Foreign entrepreneurs who are willing to expand their business by opening an establishment in France may consider different legal options to set up their local presence: the choice will ultimately depend on their market penetration strategy. Each legal entity type will allow the local business to act more or less autonomously and will proportionately require a different amount of funding. For this reason, foreign investors should preventively evaluate the possible outcomes of their choice, picking the option which will best suit their needs.
1. Bureau de liaison (representation office)
A) The bureau de liaison: what is it?
The lightest, from a legal perspective, and cheapest, from a financial one, way to access the French market is to set up a bureau de liaison (representation office). This solution is typically implemented to “explore” the national market that a foreign company wishes to access.
More specifically, the bureau is an external office which allows a foreign firm to carry out preparatory or auxiliary activities in light of a future (and steadier) establishment. It may be used, for instance, to conduct market research, to make contacts with potential clients and partners, to stock products etc.; it may also serve as an R&D unit or data center.
Nevertheless, the bureau suffers a considerable lack of power, as it is impossible for this entity to make any economic transaction. Simply put, it cannot sell products or provide services directly to the market.
The lightness of the regulation and the (relative) modesty of the initial investment are therefore counterbalanced (and justified) by the lack of independence which features the bureau.
B) The regulation
As aforementioned, the distinctive traits of the bureau’s regulation lie in its lack of independence, and therefore its scarce importance before the national legal system.
The bureau, in order to maintain its legal qualification, shall not make any transaction. It therefore cannot accept any consideration for services or products provided to counterparties, facing the application of a different regime in case of any breach (see § 2).
Technically speaking, this rule is linked to the bureau’s lack of juridical personality and implies that the entity cannot be subject to any obligation or gain any right, nor can it be liable to any form of taxation.
For the following reasons:
- it is not mandatory for the bureau to be listed in the French taxpayers’ registry;
- the bureau is not obliged to be listed in the RCS (the French corporate registry).
Moreover, the lightness of the bureau regulation features another advantage, namely the absence of any required pre-authorization for its establishment. The rule is relevant since some specific types of foreign investments need to be pre-authorized by the Direction Générale du Trésor (the French Department of the Treasury).
C) An Example Of What A Bureau De Liaison is allowed and not allowed to do
XY Ltd., foreign shoe-maker company, decides to set up a bureau de liaison in France. Through this entity, XY Ltd. will be able to:
- conduct market research on the preferences of French consumers;
- establish a network with potential suppliers and partners;
- launch marketing campaigns for its brands, e.g., handing out shoes for free as a trial;
- stock foreign-made shoes in the bureau’s warehouse.
On the contrary, it will be forbidden for XY Ltd.:
- to sell shoes directly from the bureau;
- to rent the property where the bureau is located;
- to assume obligations in the bureau’s name;
- to purchase goods in the bureau’s name.
2. Succursale (branch)
A) The succursale: what is it?
Opening a succursale (branch) means taking a further step in the market penetration strategy. This entity has a broader range of action and therefore requires more funding to be set up. In fact, it expresses the willingness of the foreign company to gain a solid position in the French market.
A succursale is usually established after a thorough market research is completed, as it allows the foreign company to conduct its business through the succursale itself.
In order to perform its functions, the succursale is usually run by an executive, who has the authority to conclude binding agreements with the stakeholders and is responsible for the branch’s activities. The succursale will therefore have the power to sign contracts with suppliers, clients, and other counterparties, in addition to being able to purchase, sell or lease assets and products.
Moreover, it is common for foreign companies to let a succursale manage its own budget autonomously.
B) The regulation
With broader autonomy come greater responsibilities, thus the foreign entrepreneur must comply with stricter provisions.
Like the bureau, the succursale doesn’t have a juridical personality: it is not a separate entity from the foreign firm, and therefore it can’t gain rights for itself, nor can it undertake obligations without binding the entire firm.
For the same reason, the succursale doesn’t benefit from asset partition, which means it doesn’t own assets by itself, apart from the firm. Relating to that, a specification seems appropriate. The possibility for an executive to manage funds autonomously implies that he can authorize transactions without previously asking permission to the headquarter, but also that those funds are still part of the firm’s financial assets.
To conclude, without juridical personality and asset segregation, the broader powers of the succursale rely on the local presence of an authorized signatory of the firm: in brief, an executive. In this capacity, the executive will be able to gain rights and assume obligations in the firm’s name, as well as dispose of both.
The succursale’s budget management follows the same rules. From a business administration point of view, the succursale does have an autonomous budget, whereas legally speaking, it can only act on behalf of the foreign company. As a matter of fact, the powers granted to the authorized signatory (the executive) let him deploy the financial assets of the foreign company or enter a contract and assume obligations in the whole company’s name.
