommanditesimpleSCS) TheSCSstructure,seldomusedinFrance,includes: Oneormoregeneralpartners(calledCommandits)whomanage thecompanyandareresponsiblefordebtsincurredbythe company; Oneormorelimitedpartners(calledCommanditaires)whose liabilityislimitedtotheircapitalcontribution.Limitedliability partnersarenotallowedtoparticipateinthemanagementofthe company.Theirlegalstatusissimilartotheoneofapartnerofan SARL.Thereisnolegalminimumcapital.

LimitedPartnershipbyshares(SocitencommanditeparactionsSCA) Similartothepreviouscategoryexceptthatthesharesarenegotiableand thatthestatusofthelimitedliabilitypartners(Commanditaires)issimilar toashareholdersinaSA.Aminimumcapitalof37,000eurosor225,000 eurosiftheSCAisquotedisalsorequired. Otherformsofbusinessorganizations IntercompanyPartnership(GroupementdintrtconomiqueorGIE) AGIEisnotacompanybutanassociationofcompanieswishingto developcertainactivitiestogether(e.g.research,marketing,jointsalesand exports)whilstretainingtheirindividualityandindependenceinother areas.AGIEhasalegalpersonalityandmaybecreatedwithorwithout capital.Itsobjectivesmaybecivilorcommercial.AGIEisflexibleand membersarefreetodefineitsinternalregulations.AGIEistransparentfor taxpurposes.Itsmembersareliableforitsdebts. Jointventure(SocitenparticipationSEP) Ajointventureisnotordinarilydisclosedtothirdparties.Thepartners makeallmanagementdecisions. Partnersareindividuallyliabletothirdpartiesandsharetheoperating results. ASEPisrequiredtoregistereachactivepartnerwiththeTradeRegister.It canbeaciviloracommercialentity. Branchofaforeignenterprise(Succursale) Branches(Succursales)arepreferredbysomeforeigninvestorsbecauseof theirlessonerouslegalrequirements(onemanager,nominimumcapital,

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noarticlesofincorporation).Someinvestorsalsofeelthattheprocedures involvedinsettingupabranchareeasier.Inpracticehowever,itisneither easiernorquickertoformabranchthantosetupalimitedliability company.Becauseithasnoseparateidentity,thebranchissubjecttoall lawsapplicabletotheforeigncompanytowhichitisrelated. BeforeopeningabranchinFrance,aforeigncommercialcompanymust filetwocertifiedcopiesofitsarticlesofincorporation,translatedinto French,withtheCommercialCourtandthefilesmustbekeptuptodate. ThebranchmustalsoberegisteredwiththeTradeRegister.Eachyear,the foreigncompanyhastopublishtotheCommercialCourtitsownaccounts translatedintoFrenchandcertifiedbytherepresentativeasatruecopy. Liaisonoffice(Bureaudeliaison) Theliaisonofficeisnotaseparateanddistinctlegalentitywithrespectto theforeigncorporationofwhichitisapart.Itssolepurposebeingto collectinformationonthemarketandpromotethecorporationsbusiness, itisnotallowedtodealwithcommercialactivities.However,liaison officesmustberegisteredwiththeTradeRegisterandtheirmanaging directorsmusthaveresidencepermitorreceiptofstatementatthe prefecture(administrativeauthority). Civilcompany(SocitCivile) Thiskindofcompanyisempoweredtotakeoncivilthatarenon commercialoperations.Themembersareliableindefinitelyforthe companysdebts. BusinessIncentives Financialincentives ForeigncompaniesstartingabusinessinFranceareeligibleforfinancial assistanceunderthesameconditionsasFrenchcompanies.Thisassistance isofferedasanincentivetoencourageregionaldevelopmentandtoavoid overindustrializationincertainareas. Thereforeitisessentialtochoosetherightlocation.Variousincentivesare offeredtocompaniesincludingregionalgrantsand/orsubsidiesfor startingacompanyorforjobcreation.Loans,advancesandreduced interestratesofferedbyvariousregions. Taxincentives Corporatetaxexemption Forcompanieslocatedinspecifiedareas(AFRAidefinalitrgionale, ZRRZonedeRevitalisationRurale),newexemptionshavebeencreated. 16

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Companieslocatingtheirinvestmentintheaboveareasmayalsobenefit fromothertaxbreakssuchas: Reducedratesoftransferduties Exemptionfromlocaltax(CET) Taxcredits.

Thenewstartupfirms(JeunesEntreprisesInnovantesJEI)registeredfor lessthaneightyearsandwhichspendeachyearmorethan15%oftheir expensesinresearchanddevelopment,andcontrolledbymorethan50% individualsorspecificcompanies,aretaxexempt.Thistaxexemption consistsin100%freeforthreeyearsoftaxableprofitandthen,in50% reducedlevelsoftaxexemptionforthetwofollowingtaxableyears.This taxexemptionisstrictlyapplicabletothemediumsizedfirms(i.e.less than250employees,andincomebelow40millioneurosortotalofbalance sheetbelow27millioneuros). Theyalsobenefitfromatotalexemptionofminimumannualcompanytax (IFA)duringtheirJEIperiod.Theycanalsoaskforanexemptionof businesstaxandrealestatetaxforsevenyears. Thesetaxbenefitsarelimitedto200,000eurosforeachperiodof36months (minimisceiling). ThesestartupfirmsmayalsobenefitfromCrditdImptRecherche CIR(seep.20)andCrditdimptpourdpensesdeprospection commerciale(seep.21) Until31December2013,companiescreatedtotakeoverotherenterprises whicharenearlyoreffectivelybankruptareentitledtoatwoyear corporatetaxexemption. Taxcredits OnR&Dexpenses:Crditdimptrecherche(CIR) CommercialandindustrialcompanieswhichareinvolvedinR&D programscouldobtainthebenefitofataxcreditonoption.Thetaxcredit isbasedonemployeesalaries,somesubcontractingentitiescosts, depreciationifdedicatedtoR&D.Since1January2008itrepresents30%of thepartofyearlyR&Dexpensesunder100millioneurosand5%forthe partofexpensesmorethan100millioneuros.Forcompanieswhichbenefit fromthistaxexemptionforthefirsttimeorwhichhavenotbenefitedfrom itforfiveyears,theCIRrepresents40%oftheR&Dexpensesforthefirst yearand35%forthesecondyear.

