Corporation tax in France. Separating Fact From Fiction.

Ranked 61^st in terms of overall tax burden on companies in 2020 by the firm PwC, France is now among the global average for corporation tax. [1] Nevertheless, the country still suffers from a bad reputation in this respect, one that is likely to dissuade poorly informed investors from launching a business expansion project.

The French tax system can also be discouragingly complex, as companies are in fact subject to three main kinds of taxation: tax on taxable profits, local taxes and consumption tax.  Furthermore, we need to differentiate between direct and indirect taxes. The total amount of levies can be reduced by using national tax credits and regional mechanisms, which are advantageous yet difficult to understand.

So what is the most important thing to remember about corporation tax in France? How do we distinguish fact from fiction? Dunkerque Promotion provides us with a clear and concise summary.

The French tax system: an increasingly unjustified bad reputation

France still has a bad reputation in terms of tax in Europe. The most commonly voiced criticisms include:

• The complexity and diversity of the legal statuses available to companies (Limited Liability Company, Simplified Public Limited Company, Public Limited Company, etc)
• The high rate of compulsory levies
• The significant number and duration of administrative procedures

The different preconceived ideas, however, do not stand up well to analysis. Year after year, France shows remarkable appeal to foreign investors wishing to develop or expand their business at the crossroads of Europe.

With 985 investment projects in France versus 975 in the United Kingdom and 930 in Germany, France remained the top destination for foreign investments in Europe in 2020, as it previously was in 2019[2].

The same can be said for the proverbial French red tape. According to a study by the firm PwC, a company’s different tax-related activities will have required 139 hours of work by its employees in 2020. This is by no means a trivial figure, but it has decreased by 27 hours since 2012. Furthermore, other countries are clearly worse off, including Germany with an average of 218 hours.

France’s economic environment is obviously more advantageous than some seem to think.

Thanks to the tax credit system, it is quite possible for a company to re-balance its tax base in a rather beneficial way. [3]

Direct taxation: income tax or corporation tax

The profits made by a company in France can be taxed as income tax or corporation tax. The tax applicable depends on the legal arrangement chosen as well as the business owner’s preferences. Some statuses may actually be eligible for both.

By default, the following are subject to income tax:

• Sole trader
• Limited liability sole trader
• Single-owner limited liability company if the sole shareholder is a natural person
• General partnership

By default, the following are subject to corporation tax:

• Single-owner limited liability company if the sole shareholder is a legal person
• Limited liability company
• Simplified Public Limited Company
• Simplified joint-stock company with a sole shareholder
• Public limited company

Limited liability companies, simplified public limited companies and public limited companies have the choice of paying income tax for 5 financial years maximum (or for an unlimited number of years if it is a family-run limited liability company).  Conversely, single-owner limited liability companies, limited liability sole traders and general partnerships can also opt for corporation tax.

Boxed text: How much is corporation tax?

For SMEs with a turnover (ex VAT) up to 10 million euros, corporation tax in 2021 amounts to[4] :

• 15% for profits up to €38,120
• 5% for profits over €38,120

For a turnover between 10 and 250 million euros, a rate of 28% is applied to all of the profits.

Finally, for a turnover of more than 250 million euros, the rate of tax is 28% up to €500,000 of profits, then 31% over that figure.

Consumer tax system: Value Added Tax

Value added tax (VAT) is the number 1 indirect tax in France. It is a tax billed to clients on the goods they consume or the services they buy. The company supplying the goods or service is responsible for collecting this tax on behalf of the French Government, for declaring it and finally paying it to the tax authorities. The standard rate is currently 20%.

Several systems can be applied depending on the amount of VAT collected:

• If the amount of VAT declared is less than €15,000 per year, a simplified system of taxation is applied. The business owner in question only has to declare the VAT collected once a year, by the second working day following 1 May at the latest.
• If the amount of VAT declared is higher, the non-presumptive tax system requires the company to make monthly declarations and pay them online.

VAT-registered businesses can claim a refund of the VAT paid on the purchase of goods and services for their business. The application must be sent to the tax office by 30 September of the following year at the latest[5].

There are other indirect taxes, particularly:

• Excise duty, concerning the sale or use of tobacco, alcoholic drinks or energy products
• General Tax on Polluting Activities, for all companies whose activities are considered to be pollutant.

