As a foreign established firm in France, you must comply with a range of legal, accounting, and tax obligations. Whether you operate through a branch or a subsidiary, understanding the local regulatory landscape is essential to staying compliant and avoiding penalties.
In this blog, we outline the two main ways a foreign company can establish itself in France and explain the key compliance obligations that follow.
Business Structures for Foreign Established Firms in France: Branch vs Subsidiary
When expanding into France, foreign businesses generally have two options, depending on the level of their local activity.
- You can either conduct operations without setting up a permanent establishment. You can read about the relevant obligations here.
- Or you can establish a formal presence in France. In this case, your presence will take the form of either a branch office or a subsidiary company, each subject to different legal, tax, and reporting obligations.
What is a Branch Office?
A branch office is an extension of a foreign company that operates without forming a separate legal entity. It allows the parent company to conduct business locally while maintaining full control over the branch’s operations.
Key Features of a Branch Office
- The branch is not legally separate from its parent company abroad.
- It does not require its own articles of association.
- There is no need to allocate a distinct share capital for the branch.
- The branch must register employees with the appropriate French institutions, including URSSAF (for social security), pension and welfare organizations, Pôle Emploi (employment office), and any relevant supplementary benefit or retirement schemes.
- It must also be registered with the French tax authorities.
- No minimum capital is required to establish a branch.
- All legal obligations that arise from business are borne by the foreign entity.
Overall, compared to a subsidiary, a branch is generally easier and less costly to establish. It allows the foreign company to carry out business in France while remaining fully responsible and liable for the branch’s operations.
What is a Subsidiary?
A subsidiary is a legally independent company established by a foreign parent company in France. Unlike a branch, it has its own legal identity and can take various corporate forms such as SARL, SAS, SA, or EURL, allowing it to operate with a greater degree of autonomy.
Key Features of a Subsidiary
- The subsidiary has a distinct legal identity from its foreign parent and is incorporated under one of the standard French business structures (e.g. SAS, SARL, SA, or EURL).
- It must be formally registered with the appropriate Business Formalities Center (Centre de Formalités des Entreprises).
- Registration must also be completed at the Commercial Court Registry (Greffe du Tribunal de Commerce).
- Employees must be enrolled with URSSAF, as well as other relevant bodies such as pension funds, Pôle Emploi, and supplementary benefit schemes.
- Managing directors may need to register with additional regulatory bodies depending on their role and status.
- The entity must be registered with the French tax administration.
A subsidiary enjoys full commercial and legal independence, giving it the ability to engage in regulated and unregulated business activities, including financial, legal, and commercial operations, without direct liability falling on the parent company.
General Legal and Compliance Requirements for All Businesses in France
Whether operating as a branch or a subsidiary, all foreign businesses with a presence in France must meet several key formalities:
- Commercial Registration: The entity must be officially registered with the Commercial Court Registry (Greffe du Tribunal de Commerce).
- Business Identification: A unique SIRET number is assigned to each business, serving as its official identification code. Companies that are subject to VAT must also obtain an EU intra-community VAT number.
- Financial Reporting: Businesses are required to file annual financial statements with the Commercial Court Registry. This includes the financials for the French entity (branch or subsidiary), and in the case of a branch, may also include the parent company’s financials.
Accounting & Tax Obligations for a Foreign Branch in France
If you’re operating in France as a foreign branch, here are some key accounting and tax rules you need to keep in mind to stay compliant.
Legal Reporesentative Requirements
Each branch must appoint a representative, who is either an executive of the foreign parent or a designated branch manager. This individual must be registered with the Commercial Court Registry.
If the representative is a non-EU national, they may require a valid work permit, unless they are exempt under specific international agreements. The representative is responsible for ensuring compliance with French regulations and is the official point of contact for authorities.
Corporate Tax and VAT Requirements
A French branch is generally taxed on income derived from its operations in France. Key tax responsibilities include:
- Corporate Income Tax (CIT): Profits are taxed in France, typically at the standard corporate rate (e.g., 31%). SMEs may qualify for a reduced 15% rate on the first €38,120 of profit.
- Permanent Establishment Status: Where applicable, profits are determined as if the branch were a separate entity, following the arm’s-length principle.
- VAT (Value Added Tax): The branch is subject to VAT on the supply of goods and services. Standard rate: 20%, with reduced rates of 10%, 5.5%, or 2.1% for specific items.
- Branch Tax (3%): A 3% tax may apply on profit distributions to the foreign parent, although many double tax treaties offer exemptions.
- Local Taxes: The branch must pay the territorial economic contribution (CET), including CFE (property tax) and CVAE (value-added contribution).
- Payroll Tax: Applies if less than 90% of turnover is VAT-taxable; rates vary between 4.25% and 13.6% depending on salary levels.
- Non-EU companies may also need to appoint a tax representative in France for VAT administration.
Accounting and Reporting Duties
Although a branch is not an independent entity, it must maintain its own accounting records in France. These requirements include:
- Keeping separate financial accounts from the parent company
- Preparing and filing annual financial statements (balance sheet, income statement, annexes) with the French registry
- Invoice compliance: Issuing invoices that meet French regulatory standards, and retaining copies for at least six years
All records must comply with French accounting standards and be ready for inspection by tax authorities if required.
Labor Law Compliance
A branch may hire employees directly in France or second staff from the parent company. In cases of secondment, the following must be observed:
- Initial secondments are limited to 12 months, extendable by 6 months. Exceeding this may trigger reclassification as a local employment contract under French law.
- The foreign employer must notify French labor authorities prior to secondment.
- A local representative must be appointed to liaise with administrative bodies.
- Employees must be registered with French social security, regardless of secondment duration.
- Social contributions and salaries must comply with French labor law.