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 ThistaxcreditonR&Dexpenseshasaceilingof16millioneurosforeach company.Since2009,ifthetaxcreditCIRcantbechargedontheincome tax(forexample,negativeincometax),itwillbepaidimmediately,only forsmallandmediumsizecompanies.Weimaginethatthetaxauthorities willbeinterestedinauditingcompaniesapplyingforthistaxcredit. Oncommercialprospectexpenses(Crditdimptpourdpensesdeprospection commerciale) Smallandmediumsizedcommercialandindustrialcompaniescould obtainthebenefitofataxcreditontheircommercialprospectexpenses. However,companiesareconcernediftheyrecruitoneemployeewhois dedicatedtothedevelopmentofexportbusiness.Thecredittaxrepresents 50%oftheallocatedexpensesspentduring24monthsafterthis employmentwithaceilingof40,000euros.Thiscredittaxmaybe refundable. Onapprenticeshipprogramexpenses(Crditdimptapprentissage) Commercialandindustrialcompanieswhichincurapprenticeship programscouldobtainthebenefitoftaxcredits.Thesecompaniesreceive 1,600eurospertrainingpersonwithaceilingofthewageofthese apprentices. Onbusinesssponsoring(Mcnatdentreprise) Donationstospecificworks(ascharityorNGO)giverighttotaxcredit, whichrepresents60%ofthedonation,withaceilingof0.5%oftheannual turnover.Thetaxcreditmaybecarriedforwardtothenextfivefollowing fiscalyears. Othercredit Oncinemaoraudiovisualexpenses(cinematographicproduction firms). Ontrainingexpensesforthemanagers/directors. Onfamilyexpensesengagedbythecompaniesonbehalfoftheir employees. Forinvestmentinnonpollutingvehicles,etc.

Accelerateddepreciation: ToencourageinvestmentsinFrance,exceptionalaccelerateddepreciation hasbeenputintoplace.But,toavoidanyfiscalrisk,apreviousagreement

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mustberequestedfromthetaxauthorities.Theexceptionalaccelerations are: Onsoftware; Onexpensesforacquisitionorcreationofawebsite; Onlowenergypoweredequipment; Onenvironmentalinvestmentssuchasantipollutionbuilding, soundproofequipmentandnonpollutingvehicles; Onresearchequipmentforspecificdiseases.

Companiesbuildingbusinesspropertiesincertainspecificareasmay depreciate25%ofthecostinthefirstyearaftercompletion. Contracts Themostfrequentlyencounteredtypesofmarketingagreementscanbe splitintotwocategories:commercialagentsanddistribution arrangements. Commercialagents Acommercialagencyisthemostcommonmeanofdistributionusedin France. Acommercialagentcanbeastatutorysalesrepresentative(VRP)ora commonlawemployeecommercialagent.AsaVRP,heorsheis consideredasanemployeeforlaborlawpurposesandmustfulfilla certainnumberofconditions.Acommonlawemployeecommercialagent isnotconsideredasastatutorysalesrepresentativebutisanemployee underFrenchlaborlaw. Acommercialagentcanalsobeanindependentcommercialagent.Heor shemustberegisteredwiththecompetentCommercialCourtandmust holdacommerciallicense.Acommercialagentisanindependent contractorforlaborlawpurposesbutheorsheisnotamerchantfor commerciallawpurposes. Unlessdismissedforaprofessionalfault,VRPandindependent commercialagentsarelegallyentitledtoaseveranceindemnityin considerationfortheincreasewhichtheyaredeemedtohavecreatedin thevalueofthegoodwillinthebusiness. Distributionarrangements

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Adistributionarrangementis,infact,apurchaseandsaleagreement wherebythedistributoriscompensatedforitsservicesbyagrossmargin onsales. ThreemaintypesofdistributionarrangementsareconsideredbyFrench commerciallaw: 1. Supply,purchasing,orselectivedistributionarrangements: Asupplierarrangement(contratdefournitures)isacontractbywhich asupplieragreeswithitsdistributorontheconditionsforsubsequent deliveriesofgoods. Apurchasingarrangement(contratdapprovisionnement)isan agreementunderwhichadistributoragreeswiththesupplieronthe conditionsforsubsequentpurchasesofrelevantproducts. Underaselectivedistributionarrangement(contratdedistribution selective),asupplierwhichwishestomaintainthereputationofits productsarrangestosupplyonlythosedistributorsselectedand approvedbyitsownentityasworthytodistributetherelevant products. Essentially,thepartieshavetodeterminewhethertheagreementison anexclusiveornonexclusivebasis,foraspecificorundetermined territory,orforalimitedorunlimitedperiodoftime. 2. Exclusivedistributioncontracts

UnderFrenchlaw,anexclusivedistributionarrangement (contratdeconcession)isanarrangementunderwhichasupplier agreestodeliverspecifiedproductsonlytoasingledistributorina givengeographicterritoryandthedistributoragreestopurchasethese productsonlyfromthesaidsupplierandnottosellcompeting products. 3. Franchisingagreement

Franchisingisamethodofclosecollaborationbetweentheownerofa marketingprocessandproductsknownasthefranchiserandseveral retailers,franchisees. Thecontractgenerallyincludes: Distributorshipofproductsbyfranchisees; Licensingofmarketing,tradenameand/ortrademark;

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Marketingservicesandotherrelevantsales.

Ifacontractprovidesfortheassignmentofatrademark,thismustbe registeredwiththeNationalInstituteforIndustrialProperty(INPI). Copyright,patents,trademarksandintellectualandindustrialproperties arefullyprotectedinFrance.Inthisrespect,Franceadherestomost relevantinternationaltreatiesandprovidesforcomprehensiveprotection throughitsdomesticregulationsandlegislation. Royaltiesarepaidfortheuseofintangibleassetsrecognizedasthe licensorspropertybycontractforknowhoworbylegalregistrationfor trademarks,patentsandcopyrights. Whenaroyaltyagreementissignedwithaforeignlicensor,thereisno needforanypriorapproval.However,acopyoftheagreementmustbe registeredwithINPI. AllthesecommercialagreementsmustalsobeclearedfromanEUlaw standpoint.

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5.

