Starting a Business in France: An Introduction

Understand the legal framework and tax considerations for starting a business in France...

Legal structures

A foreign trader setting up in France has a choice of various business forms, other than incorporating a company.

Representation office (or liaison office)

A representation office is the lightest legal entity to recruit or send an employee to France. Like the branch, it does not have a legal personality distinct from that of its parent company; it is not a permanent establishment from a tax standpoint and therefore not subject in France to corporate tax or VAT. It is subject to certain local taxes and social security contributions, under the condition that the representation office does not conduct any commercial activity. Doing so may lead the tax authorities to reclassify it as a taxable permanent establishment.

A representation office is used for non-commercial operations only: prospection, advertisement, information, storage, or other operations of a preparatory or auxiliary nature.


Unlike the representation office a branch can conduct a commercial activity and is consequently considered as a permanent establishment. It has no legal personality distinct from that of its parent company. As a consequence:

  • the loss incurred by the French branch will be tax deductible for the parent company
  • the accounts of the branch do not have to be audited
  • in many respects a branch is easier and less costly to operate than a company as it is not subject to the various formal requirements applicable to the latter


  • the parent company is subject to taxation in France on the activity located in France with the result that French tax authorities may ask to examine the books and records of the parent company and question the allocations of incomes and expenses to the branch
  • any liability incurred by the branch will be borne by the parent company since it does not benefit from any limited liability available to the shareholders of some companies
  • if the branch becomes insolvent, a judicial reorganisation of the parent company may be held in France
  • the transfer of the business of the branch to another company would require its prior liquidation, which could result in the payment of significant registration taxes in France

Entreprise Individuelle  (EI) and Entreprise Individuelle à Responsabilité Limitée (EIRL)

Individual traders may adopt sole trader legal status (Entreprise Individuelle, EI). There is no limited liability, therefore putting at risk the personal wealth of the trader.

This is why the French Government decided in 2011 to create a new form of status, the Entreprise Individuelle à Responsabilité Limitée, aimed at granting sole traders a stronger degree of limited liability, but without the need to set-up a company.

Under this status, the sole trader shall allocate and declare a certain portion of his estate to his professional activity, and in case of insolvency or bankruptcy creditors will be able to seize only to this portion of estate.

  • this form is dedicated to very small businesses, but its cost or formalities are not always cheap and easy to complete: it is required to call upon a notaire in valuing any real estate business assets above €30,000, and registering it with the land registry)
  • the sole trader have to submit annual accounts and notify any change in personal assets each year
  • if the sole trader works from home, it is be difficult to separate his business from his professional assets

Key characteristics of the main business forms

  • Representation office
  • Branch
  • EI (Entreprise Individuel)
  • EIRL (Entreprise Individuelle à responsabilité limitée)
  • SARL (Société à responsabilité limitée)/EURL (Entreprise Unipersonnelle à Responsabilité Limitée)
  • SA (Société anonyme)
  • SAS (Société par action simplifiée)
or Branch
(Société par action simplifiée)
N/AN/AN/A€1 (min. 20%
to be paid
up in cash
at start, balance within
5 years)
€37,000 (min. 50%
to be paid
up in cash
at start balance
within 5 years)
€1 (min. to be paid
up in cash
at start,
50% in cash, balance
within 5 years)
Number of shareholders N/AN/AN/A1 to 100 individuals
or legal
Minimum 7 individuals or legal entitiesMinimum 1 individual
or legal entity
Shareholder liability N/ANo limited liabilityLimited
for estate allocated
professional activity
Limited to contributionsLimited to contributionsLimited to contributions
Management structure Represen-
tative appointed by
the parent company
1 or more managers (shareholders
or not)
Board of directors (3-18), 1 chairman,
1 to several managing directors
Minimum 1 President,
with structure defined by the by-laws
N/AN/AN/ANot compulsory unless
at least 2 of
these criteria
are met:
total assets
>€1,5M, sales>€3M,
MandatoryNot compulsory unless
at least 2 of these
criteria are met:
total assets>€1M,
staff>20, or where it belongs to a group of companies
AdvantagesEasy to set up
and/or close
Easy to set up, no obligation to publish annual accountsNo need to set up a separate legal entitySuitable for
a single shareholder;
Easy to set up
For large companiesSuitable for
a single shareholder; Flexible
Not a separate legal entity. (Representation Office must
not conduct commercial activity)
No protection of personal assetsLimited protection of personal assetsConsidered small by
third parties
Heavy management organisationStatutory auditor
is compulsory in
some cases

An EURL is an SARL with one shareholder

Buying a business

Buying a business can occur through a classical acquisition of stakes interest.

France has also an original concept known as fonds de commerce (ongoing concern). This is an entity including both the intangible assets necessary to conduct a business (clients, contracts, trademarks and patents), and the tangible assets (equipment, tools...), as well as the leasehold rights.