Local tax system: property ownership tax and regional economic contribution

In addition to direct and indirect taxes, a company is also required to pay certain contributions to local authorities:

• Property tax on developed land is equal to the product of a rate set by the local authorities and the “cadastral income” of the assets, set at 50% of its rental value.
• Property tax on undeveloped land follows the same rules of calculation. However, this time the cadastral income of the assets is set at 80% of their rental value[6].

As far as the regional economic contribution is concerned, it has replaced the business tax since 2010. It comprises:

• Business rates, the amount of which is the product of a tax base and the rate set by the municipality
• Business value added contribution, based on the added value of companies with a turnover of more than €152,500 at a rate of 0.75% [7].

Hauts-de-France and Dunkirk’s tax system

Setting up a company in the Hauts-de-France region can lead to multiple forms of support depending on the nature of the project and its economic potential. The regional support scheme for business creation/takeover (CE2I) provides financial aid for projects creating economic activities that have potential and generate employment, at a rate of €5,000 per job created[8].

The area where the business is established can also provide grants or tax relief, particularly:

• Special tax concession zones in cities, entitling them, under certain conditions, to a 100% tax exemption on profits for the first 5 years (then 60% in year 6, 40% in year 7 and 20% in year 8)[9] .
• Priority areas of the city, making companies with fewer than 11 employees fully exempt from paying business rates and property tax on developed land for 5 years[10] .
• Rural regeneration areas, providing –under certain conditions– full exemption from the payment of profit tax, business rates and property tax on developed land for 5 years[11].

Concerning the agglomeration of Dunkirk, it is possible to mention, for example:

• The special tax concession zone in the city of Saint-Pol-sur-Mer
• Several priority neighbourhoods of the town: Banc Vert – Ile Jeanty – Carré De La Vieille – Jeu De mail, Saint-Pol-Sur-Mer Quartiers Ouest, Soubise – Basse Ville.

In addition, the local authorities have also implemented different incentives to attract investors and business expansion projects. The Greater Dunkirk Urban Council provides a local innovation and growth fund[12], intended to support companies in the form of repayable cash advances at a rate of 0%.

Relating to sole traders or a small commercial business, more modest projects can also benefit from the assistance of certain associations, such as:

• Flandre Création, dedicated to young creatives and self-employed workers such as craftspeople, tradespeople and micro-entrepreneurs.
• Flandre Initiative in terms of micro-credit and interest-free loans for certain project leaders.

***

With their perfect knowledge of the territory and the constraints of the local tax system, an on-site intermediary can help to optimise the success of a business expansion project in the Hauts-de-France area.

Having supported over 2,200 companies and created 10,000 jobs since 1992[13], Dunkerque Promotion economic development agency has set itself up as a reference point for all investors and business expansion project leaders. Benefit from qualified and bespoke support for your facility in the Dunkirk and Côte d’Opale area, at the heart of Maritime Flanders and France’s largest port complex.

From an initial project analysis to searching for premises, introducing you to local decision-makers and helping you obtain public contracts, why not contact us to turn your ambitions in the Hauts-de-France area into a reality?

[1]https://www.pwcavocats.com/fr/ouvrages-et-etudes/2019/paying-taxes-2020.html

[2]https://www.leparisien.fr/economie/investissements-etrangers-la-france-reste-le-pays-le-plus-attractif-deurope-07-06-2021-FAVKUPSNIVBHTJV2MPPBZ6TORI.php

[3]https://www.latribune.fr/economie/france/l-impot-sur-les-societes-est-il-si-eleve-en-france-570385.html

[4]https://www.service-public.fr/professionnels-entreprises/vosdroits/F23575

[5]https://www.service-public.fr/professionnels-entreprises/vosdroits/F31673

[6]https://www.toutsurmesfinances.com/impots/taxe-fonciere-sur-les-proprietes-non-baties-tfpnb-tout-sur-limpot-foncier-sur-les-terres-et-terrains.html#Taxe_fonciere_sur_les_proprietes_non_baties_ (TFPNB) _calcul

[7]https://www.service-public.fr/professionnels-entreprises/vosdroits/F23546

[8]https://guide-aides.hautsdefrance.fr/aide678

[9]https://www.service-public.fr/professionnels-entreprises/vosdroits/F31149

[10]https://www.service-public.fr/professionnels-entreprises/vosdroits/F34020

[11]https://www.service-public.fr/professionnels-entreprises/vosdroits/F31139

[12]https://www.communaute-urbaine-dunkerque.fr/communaute-urbaine/les-competences/developpement-economique/aides-aux-entreprises

[13]https://www.dunkerquepromotion.org/decouvrir-dunkerque-promotion/