Labour

Employer/employeerelationslegislation RelationsbetweenemployersandemployeesaregovernedbytheFrench LaborCode,collectivebargainingagreements,companyregulationsand individualemploymentcontracts.Employmentcontractsmustbedrawn upforeachspecificjobcategory,accordingtoemploymentlegislationand collectiveagreementsinforce. Frenchlawdistinguishesbetweentwocategoriesofemploymentcontract: Permanentcontract(i.e.,concludedforanindefiniteterm) Temporarycontract(i.e.,concludedforaspecifiedperiodoftime). Temporarycontractscanbecreatedinthefollowingcircumstances: Forapermanentemployeeonleaveorabsent; Foratemporaryandoccasionalincreaseinbusiness; Forseasonalactivities; Aspartofgovernmentjobcreationschemestofightagainst unemployment. Tradeunions InFrance,theUnion(syndicat)isalocalunit,notanationalbody.Alocal unitisusuallyaffiliatedtoanationalfederationofunions,whichinturnis linkedtooneoffivenationalconfederations.Unionsaremostlybasedon industrysectorsratherthanonparticularcrafts.Theremaybeseveral differentunionsineachplaceofworkbecauseeachoftheconfederations hasadifferentideologicaloutlookeventhoughnoneisformallylinked withanyindividualpoliticalparty.Tradeunionsarepowerfuldespitethe factthatonlyalowpercentageoftheworkingpopulationareunion members. Employeesinfluenceonmanagement Frenchlawprovidesforseveralsystemsofrepresentationforemployeesof acompany: Companieshavingmorethantenemployeesmustappoint personneldelegates(dlgusdupersonnel).Delegatestakecareof individualandgroupcomplaintsaboutworkingconditions. Companiesofmorethan50employeesmustformaWorksCouncil (comitdentreprise).TheWorksCouncilsroleisessentially consultative.RepresentativeselectedtotheWorksCouncilhaveno

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powerofveto.However,theydohavethefinalsayinacompanys socialandculturalactivities. TheWorksCouncilmustbeprovidedwiththesameinformationasthat madeavailabletoshareholders. WorkingConditions Wagesandsalaries Aminimummonthlysalary(SMIC)mustbepaidtoallemployees.The presentminimumgrowthmonthlysalaryis1,365euros(January2011)for 35workinghoursperweek. EmploymentofForeigners Foreignworkersareentitledtothesameprotectionunderthelawas Frenchcitizens,providedtheyresideinFrance.Otherwisetheirrightsare restrictedunlessthereisatreatybetweenFranceandtheircountryof origin.SpecificlawsexistformembersoftheEU.Everyforeignworker residinginFranceandintendingtoseekemploymentmustobtaina residentcard. MembersoftheEUareentitledtocertainadministrativeprivileges (simplifiedformalitiesinapplyingforaresidentcardandexemptionfrom obtainingaworkpermit).ExecutiveswhoarenotEUresidentsactingas legalrepresentativesofaFrenchcompanymustapplyforspecific accreditations. Workinghours Thelegalworkingweekis35hoursforallbusinesses.The35hour workingweekcanbearrangedtotakeintoaccounttheneedsofthe employer,accordingtothefollowingschemes: Variableworkingweek(mustreachanaverageof35hours) Workingcycles Supplementarydaysoff(RTT)tocompensatehoursworked beyond35hours. Thisarrangementhastobeagreedbetweentheemployerandthe employeesrepresentatives.

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Holidaysandvacations Accordingtothelaw,eachemployeeisentitledtotwoandahalfworking dayspaidleaveforeachmonthworked,orfiveweeksperyear. TheacquisitionofthevacationrightsgoesfromJuneN1toMayN+1 TheacquiredrightsofvacationcanbetakenfromMayN+1toAprilor MayN+2.FromMayN+1toOctoberN+1,aminimumoftendayshaveto betakentogether Theonlypublicholidaythattheemployerislegallyobligedtograntwith payis1Mayandmostbusinessescloseforanother10nationalpublic holidays.Monthlypaidemployeesarepaidfortheseholidays.Other employeesneednotbepaidunless,asfrequentlyhappens,acollective agreementprovidesotherwise. Overtimepayment Thelawonpurchasingpower(TEPAlaw)whichenteredintoforcein October2007exemptstheovertime(paid25%or50%more)fromsome socialcontributionsandpersonalincometax. Fringebenefits Specialpensionprogramsandadditionalhealthinsurancecomplementthe StateSocialSecuritysystem.Thechoiceisuptoeachcompanyandcan alsodependonanindividualemployeestatuswithinthefirm. Trainingindividualright(DroitIndividuellaFormationDIF) Withthismethodofaccesstotraining,eachemployeecouldconstitutea quotaoftraininghours,touseafteragreementoftheemployeronthe choiceofthetheme. Toeachfulltimeemployeeinpermanentcontractandhavingmorethan oneyearseniority,20hourscreditperyearfortrainingisallocated.Those hourscouldbecumulatedoversixyearswithamaximumof120hours. Theemployeemustfollowatrainingdefinedasprioritybythecompany orthebranchofactivity.Ifthesetrainingsarecarriedoutapartfromthe workinghours,anallowanceequalto50%ofthenetremunerationofthe employeeispaidbytheemployer. Whenanemployeeleavesacompany,thenumberoftrainingindividual rightsnottakenistransferabletothevalueof9.15eurosbyDIFhoursnot taken. 24

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Terminationofemployment Permanentemploymentcontractscanbeterminatedeitherbythe employee(resignation)orbytheemployer.Dismissinganemployeeis alwayspossible,providedthattheemployerhasajustandproperreason tojustifyit.Incasesofindividualdismissal,forwhateverreason, employersmuststrictlyadheretoestablishedprocedures. Collectivedismissalcanbejustifiedonlywhensevereeconomicupheaval affectsacompanysstructureoritsdaytodayoperations.Aplanmustbe drawnupincollaborationwithworkersrepresentativestominimizethe impactofsuchadismissalonemployees. Aconventionalbreakisanewproceduretoterminatetheemployment contract.Anagreementbetweentheemployeeandtheemployerisneeded toterminatetheemploymentcontract.Anagreementbythegovernmentis alsorequested.Thisprocedureassumesasmoothclimatebetweenthe employeeandtheemployer.Theproceduremustnotreplaceanother proceduretofinishanemploymentasdismissal Profitsharingplans Businessesemployingatleast50peoplemustsetupastatutoryprofit sharingplan. Goldenparachutes Inlistedcompanies,goldenparachutes(severancepay)giventodirectors orpresidentmustbepreviouslypermittedbymembersofdirectors. SincetheTEPALaw,goldenparachuteshavetobebasedondirectorsand companiesperformances.Fivedaysaftertheauthorizationofthemembers ofdirectors,theinformationrelatingtothegoldenparachutemustbe availableonthewebsiteofthecompany.Ashareholdersgeneralmeeting mustapprovethesegoldenparachutes.Goldenparachutes(severancepay) canbesubmittedtosocialcontributionsandtaxesincertaincircumstances (sinceJanuary2010) SocialSecurityscheme TheSocialSecuritysystem,whichisfinancedbytaxationandby contributionspaidbycompaniesandemployees,providessickness, disability,maternityandpaternitypay,retirementpensions,compensation forworkrelatedaccidentsorsickness,andfamilyallowances.Substantial allowancesarealsodistributedformedicalexpenses.Chargespaidbythe employerareequaltoapproximately45%ofgrosssalaries. 25