Compliance with working conditions, health and safety rules, and leave entitlements is mandatory.
Sector Specific Requirements
While most industries are open to foreign investment without prior approval, certain sectors, such as defense, security, or public health, may require prior authorization from the Ministry of Economy and Finance.
Additionally, branches operating in regulated sectors like banking, insurance, or telecom must obtain specific licenses before engaging in commercial activity. The branch must also comply with anti-money laundering (AML) and anti-terrorist financing obligations, which may include appointing a compliance officer and setting up internal control procedures.
If the branch is involved in import/export, it must meet all French customs and excise rules, secure any required licenses, and file accurate declarations. Intellectual property protections, like trademark or patent registrations, should also be considered when operating under a brand name in France.
Accounting & Tax Obligations for a Foreign Subsidairy in France
If you’re operating in France as a French subsidiary of a foreign company, here are some key accounting and tax rules you need to keep in mind to stay compliant.
Legal Reporesentative Requirements
A French Subsidiary needs to appoint a manager who can be:
- An employee of the French entity or the foreign parent
- An agent from the parent company or another group company
- A French or foreign national qualified to conduct commercial activities in France, in line with applicable international agreements
The manager must be properly registered and will be legally responsible for the operations of the subsidiary under French law.
Corporate Tax and VAT Requirements
As a French legal entity, a subsidiary is subject to the same tax regime as any domestic company. This includes:
- Corporate Income Tax on its worldwide profits (if resident in France)
- Value Added Tax (VAT) on taxable goods and services
- Local taxes, such as the CFE (business property tax) and CVAE (value-added contribution)
- Payroll taxes and social contributions if it employs staff.
The subsidiary must also comply with all French tax filing and reporting requirements and be prepared to provide supporting documents in case of a tax audit.
Here is a summarized table of the tax rates under each regime.
Tax Type |
Rate |
Notes |
|---|---|---|
Corporate Income Tax
|
25% standard; 15% SMEs (up to €42.5 k)
|
+3.3% social contribution above €763 k CIT
|
VAT
|
20%
|
Reduced rates of 10%, 5.5%, or 2.1% apply
|
CET (CFE + CVAE)
|
Variable
|
CVAE on value-added if turnover > €500 k
|
Payroll Tax
|
4.25–13.6%
|
Applies if VAT <90% of turnover
|
Withholding Tax on Dividends
|
0–25%
|
Reduced by directive/treaties
|
Interest/ Royalties
|
0–10%
|
Based on treaties
|
Accounting and Reporting Duties
A French subsidiary must maintain its accounts strictly in accordance with French accounting standards and the Plan Comptable Général (PCG) – France’s General Chart of Accounts. This means:
- All records must be kept in French and in euros
- Entries must be chronological, traceable, and clearly documented
- Each accounting entry must include a French account number, though it can be linked to foreign account codes for internal purposes
- Supporting documentation must be retained and clearly linked to accounting records.
Foreign accounting standards (e.g., IFRS or local GAAP from the parent company) cannot replace French standards. Any adjustments made to align foreign accounts with French rules must be properly documented and integrated into the French ledger—not just added manually at year-end.
You can read more about the French GAAP here.
Auditing Requirements
In the event of a tax audit, the subsidiary must submit the FEC (Accounting Entry File), which:
- Must be compatible with French software and chart of accounts
- Needs to include all adjustments made between the foreign and French versions of accounts
- Must provide a complete audit trail, with all entries traceable back to their source documents
- Can not be manually edited at year-end or “bridged” from the foreign accounts; this is strictly prohibited
Additionally, during a tax audit, the French tax authorities can request:
- Certified translations of any foreign-language documents
- Full access to accounting records and supporting documentation
- A breakdown of adjustments used to convert foreign books to French standards
- A clear and continuous trail showing the link between accounting entries and original documents.
To ensure compliance, subsidiaries must have well-organized, traceable, and French-compliant systems in place for all financial and non-financial documentation.
You can learn more about Audit requirements in France here.
Labor Law Compliance
- Employment Authorization & Work Permits
- Foreign nationals must hold a valid work permit before being employed in France, as per Article L8251‑1 of the French Labor Code, which prohibits hiring individuals without authorization.
- Secondment / Posting of Employees
- Posting employees from abroad to France triggers complex rules. The company must file a prior declaration (SIPSI), designate a local representative, and ensure employees comply with French labor laws regarding pay, working hours, and safety.
- Non-compliance can lead to fines of up to €3,000–€6,000 per breach and possible service suspension.
- Social Security and Payroll Declarations
- All employees, whether hired locally or seconded, must be registered with URSSAF, with full social contributions withheld and remitted as required.
- If payroll taxes are not properly withheld (like personal income tax), fines can reach 5–80%, with criminal penalties possible.
- Mandatory Employment Records
- Employers must maintain records such as the registre unique du personnel, health & safety registers, work schedules, and documentation of collective agreements, especially once over 50 employees.
- Right to Work and the “Duty of Care”
- Entities using posted workers are held to a duty of vigilance: they must check that seconding employers have legal authorization, proper declarations, and social compliance.
- Labor Inspection & French-Language Requirements
- In the event of inspection, employers must present documentation (work permits, pay slips, hours worked, employment contracts) translated into French within 15 days.
- Non-French documents can be accepted only with certified translation.
- Misclassification & Contractor Rules
- Misclassifying employees as contractors is strictly monitored by URSSAF, with fines up to €250,000, plus potential manager liability and prison sentences
You can find the general labor laws applicable in France here.
Setting up a business in France comes with a range of tax, accounting, and labor compliance obligations that can be complex for foreign companies to navigate.
Whether you choose a branch or a subsidiary, understanding and meeting these requirements is essential to operate smoothly and avoid penalties.