Exploding the Myths of Doing Business There
Kimberley Clark, IRELAND Correspondent
What do companies such as Intel, Colgate-Palmolive and Toyota have in common? They have all chosen France as the location for their European headquarters. Company directors consistently rank France as one of the top locations for setting up or expanding their businesses.
But what are the drawbacks of doing business in France? Isn’t setting up a company or a subsidiary in France extremely complex, costly and time-consuming?
Aren’t taxes very high? And aren’t the French always on strike? This article explores the current French business environment and presents some of the myths and truths about doing business in France.
Since taking office in May 2007, President Nicolas Sarkozy has worked on reforms to increase flexibility and liberalization in business, including reducing taxation, making labour laws more flexible, attracting foreign talent by simplifying entry conditions for skilled workers, and making research and development a national priority. The current government’s economic policy aims to promote investment and domestic growth in a stable fiscal environment.
Setting up in France
There are no administrative restrictions on foreign investment in France. Whatever your business growth strategy, France can provide an appropriate legal structure, and you will benefit from the same conditions that apply to French and European citizens. All companies are subject to the same rules and regulations and enjoy the same rights, benefits and access to public financial support.
In 2006, the administrative costs of setting up a company in France were approximately 300 euros. Company setup also has been streamlined through the new reforms so that the entire process is handled by one department – the Centre for Business Formalities or Centre de Formalitiés des Enterprises (CFE) – and generally can be completed in a matter of days.
As with any country, France provides business structures with various tax and general liability implications. The three most common company forms are the société anonyme (SA), the société à responsabilité limitée (SARL) and the société par actions simplifiées (SAS).
A SARL or a SAS can be formed with a single partner, whereas seven partners are required for the more sophisticated SA, which can make a public offering. The SAS, or the SASU (société par actions simplifiées unipersonnelle), is the most recent form of French company and is well suited to foreign and holding companies that want to maintain 100 per cent control of one of their subsidiaries. The SARL is the least complicated form.
Perhaps you would like to explore your prospects in France without officially registering a company. In that case, a number of options are available. Foreign companies can operate in France without officially registered representation. They may, for example, rent an office and open a nonresident bank account. They also may employ one person or open a liaison office, which can conduct only a limited amount of noncommercial operations, including prospecting, advertising, providing information or storing merchandise.
For companies that want to develop a commercial activity at the outset, sales representatives may provide the answer. They may be employees of foreign companies or they may be travelling sales representatives employed by one or more companies to visit customers in a representative’s sales territory. They are subject to personal income tax on salaried income.
Another solution is to employ a sales agent, a self-employed individual or company that acts on your behalf, signing contracts for sales, purchases and leases, and for the provision of products and services. Sales agents also may work for one or more companies and are usually responsible for a geographical area and/or sector of activity. They may work partly or entirely on commission. Many small companies use sales agents as a flexible and inexpensive means of introducing their products to foreign markets.
You also might consider using a business centre as your company’s temporary registered office. For a monthly fee (and no capital investment), a business centre enables companies to enjoy a professional corporate environment without the necessity of buying or leasing office equipment and furnishings. Furnished private offices often are available as well. Some business centres also offer a corporate identity program, providing a professional address, a telephone secretary and a conference room by appointment. Using a business centre helps control operating costs and provides greater flexibility by allowing immediate occupancy and the ability to expand or downsize on short notice.
Once a company has its own premises and/or employs two or more people in France, it must be officially represented by a registered liaison office, branch or subsidiary. Registration takes place with the Register of Companies (Registre du Commerce et des Sociétés).
Productive and skilled workforce
French workers are highly skilled and productive. According to the United Nations’ International Labour Organisation (ILO), France was ranked third worldwide for hourly productivity behind the US and Norway in 2007. Two-thirds of French professionals under 30 speak English. According to 2005 figures from the Organisation for Economic Co-operation and Development (OECD), France has one of the highest number of workers with science degrees – second only to Ireland – and its reputation as a high-tech hot spot is growing. Approximately 13,000 new patents are registered in France every year.
To help combat unemployment, the French government instituted a 35-hour workweek in February 2000, but since 2003, these restrictions have been relaxed, with more flexibility expected in the future. France has a poor reputation when it comes to labour conflicts, but in reality, the number of days lost to strike actions is about average for Europe, and most actions occur in the public sector.
To promote immigration, the country has improved economic conditions for foreign nationals working in France. For the first time, foreign nationals and their families may obtain residence permits that are valid for several years. The administrative procedures also have been made more efficient. Non-EU nationals are advised to contact the French Embassy or the French consulate of their own country to find out which procedures apply.
Taxation
For any company owner considering doing business in a foreign country, a good understanding of that country’s tax structure is critical. Government reforms have lessened the tax burden in France. The corporate tax rate has been reduced from 50 per cent in the 1990s to 34.9 per cent today, in line with other developed countries and lower than the US rate of 39.3 per cent. Established tax treaties with more than 100 countries provide thorough protection against double taxation.
France has improved its attractiveness in terms of individual taxation as well. The tax rate for the higher band has been reduced to 40 per cent (compared with the previous rate of 48 per cent), and the system has been simplified with a reduction in the number of tax bands from seven to four.
France now offers the most generous research tax credit in Europe. Implemented in January 2008, the scheme provides for reimbursement of 50 per cent of a company’s research and development expenditures in year one, 40 per cent in year two and 30 per cent in year three, up to a limit of €100 million. One aim of this incentive is to attract new research and development centres to France and to develop existing ones. Further tax advantages are available to companies contributing to environmental sustainability and preservation, especially for those working in the areas of renewable energy or energy conservation.
Business challenges
Despite recent reforms, increased privatization and an economic policy that aims to promote investment and domestic growth, the government continues to control a large share of economic activity. Investors must contend with extensive government economic regulation and taxation, high social costs and a complex labour environment. Highly developed employee rights and benefits can make exit costs high for investors seeking to leave France. Employers and employees are advised to obtain legal advice before entering into employment contracts.
Many companies can provide assistance with the legal, financial and administrative procedures of setting up a company in France. In addition, it always is helpful to secure introductions to individuals who previously have set up in France. Local knowledge is invaluable.
Why France?
France is an influential economy at the heart of the European Union and its market of 493 million consumers. With a gross domestic product of approximately $2.5 trillion, it is the world’s sixth-largest economy. Its status as a leading economic player is further confirmed by membership in the G-8, the European Union, the World Trade Organization and the OECD. According to the United Nations’ Conference on Trade and Development, France is the third leading destination worldwide for foreign direct investment after the US and the UK. And French consumers have a high disposable income – approximately $33,800 in 2007.
France’s geographical location makes it an ideal hub to serve northern and southern Europe’s major markets and distribution channels as well as Eastern Europe, North Africa and the Middle East, which represent rapidly growing consumer markets.
Compared with other European countries, France’s real estate, energy, transportation and employee costs are considered competitive. And the country’s telecommunications and transportation infrastructures are extensive and efficient.
With a highly skilled and productive workforce, good infrastructure and an improving administrative climate, France may be the right location for your business.
To learn more about doing business in France, visit these Web sites:
AFII: Agence Française pour les Investissements Internationaux (Invest in France) www.invest-in-france.org
CCIP: Chambre de Commerce et D’Industrie de Paris www.ccip.fr
The Doing Business Project of the World Bank Group www.doingbusiness.org
OECD: Organisation for Economic Co-operation and Development www.oecd.org/france
UCCIFE: The Union of French Chambers of Commerce and Industry Abroad www.uccife.org
U.S. Commercial Service: Doing Business in France www.buyusa.gov/france/en/doingbusinessinfrance.html