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Anobligationofinternetteledeclarationandtelepaymentforsocial securitycontributionshasbeensetup(iftheamountofsocial contributionspaidthepreviousyearhasreached150,000euros). ForeignersworkinginFranceareentitledtoFrenchSocialSecurity benefits. Forfaitsocialrecoveredbythesocialsecurityfund(URSSAF): Anewcontributioncalledforfaitsocialhasbeenimplemented.This contributionrepresents6%sinceJanuary2011oftheamountspaidto employeesonwhichsocialcontributionshavenotbeenpaid. Aresubmittedtothisnewcontribution(notlimitative): ProfitsharingandInteressement ParticipationoftheemployerincollectiveplansasPEEcollective retirementplanasPERCOadditionalsupplementarycollective retirementplan(abovestateretirementplans). Notincludedinthisnewcontribution(notlimitative) StockoptionsandRSU(restrictedstockunits) Participationoftheemployerinadisabilityplan. Indemnitiesforbreachoftheemploymentcontract(dismissalor conventionalbreak) Retirementandpension Foremployeescoveredbythegeneralscheme,theretirementpension systemisatwotieronewithabasicschemeandsupplementarycover. ThegeneralsocialsecurityschemehasfundsfederatedastheCNAVTS (NationalEmployeesOldAgeInsuranceFund).Thesupplementarycover isprovidedbyfundsbelongingtotwofederations:forexecutives,the AGIRC(GeneralAssociationofPensionsInstitutionsforManagement Staff),establishedin1947,andfornonmanagerialemployees,ARRCO (AssociationofSupplementaryPensionSchemes),setupin1961.Inthe caseofemployeescoveredbyspecialschemes,thesemostoftencombine thebasicandcompulsorysupplementarytiersinasinglescheme. Therearetwomaintypesofpensionschemes: 1.Schemesbasedonthenumberofcontributionyears(calculatedinyears andquarters).Almostallthebasicschemesandthespecialschemesfor publicsectoremployeesoperateinthisway.

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 2.Schemesbasedonthenumberofpointsobtained.Inthiscase, contributionscorrespondingtoasalaryfractionarepaidinannuallyand transformedintounitsofaccountwhicharecreditedtoanemployees individualaccount.Theamountofthepensionattheendofanemployees workinglifedependsonthenumberofpointscreditedtohis/heraccount andthevalueofthepointatthattime.Almostallthesupplementary schemesoperateinthisway. Anewlawhasbeenpromulgatedinordertoincreasetheretirementage, irrespectivelyofthegender,fromthecurrent60to62(effectivein2018), providedthattheyhadbeencontinuouslypayingsocialcontributionsfor 41.5years(effectivearound2020).Inanycase,peoplewillbeentitledto fullpensionattheageof67,regardlessofthenumberofyearstheyhave contributed. IncomeSupportRSA:RevenudeSolidaritActive InJune2009,anewminimumsubsistenceincomeforunemployedpersons withnounemploymentbenefitandwithoutmeansofsupporthasbeen implemented. InordertofinancetheRSA,anadditionalsocialcontributionof1.1%will beappliedoncapitalgains,profitofshortterminvestmentsand dividends.

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6.

Taxation

Thetaxsystem Maintaxes Thecentralgovernmentleviestaxesareatnationalandlocallevels.The mainnationaltaxesarecorporateincometax(imptsurlessocits), personalincometax(imptsurlerevenu),anumberofwithholdingand flatratetaxesonspecialcategoriesofincomeandvalueaddedtax(taxe surlavaleurajoute). Othernationaltaxesincludeinheritanceandgifttaxes,registrationand transfertaxesandminordutiesandfees.Themainlocaltaxesarereal estatecontribution(cotisationfonciredesentreprises),valueadded contribution(cotisationsurlavaleurajoutedesentreprises),dwellingtax (taxedhabitation)andrealestatetax(taxefoncire). Basiclegislation TaxationlawsareenactedbyParliamentandthenconsolidatedintothe GeneralTaxCode(CodeGnraldesImptsCGI).Appendicestothe CGIincludedecreesandregulationsthathavetheforceoflaw.Notes, instructionsandcircularsinterpretingthetaxlawsarepublishedbythetax authoritiesinbulletins,mostofwhichareavailabletothepublic.These bulletinsprovideguidanceinunderstandingtheinterpretationsand practicesofthetaxauthorities.TheCouncilofState(ConseildEtat,the highestcourtintaxmattershasasignificantinfluenceontaxlegislation throughitsdecisionsinlegalcases). Administration AdivisionoftheMinistryofEconomyandFinance,headedbya commissioner,administerstaxlaw.Taxinspectorslocatedintaxoffices throughoutthecountry,issueandreviewassessments.Paymentsoftaxare madetocollectors,notnecessarilylocatedinthesameofficesasthe inspectors.Taxrulingsareonlyobtainedinexceptionalcircumstances fromthetaxauthorities. Taxesonbusiness Thetaxationofbusinessprofitsisguidedbythemajorbasicconceptof territoriality.InaccordancewithArticle2061oftheFrenchGeneralTax CodeandtheprovisionsofmosttaxtreatiessignedbyFrance,corporate taxisusuallyassessedonFrenchprofitsofcompaniesregisteredinFrance

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andontheprofitsofFrenchpermanentestablishmentsofforeign companies. Taxableincome Thecompanysprofits,asdeterminedinaccordancewithgenerally acceptedaccountingprinciples,aresubjecttofewadjustmentsfortax purposesinFrance.Itemssuchasnonallowableexpensesonexcess depreciationareaddedback,whileothersarededucted.Itisworthnoting thatsomespecifictaxdeductionsareonlygrantedifrecordedinthebooks: forsuchitemsnoadjustmentsneedtobemadetobookincome.Thisisthe casefortheexcessofdecliningbalanceoverstraightlinedepreciation,as wellasforreservesforcostincreaseofinventories,whichisaprovision designedtoreplacetheLIFOmethod(presentlyprohibitedforbothtax andbookpurposes).Taxcredits,eitherFrenchorforeign,maybeoffset againstcorporatetaxbutcannotberefunded. Deductions Tobedeductible,expensesmustmeetthefollowingcriteria: They must be incurred in the direct interest of the business or be connectedwiththenormalmanagementoftheenterprise; Theymustbecertaininamountandmustbeincurredbytheendof therelevantyear; Theymustbeenteredintheaccountingbooksfortherelevantyear.