However, the main difference between the succursale’s and the bureau’s regulation lies in the tax treatment. Provided that the succursale can make transactions, it is also deemed capable of creating cash flows as a direct consequence of its activity on French soil. Hence, this entity is subject to the national tax regime.
For the French tax law, the succursale represents an établissement stable (stable organization) and, as such, is liable to taxes. More specifically, the incomes generated by its local activity are subject to the French corporate income tax, called Impôt sur le sociétés (IS in brief).
When establishing a succursale, it is also worth considering how France-earned corporate incomes will be treated in the company’s domestic jurisdiction. This issue is regulated by specific bilateral agreements (“Tax Treaties”) between the States.
So, in case the firm’s national State had already stipulated a Tax Treaty with France, the “French” incomes will not be subject to a “second” (and thus double) taxation in the firm’s local jurisdiction; otherwise, it would be better for the firm to review the domestic regulation concerning foreign earned incomes before investing in France. More specifically, it would be wise to check:
- whether foreign sources of corporate incomes are subject to domestic taxation (the so-called “worldwide taxation”);
- if the answer is yes, whether the company could receive a tax credit for the amount it has already paid abroad.
The establishment of a succursale is an important event for the French legal system. Therefore, the new entity will be subject to some registration obligations. To comply with French law, the succursale must indeed:
- File the proper registration form with the Court Clerk of the local Tribunal de Commerce, with the following documents attached:
- an updated copy of the foreign company articles of association (translated in French);
- all the necessary certificates or authorizations needed for carrying out certain activities;
- copy of the office rental agreement where the succursale is located;
- copy of the appointment act of the executive responsible for the succursale’s activity.
The succursale must be registered to the RCS (French corporate registry) no later than 15 days after its opening.
Lastly, concerning the involvement of foreign financial capital, it is worth mentioning that establishing a succursale is a form of “foreign investment” under French law. Nevertheless, this operation is not subject to prior authorization by the French Department of the Treasury.
3. Filiale (subsidiary)
A) The filiale: what is it?
The highest level of market penetration (and the widest range of action) is achievable through a filiale. As aforementioned, the choice for the broadest set of powers implies the highest amount of initial funding. Moreover, the filiale is the entity that must comply with the most rigorous regulation.
The filiale is a French subsidiary company. Setting it up means either forming a new corporation in France or purchasing the controlling interest of an already existing one, in both ways ending up owning it. As previously stated, this type of solution lets the new entity benefit from the broadest autonomy possible. The filiale is in fact a French corporation, and it will be able to act as freely as all other French corporations.
To give some examples, the filiale will be able to: enter contracts in its name, without involving or binding the holding company; purchase goods for itself and possess them as its own; be the legal owner of its assets, separately from the holding company.
At the same time, though, the filiale will be entirely subject to French law, as all other French corporations.
B) The Regulation
The filiale is a corporation created and regulated under French law.
The main implication of this, which is also what marks the difference between this entity and the former two, is that the filiale does have a juridical personality; in other words, it is able to gain rights and assume obligations for itself.
As a consequence, the filiale is legally entitled to own assets as an independent entity. It will therefore be able to own goods, real estate, money, and any other asset, as well as to assume obligations to pay, sell its products, dispose of its rights etc.
Still, what is really worth mentioning about the filiale is related to its ownership. In fact, this legal entity is by definition a French corporation controlled by a foreign holding.
The control may be exercised by owning either the majority or the entirety of the filiale’s voting shares. The choice between the two will depend, in practical terms, on the will of the holding to attract external investors. Relying on additional resources can certainly be useful, but it can also reduce the degree of control exercised by the majority shareholder. Allowing other investors to buy minority shares will in fact mean accepting their scrutiny and influence on the filiale’s activity.
Another notable feature of the filiale relates to its taxation regime under French Law. Like all other French corporations, the filiale will be subject to the IS  (or the elective regime of the “Impôt sur le revenue” if the corporation is formed as an S.A.S. – further information below) and all the other taxes paid by French corporations.
Moreover, as all other French corporations, if the filiale wants to hire some employees, it must comply with all applicable provisions of French labour law.
Finally, concerning the use of foreign financial capitals in France, it is worth noting that the control exercised by a foreign holding over a French corporation is deemed as a “foreign investment” under French law. Thus, it might be subject to prior authorization by the French Treasury Department.
More specifically, this procedure will take place when the French target company conducts (or is about to conduct) its business in strategic sectors, such as telecommunications, defense, public security, public health, cybersecurity, and energy. In any one of these cases, the foreign company must obtain the authorization before taking control of (or form) the French subsidiary.