The sale of a fonds de commerce triggers, in general, a transfer of assets but not liabilities. The seller is legally bound to disclose all liabilities, but he is not required to provide any guarantees or warranties to the purchaser. Certain contracts, for example employment contracts, insurance policies and lease agreements, are automatically transferred with the sale.

The sale of fonds de commerce is subject to publicity dedicated to protect the creditors’ interests. In practice, all or part of the sale price is kept in escrow during the completion of the subsequent legal formalities.

The sale gives rise to stamp duties payable by the buyer in an amount of 3 percent (for the portion of price between € 23,000 and € 200,000) and 5 percent (for the portion of price in excess of € 200,000).

Corporate tax

Main applicable rates:

  • Standard rate of 33.33 percent plus, for companies with taxable profits at the standard rate of over €2,289,000, an additional “social contribution” of 1.1 percent, that is a rate of 34.43 percent
  • For small and medium-sized businesses (SMEs): reduced corporate tax rate of 15 percent up to €38,120 of profits and standard 33.33 percent rate on the remainder

Permanent establishments located in France that hold equity interests in French and foreign companies are only taxed at a rate of 5 percent of these companies’ redistributed dividends. Companies are eligible for this reduced tax rate if they own a stake of at least 5 percent in each company and have owned the securities for at least two years.

French tax rules also offers advantageous depreciation rules and a wide range of tax incentives for investors: tax credits rules (in particular in the field of R&D, or to boost competitiveness and employment), and temporary tax exemption to encourage companies to set up facilities in poorly industrialised areas.

Repatriation of earnings

Repatriation of earnings can be under the form of interest on loans granted by the foreign parent company, or royalties or management fees paid to this parent company. The amount of the interests, royalties or management fees shall be justified and in line with the prices for arm’s-length transactions between independent companies.

More classically repatriation of earnings can take the form of a distribution of dividends.

Dividends distributed to a European parent company are exempted from withholding tax if its headquarter is located in the European Union and if it holds a stake of at least 10 percent in its French distributing subsidiary.

Where dividends are paid out to a resident outside the EU, most of the tax treaties France has signed provide for a withholding tax on dividends with a standard rate of 5 percent for companies (subject to a minimum stake in the subsidiary created in France) or 15 percent for individuals. If no tax treaty exists, the withholding tax is 30 percent.

Employment and social security

Employment relations are regulated both by the law and by collective agreements at industry level.

Various types of employment contract

Employees can be hired based on two types of contract:

  • Permanent contract (contrat à durée indéterminée, CDI). This is a contract with no specified duration. In practice it is in writing and if so, it must be drafted in French
  • Fixed-term contract (contrat à durée déterminée, CDD): it allows hire extra employees for a limited time to meet temporary needs. It is strictly regulated, must be in writing and must not exceed 18 months

Dismissing an employee

Dismissal can be motived by personal reasons (real and serious grounds, misconduct, disciplinary reasons) or economic reasons. In any event the alleged ground must be legitimate, i.e. real and serious.

Fixed-term contracts can be terminated only in a very limited number of cases (in particular for serious fault or wilful conduct).

In any case the employers must carefully comply with procedural rules, which vary according to the reason for termination, the number of employees concerned, and the number of people employed by the company.

A permanent employment contract can also be terminated upon mutual consent, a fairly flexible procedure whereby the employer and the employee mutually agree to negotiate the conditions for the termination.

Social charges

Employers must bear part of the cost of the employee’s social security contributions and unemployment insurance.

The contributions are collected by the URSSAF. Employers’ contribution amounts to approximately 40-45 percent of gross payroll, while the employees’ share is approximately 22 percent of gross pay. Social contributions are much lower on low salaries and there are a large number of exemptions. The Government has recently proposed to totally exempt from social charges the salary of employees when paid at the minimum wage.

Staff representation

The Labour Code provides for different staff representation schemes that vary according to the size of the company. Mainly:

  • In company with more than 10 employees, staff representatives (délégués du personnel) are elected to present individual and collective pay claims and ensure compliance with labour law
  • In companies with more than 50 employees, a works committee (comité d’entreprise) is also elected  with the assignment to represent the employees’ interests when decisions are made about economic changes in the company
  • In companies with more than 50 employees a Joint Safety Committee (CHSCT) must also be elected to involve employees in training and other initiatives to prevent occupational risks and improve working conditions

Real estate

Setting up a company requires a deed of occupancy for the corporate address of the company. Various solutions are available. Other than using a business centre, the company can settle its corporate address at the director’s personal residence (if located in France) on a temporary basis (up to 5 years) or, under certain conditions, on an indefinite basis.

French law offers different types of lease for business purposes:

  • Short-term lease, with terms up to 24 months, non-renewable
  • Commercial lease: this is by far the most common solution. It is governed by strict legal provisions protecting the tenant’s rights. The statutory term is nine years, but tenants can terminate the lease at the end of the third or sixth year
  • Professional lease: this is a more flexible but less secure option offered to non-trading businesses. The statutory term is six years with no early termination option
Information prepared by Yama Akbar
ASB Avocats