Nondeductibleexpenses Thefollowingexpensesarenotdeductible: Dividends Personalexpenses Corporatetax Incometax Liquidationsurplustax Companycartax Finesandpenalties Interestpaidtoshareholdersovercertainlimits Giftsovercertainlimits Certain profit transfers (for example, excessive royalty or interest paymentsmadebetweenrelatedparties) Excessivedepreciation. Inaddition,certainreservesareallowedfortaxpurposesonlywhenthe chargeisactuallyincurredandpaid(suchasorganictaxaccruals).

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 Longtermcapitalgains Longtermcapitalgainsweretaxableandappliedtofinancialassets (investment)heldformorethantwoyearsusedtobetaxedatareduced rateof19%untildistributed,atwhichtimeonlytheexcesspartofthe standardrateoverthereducedratewaspaid.Since2007,thesecapital gainsarenowexemptedfromtaxafterreinstatementintheincometax basisof5%ofthecapitalgain. Losses Carryforward Lossesincurredinoneyearmaybeoffsetagainstprofitsofthefollowing yearswithnotimelimit.Longtermcapitallossesmaybecarriedforward fortenyearsbutmaybeoffsetonlyagainstlongtermgains. Carryback Alossmaybecarriedbackandsetoffagainstacompanysundistributed profitsofthethreeyearsproceedingthelossmakingyear,settingoffthe lossfirstagainstundistributedprofitsofanearlieryearbeforethoseofa lateryearwithinthethreeyears.Theamountresultingofcarryingbackthe losscaneitherbeusedtopayothertaxes(VAT,taxesbasedonsalariesand futurecorporationtax)duringthefivefollowingyearsor,itcanbeasked forrefundafterfiveyears. CorporationTaxRates Thecurrentglobaltaxrateamountsto331/3%ofbusinessprofitsfor2011. Forthesmallandmediumsizecompanies,areducedtaxrateof15%is offeredonamaximumbaseof38,120eurosoftaxablebenefitfortwelve monthsperiodprofits.Twoconditionsarerequired:theturnovermustbe lowerthan7,630,000eurosandthesharecapitalmustbeownedina proportionofmorethan75%byindividualsorbyacompanymeetingthe sameconditions. Companieswhosecorporatetaxismorethan763,000eurosareliabletoa socialcontributionamountingto3.3%ofcorporatetax.Thiscontributionis notapplicabletosmallandmediumsizecompaniesasdefinedabove. Groupsofcompanies Underthefiscalintegrationprovisions(intgrationfiscale),agroup consistingofaFrenchholdingcompany(includingsubholdingsofforeign groups)anditsFrenchresident95%ownedsubsidiariesmayconsolidate itsresultsforcorporateincometaxpurposes,therebyoffsettingcurrent

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profitsandlosses.Thegroupassessmentismadeontheparentcompany astheonlytaxpayerliableforcorporateincometaxdueonthe consolidatedresults.Onlycompaniesthathaveconsentedtofiscal integrationandwhoseresultsaresubjecttocorporatetaxcanbemembers ofthegroup.Allthegroupcompaniesmusthavethesamefinancialyear end. Taxationofbranchesofforeigncompanies Profitsofabranchorofanotherpermanentestablishmentofanon residentcompanyarenormallysubjecttocorporateincometaxinthesame wayasthoseofaresidentcompany.Areasonableallocationofheadoffice expensesrelatingtoworldwideoperationsmaybechargedtotheFrench branchanddeductedincomputingitstaxableincomebutthetax authoritiesmayrequiretheproductionofthebooksoftheparentcompany beforeallowingthisdeduction.However,ifthetaxauthoritiesconsider thattheprofitscomputedfromthebranchfinancialstatementsdonot properlyreflecttheprofitsearnedfromoperationsinFrance,theyhave powertoattributepartoftheprofitsoftheparentcompanytothebranch, byreferencetotheprofitsearnedbysimilarentitiesinthesamelineof business. Theconversionofabranchintoasubsidiarycompanyistreatedasasale ofthebusinessandthecreationofanewcompany.Unrealizedcapital gainswillnormallybecomesubjecttotax.Lossesincurredbythebranch maynotbecarriedovertothecompany. Headquartersoperationsofforeignenterprises Headquartersoperationsofforeignenterprisesandinternationalgroups maybegrantedfavourabletaxstatusinFrance.Toqualify,headquarters mustactsolelyforthebenefitofeithertheforeignenterpriseorthegroup intheareasofmanagement,controlorcoordination. Corporateincometaxischargedonadeemedprofitequivalenttoa prescribedpercentageofheadquartersexpenses(costplusbasis).The percentageofthecost(theplus)mayrangefrom8%to12%dependingon thenatureoffunctionscarriedoutbytheheadquarters.Thisarrangement applieswhethertheheadquartersareorganizedasabranchorasaFrench subsidiarycompany. Withholdingtaxesareleviedonaftertaxprofitswhendistributed (subsidiary)orrealized(branch)atthetaxtreatyrate.

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HeadquartersservicesaresubjecttoVATatthestandardrateof19.6%. However,theyareconsideredimmaterialservicesbenefitingfromazero ratetreatmentwheninvoicedtoanynonEUcompanyortoanEU companythatisitselfsubjecttoVATinitsowncountryintheframeofthe reversecharge. Infact,onlyservicesinvoicedtoaFrenchoperatingcompanyareactually subjecttoVAT.Becauseofthezeroratebenefit,allinputVATincurredby aheadquartersofficeisfullyrecoverable(subjecttoexceptionsprovided bylaw). Headquartersoperationsaresubjecttotherealestatecontribution (cotisationfonciredesentreprises)andvalueaddedcontribution (cotisationsurlavaleurajoutedesentreprises)justlikeanyother company. Repatriationofpreorposttaxprofits Repatriationofpretaxprofits(intheformofpaymentsrepresenting interest,royaltiesorfees)isallowedwithoutpriorapproval.However, attentionmustbepaidtothearmslengthprinciplewhich,ifnotmet, couldleadtoareclassificationofthesepaymentsasdividendincome. OECDcommentaries,publishedinMultinationalCompaniesandTransfer prices,areoftenusedbytheauthoritiestodetermineiftheaboveprinciple ismet. Somecategoriesofpretaxprofitsaresubjecttoawithholdingtaxwhen remittedabroad.Thisisparticularlytrueinthecaseofroyalties(0%or5% dependingonthetreaty).Thepaymentofinterestabroadisexemptfrom anywithholdingtax,providedthatthereisagenuineloancontractwitha foreignresidentperson. Posttaxprofitsmayalsobetransferredabroadwithoutpriorapproval fromtheauthorities.Dividendsfromsubsidiariesaresubjecttoa withholdingtax. TheEUdirectiveonparentcompanyregimescameintoeffectJanuary 1992.Asaconsequence,nowithholdingtaxondividendsisleviedonthe remittanceofdividendsabroad.Branchprofitsmayalsobesubjecttoa branchleveltax,whetherornottheyareremittedtotheheadoffice. However,withholdingtaxhasnowbeencancelledonbranchproceedsof EUcompanies.