C) Costs for Setting-Up a Filiale
As previously mentioned, establishing a filiale is the most expensive and strictly regulated type of foreign expansion. This feature is directly linked to the mandatory compliance with all laws applicable to French corporations.
There are eight different types of corporations under French law, each one regulated by a different set of provisions. Many of these rules also require companies to carry out technical operations on a regular basis, for which hiring specialized professionals (lawyers, accountants etc.) is often necessary. For this reason, setting up and managing a corporation in compliance with all applicable laws is considerably expensive and a foreign entrepreneur should wisely evaluate the pros and cons before investing.
Set-up and Management Costs are unavoidable, but an accurate choice in the type of corporation might save the holding company a relevant amount of money. In fact, the different sets of rules governing French corporations might make one of them more suitable for one or another specific business. Picking the proper one is a cost-effective decision.
All of the above considered, it will be worth making preliminary evaluations on which type of corporations would suit best one’s business, taking into account the specific features of the activity the filiale is about to run. As many variables are involved in this kind of evaluation, it is impossible to aprioristically state which type is the best without considering the specific features of the business. Hence, a case-by-case approach is recommendable.
D) A Flexible Type of Corporation: S.A.S.
Even if choosing the right type of corporation requires a case-by-case evaluation, it seemed appropriate to provide some further information on the most common one: the S.A.S. (“société par actions simplifiée”). Thanks to its flexibility, this type of corporation might turn out to be a suitable option for many foreign companies interested in opening a filiale.
The main advantages of the S.A.S. are the following:
Shareholders of the S.A.S. are not liable for the company’s obligations with their personal assets (except for the capital contribution).
No minimum capital required
French law doesn’t require a minimum capital for the S.A.S. to operate, therefore its amount could be freely set by the shareholders (e.g., even 1 euro would be sufficient). It is also possible for the S.A.S. to have a variable capital amount.
Possibility to have a single shareholder
It is possible for the S.A.S. to have only one shareholder, in which case it will be called S.A.S.U. (“S.A.S. unipersonelle”). This could be particularly appealing to foreign holding interested in exercising an exclusive control on the filiale. Also, French law offers other specific advantages to S.A.S.U., among which:
A) simpler budgetary requirements, such as:
- the possibility to draft and deposit a simplified annual account (without Annexe) in case the total revenues, the global assets value, and the employees number stay below certain levels (Micro-Entreprises levels ),
- holding a General Meeting is not required when the SASU has only one shareholder. The annual, mandatory decisions like the approval of the accounts can be drafted in the form of a simple meeting minute of the Président-Associé Unique,
- the exemption from drafting the [annual management report] (Rapport de gestion) in case the total revenues, the global assets value and the employees number stay below certain levels (Petites-Entreprises levels ),
- the possibility not to disclose the annual accounts in case the total derevenues, the global assets value and the employees number stay below certain levels (Micro-Entreprises levels);
B) Flexible corporate governance
French law has very few provisions on S.A.S.’s corporate governance. The most relevant are the following:
– the S.A.S. must appoint a Président (a single executive director), who acts as representative of the company;
– the S.A.S. must hold at least one General Shareholders Meeting every year, whereas the mandatory appointment of an auditor (“commissaire aux comptes”) is not necessary until the filiale stays below the French audit threshold limit;
– the framework governing the decisions process (majorities, company officers appointment procedure and powers, etc…) is freely determined by the shareholders in the “statuts”- articles of association of the company ;
Optional tax regime
The S.A.S. benefits from an optional tax regime. It is subject to the IS by default, but if there is at least one shareholder who is a natural person owning at least the 50% of capital, and if other specific requirements are met (among which the fact that the S.A.S. was created not earlier than 5 years before), the S.A.S. may choose to be subject to the Personal income tax (Impôt sur le revenu – IR) for a maximum period of 5 years after the initial choice.
In conclusion, it seems appropriate to remark that, although the S.A.S. regulation might be flexier than other corporation types’ and could carry significant advantages in some cases, it might not always be the best choice for every kind of business. It is therefore important for a foreign entrepreneur willing to expand his activity in France to consult a specialized professional before choosing the type of corporation for its filiale.
 IS –Impôt sur les Sociétés / IR – Impôt sur le Revenu
 Article L123-16-1 Code de Commerce.
 Article L232-1 Code de Commerce.
The opinion expressed in this article is for informational purposes only.
This article does not constitute legal advice.
In addition, it is important to remind that each client’s tax issue is different because each client’s personal situation is different.
Should you have a similar tax issue, please contact us for an initial discussion of your case.
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