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IndirectTaxes Valueaddedtax(TaxesurlavaleurajouteTVA) ValueaddedtaxorVATischargedonalleconomictransactions,salesand servicescarriedoutinFrance.VATisataxonconsumption,nota corporatetax.CompaniescollectVATontransactionsandremitittothe Treasury. VATappliesinprincipletoalltransactionsmadeinFrancewithveryfew exemptions(amongtheminterestpaymentsandinsurancepremiums). Businessessuchasbanksthatacquirebothexemptandtaxablesupplies mustapportiontheirinputtaxtocomputeanonrecoverableamount attributabletotheexemptoutputs(recoveryratio). VATiscalculatedasfollows: ThecompanycollectsVATfromitsclients,lesstheamountsbilled bysupplierstothecompany. VATincurredoncertainexpensesisnotdeductible.Theseinclude certaingoodsandservices(dwellingfacilities,entertainment,gifts, andsomepetroleumderivedproducts). VATisaddedtotheVATexclusivesalesprice.Therateapplied dependsonthegoodsandservicesinquestion.Thestandardrateis 19.6%. Thereducedrateof5.5%appliestofood(exceptforalcoholicdrinks)non refundablemedicines,theaters,books,passengertransportation,hotels (exceptluxuryestablishments).Areducedrateof2.1%isalsoapplicable forrefundablemedicines. VATisfiledonamonthlybasiswheneveracompanydoespaymorethan 4,000eurosVATannually.Iftheannualpaymentisless,thereturnscanbe filledquarterly. ThecalculationoftheVATisbasedonalloutputVATongoodsinvoiced andalloutputVATonservicespaidandallinputVATongoods purchasedandallinputVATonservicespaid.Shouldinputexceed output,taxpayerscanfileaclaimforarefundoftheexcessorcarrythe creditforward. SinceOctober2010,allcompaniesrealizingaturnoverexceeding500,000 euroshavetodeclareandpayelectronicallytheirVAT,eitheronthetax officewebsite(www.impots.gouv.fr),orbyusingtheEDIportal.

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EffectiveSeptember2006,modifiedbythearticle196ofthe2006/112CE directiveapplicableon1January2010,thereversechargemechanism hastobeusedforanydeliveriesofgoodswithinECandallBtoB (businesstobusiness)services(exceptforservicesrelatedtointermediates, buildings,transportations,cultureartorscientificbenefits,serviceson goods,transportationrents,foodservices,webservicesandtravel agencies). Registrationduties Traditionally,theregistrationformalityconsistsinanalyzingadeedbya civilservantwhoassessesandcollectsthedutiesprovidedforbylaw. Registrationhasataxpurpose,buttheformalityalsohasacivil consequence:itgivesthedeedalegaldate;incertaincases,itdetermines thevalidityoflegaldeeds.Normally,thepresentationofdeedstothe formalityisaccompaniedbythepaymentofduties.However,incertain cases,paymentmaybeininstallmentsordeferred. Therateofregistrationdutyapplyingtoatransferofgoodsdependson thenatureofthetransferandthetypeofgoodstransferred. Themainregistrationdutiesaresaleofrealproperty,saleortransferof goodwillandtransferofcorporaterates. Saleofrealproperty Dutiesonsalesofrealpropertyarecollectedwhenthepropertyis transferred.Inadditiontotaxontheregistrationofrealproperty transactions,suchatransfergivesrisetoadditionallocaltaxes. Thetaxrateisnowasinglerateat3.8%.Apartfromthetaxonthe registrationofrealpropertytransactions,thereisanadditionaltaxof1.2% collectedforappropriationtothemunicipalityortoadepartment equalizationfund.Thereisalsoanotherlevyof2.37%collectedfor appropriationtothestate,assessedontheamountofthedepartmentduty inrespectofassessmentandcollectioncosts. Ineachdepartment,theratesofthetaxonregistrationofrealproperty transactionsmaybemodifiedbetween1.2%minimumand3.80% maximumin2011. Saleortransferofgoodwill Transferofbusinessesistaxedaccordingtoabandscaleandthegoodwill value.Itissubjecttotransferdutiesattheratesof:

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 Threepercenttothefractionofpriceincludedbetween23,000and 200,000euros; Fivepercenttothefractionofpriceover200,000euros. Fortransfersmadeinspecificzones,theratesare: Onepercenttothefractionofpriceincludedbetween23,000and 107,000euros; Threepercenttothefractionofpriceincludedbetween107,000and 200,000euros; Fivepercenttothefractionofpriceover200,000euros. Ifthetransferisacontributiontoacompany,afixedamountof375or500 eurosusuallyapplies(thesameasforacashcontribution)ifthe contributortakesthecommitmenttokeepthesharesforfiveyears. Anincreaseincapitalbywayofacashcontributionorthrough capitalizationofreservesissubjecttothesameregistrationdutyrulesasif thatcapitalcontributionhadbeenmadeatthecompanysincorporation, (375or500euros). Transfersofcorporaterights: Astraight3%registrationdutysince6August2008willbechargedwhen adocumentrecordingatransferofshares(actionsorpartssociales)is executed,dutyhasa5,000eurosceilingforanytransaction.Itispossiblein certaincircumstancestoavoidthisduty. Whenthetransferofsharesconcernsacompanyspecializedinreal propertytransactions,thisregistrationdutyisamountingto5%. CET(TerritorialandEconomicContribution) TheCETisreplacingthebusinesstax(Taxeprofessionnelle),andthetax onvalueadded(cotisationminimale)fromJanuary2010.Anyentity engagedprofessionallyandregularlyinanactivityinFrance(outofthe employees)issubmittedtothiscontribution. Accordingtothechangesintroducedbythisnewcontributioncompared tothebusinesstax,adiscountschemeisplannedbetween2010and2013. Thus,companiespayingmorewiththenewsystemthanwiththeprevious oneneedtorequestdiscountstothetaxadministration.Onthecontrary, additionaltaxesareappliedforspecificcompanies

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ThisCETtaxismadeoftwoseparatecontributions:CFE:realestate contribution(CotisationFonciredesEntreprises)andCVAE:valueadded contribution(CotisationsurlaValeurAjoutedesEntreprises) CFE:realestatecontribution(CotisationFonciredesEntreprises) Thecontributionisbasedonthecompanyslocationsrealestatevalue.It ischargeableannuallytocorporatebodiesorindividualsregularly carryingonbusinessinFranceasselfemployed.Aprepaymentismadein JuneandthebalanceispaidinDecember. Anymodificationoftherealestatevalueistobesenttothetaxofficeby theendofeachcalendaryearifapplicableonaspecificreturn. Taxratesvarywidelyfromonelocalauthoritytoanotherbutthetax payablemaynotexceed3%oftheaddedvalueofthebusiness. IftheamountoftheCFEexceeds3%ofthevalueadded,arefundrequest canbesenttothetaxadministration. Networkactivitiesgetadditionaltaxesaccordingtospecificactivity criteria:onshoreandoffshorewindturbines,powerplants,photovoltaicor hydraulicplants,powertransformer,radiostations,railcarsandmain phonesplitters. CVAE:valueaddedcontribution(CotisationsurlaValeurAjoutedes Entreprises) Thedeclarationofthiscontributionisduebyanycompanysubmittedto CFEwhichturnoverisgreaterthan152,500euros.Itneedstobesentatthe sametimeasthetaxreturn. Thecontributionisbasedon1.5%ofthevalueaddedofthecompanies havingaturnovergreaterthan500,000euros.Thisamountis,however, discountedwhentheturnoverislessthan50millioneuros.Thisdiscount needstoberequestedonaspecificreturntothetaxadministrationeach year.Aminimumof250eurosisdue,whatevertheamountofthevalue added. Thetaxispaidwithtwoinstallments,oneinJuneandoneinSeptember, basedonthevalueaddedofthepreviousyear.ThebalanceispaidinMay thenextyearwhendeclaringthefinaltax.

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TheCVAEreturnandanyrelatedpaymentsneedtobedeclaredandpaid electronicallyusingthetaxofficewebsite(www.impots.gouv.fr).Both contributionsaretaxdeductible. Othertaxesonbusiness Payrolltax:EmployerswhoarenotsubjecttoVATonatleast90%oftheir incomearesubjecttoapayrolltaxatvaryingratesfrom4.25%to13.6%. Apprenticeshiptax:Employersaresubjecttoapprenticeshiptax.Itis leviedattherateof0.68%ofannualsalaries. Trainingtax:Employersaresubjecttothistaxatarateof: 1.6%iftheyemployatleasttwentypeople, 1.05%iftheyemployatleasttenpeople,butlessthantwenty,or 0.55%iflessthantenpeopleareemployed. Compulsoryhousinginvestment:Employersemployingatleast20people mustallocatetoahousingprogramanamountequalto0.45%ofannual salariespaid. Companycartax:Companiesareliableforanannualtaxonautomobiles thatthey(ortheiremployees)own,rentoruse.Forvehiclesowned,rented orusedsinceJune2004andownedorusedsinceJanuary2006,anewtable basedontherateofemissionofdioxideofcarbonwassetup. Thistaxhasbeenextendedtopersonalcarsusedforprofessionalpurposes byemployeesandmanagers.Exemptionsareapplicableforsomenon pollutantvehicles. ORGANIC(socialcontributionofsolidarity):Companieshavinga turnoverhigherthan760,000eurosmustpaythistaxequalto0.16%ofthe salesturnoverdeclared.Declarationandpaymentofthistaxmustbedone viainternet. IFA(MinimumannualcorporationTax):Since2010,thistaxisdueforall thecompanyforwhichtheturnoverishigherthan15millioneuros.The annualtaxrangesfrom20,500to110,000euros. Retailspacetax(TASCOM):Thistaxisdue,since2010,forretailspace higherthan400m2withonlocalturnoverhigherthan460,000eurosand anopeningdateafter1960.Thetaxratestartsat5.74/m2eurosandcapsat 35.70/m2eurosandvariesaccordingtothesurfaceandthetotalturnover. 37

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Intrastatreturns TheGoodsTradeDeclaration(DEB) Eachmonth,companiesarerequiredtofilloutthegoodstradedeclaration (DEB)coveringintracommunitytradeingoodswithothermemberstates oftheEuropeanUnionandfileitwithcustoms. YourgoodstradedeclarationmustreportalltradeinEuropeanUnion goods(orgoodsfromcountriesoutsidetheEUonwhichdutiesandtaxes havebeenpaid)betweenFranceandanothermemberstate,including: intracommunitytradeinproductssubjecttoexcisetax; goodsimportedtoFranceonwhichdutiesandtaxeshavebeen paidandwhicharedispatchedtoanothermemberstate (declarationofdispatchtotheothermemberstate); EUgoodsdispatchedfromFrancetoanothermemberstatefrom whichtheyarethenexported.

Companiesmustchooseoneofthefourreportingobligationlevels, dependingontheamountofyourarrivalsanddispatchesfrom1January through31Decemberofthepreviousyear: TheEuropeanservicereturn(DES)applicablefromJanuary2010 ThisreturnistobesubscribedbytheprovideroftheservicestoEuropean companiessubjecttoVAT(costplusagreementsareincludedinthisfield). ThisreturnisdifferentthantheDEBasindicatedabove.Thetransactions tomentionontheDESaresalesofservicestoEUwhichreversecharge VAT(thebusinesstobusinesstransactions). TaxesonIndividuals Territoriality Frenchresidentsaretaxedontheirworldwideincome,subjecttocertain treatyexceptions,whereasforeignnationalsinFranceareonlytaxedon theirFrenchsourceincome. Residenceisusuallydeterminedunderthetaxhometest(foyerfiscal)or the183dayrule.AFrenchfoyerfiscalisestablishedifanindividualand hisfamily(ifany)movestheirhouseholdtoFrance.Underthe183day rule,residenceisestablishediftheindividualspendsover183daysin Franceinanycalendaryear.

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IfanindividualisaFrenchresidentunderFrenchlawand,concurrently,a residentofanothercountryunderthelawsofanotherjurisdiction,tax treatiesprovidetiebreakerrulessothattheindividualwillonlybe deemedaresidentofonecountryatatime.Thetiebreakertestsinclude thelocationofapermanenthome,thecenterofeconomic(vital)interests, thelocationofahabitualabodeandthecitizenshipoftheindividual. Taxation Frenchresidentsaresubjecttoprogressivetaxratesrangingfrom041%on 2010income.However,certainadjustmentstoincomeensureamore moderateaveragerateoftaxation. Frenchtaxesaremitigatedforfamiliesbythefamilyquotientsystem, whichallowsahouseholdtodivideitsincometoreflectthenumbersof dependents(parts)beforeprogressiveratesareapplied.Thefirsttwo childrencountasonehalfofaparteach,whileeachadditionalchildis countedasafullpart. Since2008,afiscalshieldhasbeenimplementedinordertolimitto50% ofthetotalincomethemaximumtaxationinFrance.Itsbasisincludes incometax,socialcontributions,localtaxesandwealthtax. Anetwealthtaxisleviedonindividualswhosenetworthexceeds800,000 euros(forJanuary2011).Thetaxisdueonthewholeofanindividualsnet worthasat1Januaryofeachyear.Itdoesnotmatterwhetheritislocated inFranceornot.However,severalitemsareexemptedfromtaxation,in particularprofessionalproperties,worksofartandpatentrights. Nonresidentsarealsoaffectedbythenetwealthtaxbutonlyon propertieslocatedinFrance.Theirfinancialinvestmentsarespecifically exempted.Doubletaxtreatiesmayaffecttheseprovisions.Otherwise,the netwealthtaxisappliedataprogressiverate.
Between Above Value 800,000eurosand 1,310,000eurosand 2,570,000eurosand 4,040,000eurosand 7,100,000eurosand 16,790,000euros 1,310,000euros 2,570,000euros 4,040,000euros 7,100,000euros 16,790,000euros Rate 0.55% 0.75% 1.00% 1.30% 1.65% 1.80%

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7.

Accounting & reporting

Accountingprinciples FrenchaccountingprinciplesaresetupintheLawof30April1983 (individualcompaniesfinancialstatements),textrevisedin1999withthe Rglement9903andtheLawof3January1985(consolidatedfinancial statements)textrevisedin1999withtheRglement9902,intheopinions andinterpretationsoftheNationalAccountingBoard(CNC)andin recommendationsmadebyvariousprofessionalorganizations. Fundamentalaccountingconcepts,suchasprudence,goingconcern, accrualsandconsistency,havealegalbasisinFrance. AsfromJanuary2005,newrulesapplytotheaccountingprinciples. ConvergenceoftheFrenchaccountingrulestowardsIFRSwillbecodified by:ThetranspositionofIFRSinRglement9903(IndividualAccounts) Inthe1999rewritingofthePCGPlanComptableGnral(theFrench GeneralChartofaccounts)annexedtotheRglement9903 From1999transpositionsofIFRSinthePCGannexedtoRglement9903: Longtermcontracts:Rglement9908/IAS11 Changesinaccountingmethods:Rglement9909/IAS8 Retirementsandlongservicemedals:Rglement99 03/recommendationoftheCNC/IAS19 Liabilities:Rglement200006/IAS37 Assets:Rglement/IAS16/IAS38/IAS40/IAS36

ThetranspositionofIFRSinRglement9902(Consolidatedfinancial statements): Leasing:Rglement9902/IAS17 Deferredtaxes:Rglement9902/IAS12

Formandcontentoffinancialstatements TheformandcontentoffinancialstatementsaredefinedintheGeneral ChartofAccounts(PlanComptableGnral2005).Thebasicfinancial statementsincludedinannualreportstoshareholdersare: Abalancesheet,whereheadingsareclassifiedbyfunction(e.g. financeandcustomersetc.ratherthanbyliquidity);

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Anincomestatement,whererevenuesandexpensesareclassified byorigin,andaresystematicallyanalyzedunderthreeoverall categories:

operatingrevenuesandexpenses financialrevenuesandexpenses exceptionalrevenuesandexpenses

Explanatorynotes

FromJanuary2005,thelistedcompanieshavetheobligationtopresent theirconsolidatedfinancialstatementsaccordingtoIFRS.Thestatutory auditorsopinionandthedirectorsreportmustalsobeincludedinthe annualreport. Thefinancialstatementsandthestatutoryauditorsanddirectorsreports mustbefiledwiththeCommercialRegisterandareavailablefor inspectionbythepublic. Auditing Frenchcompanies(SocitsanonymesSAandSocitsencommandite paractionsSCA)arerequiredtosubmittheirfinancialstatementsfor auditing.However,othercompanies(e.g.,SNC,SARL)areonlysubjectto thisrequirementiftheyexceedcertainthresholds(intermsoftotalassets, numberofemployees,levelofsales,etc.).ConcerningSAS,evenif thresholdsarenotreachedsomesituationsrequirealegalauditor(SAS ownedbyoneorseveralcompanies,SASowningasubsidiary). Auditsareconductedbyprofessionals(statutoryauditorscommissaires auxcomptes)registeredwiththeInstitute.Statutoryauditorsare appointedbytheshareholdersforaperiodofsixfinancialyears. Thestatutoryauditorissuestwoformalannualreportstoshareholders: Auditorreport:Theauditorreportmustincludeanopinionwith appropriatejustificationonthefinancialstatementsandonlegal compliance. Specialreport:Thespecialreportcontainsdisclosuresofthose transactionsbetweenacompanyanditsdirectorsthateitherlie outsidethenormalcourseofbusinessofthecompanyorarenotat armslength. Internalcontrolreport(onlyforcompaniesquotedontheStockExchange): Thisreportpresentstheobservationsofthestatutoryauditorson thereportofthepresidentconcerningtheinternalcontrol proceduresregardingthedevelopmentandtreatmentofthe

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accountingandfinancialdataprocessing.Thepurposeofthe statutoryauditoristoensurethatinformationcontainedinthe reportofthepresidentispresentedinasincereway,berelevantand notlikelytobemisinterpreted.

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8.

UHY firms in France

UHYGVAisamediumsizedfirmofCharteredAccountantslocatedin ParisinthePlacedelEtoilearea. UHYGVAispartofDIFFERENCE,anexpandingnationalnetworkof accountingandconsultingfirmswithotherofficesinAuxerre,Avignon, Bordeaux,Cambrai,Cannes,Dijon,Lyon,Montpellier,Nmes,Nice, Perpignan,SaintAmandLesEaux,SaintEtienne,Strasbourgand Valenciennes.(Seemappage5formoredetails). Wehavetheexperienceandtheconnectionstoassistyouinsettingupa businessinFranceandtoprovideaccounting,legal,fiscalandsocial services,managementconsultingservices,computerandorganizational services. UHYGVA BP2115 105avenueRaymondPoincar Paris,F75771 France Phone: +33145007600 Fax: +33145004010 Email: gva@gva.fr Website: www.gva.fr

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UHY offices worldwide

ForcontactdetailsofUHYofficesworldwide,orfordetailsonhowto contacttheUHYexecutiveoffice,pleasevisitwww.uhy.com.

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