Foreign companies can carry out business in France without setting up a formal legal entity like a branch or subsidiary. However, non-established firms in France are not exempt from tax obligations. There are still specific accounting and tax obligations that must be followed.
A non-established foreign company typically refers to a business that operates in France without creating a permanent establishment. While this approach may simplify your presence in France on paper, it still requires compliance with local regulations, especially around VAT registration, tax representation, payroll, and reporting.
In this blog, we explain the key tax obligations for non-established foreign companies in France, including when you need to register for VAT, who must appoint a tax representative, how to manage payroll and invoicing without a legal presence, and audit requirements.
Business Structures for Foreign Companies in France: Established vs Non-Established
Depending on how involved your business activities are in France, you have two main ways to operate in the country.
- You can either carry out operations without setting up a permanent establishment.
- Or you can choose to have an established entity in the form of a branch or subsidiary. Each of these have their own distinct accounting and tax obligations that you can find here.
What is ESEF? (Entreprise Sans Établissement en France)
An “Entreprise Sans Établissement en France” (ESEF) is a foreign company that operates in France without setting up a formal or permanent legal structure, such as a branch or subsidiary.
Even without a physical presence, ESEFs are still subject to local compliance requirements. For example, they may need to register for French VAT, appoint a fiscal representative, withhold and pay payroll taxes, or report transactions to the French authorities. Failing to meet these obligations can result in penalties or legal restrictions on business activity.
Understanding your responsibilities as an ESEF is essential to operating lawfully and efficiently in France, even if your presence is only temporary or limited in scope.
Advantages Non-Established Firms in France
The Entreprise Sans Établissement en France (ESEF) status offers a practical and flexible solution for companies not looking to have a physical presence in France.
Here are some key benefits:
1. Simplified Setup and Management:
Operating as an ESEF eliminates the need to register a French branch or subsidiary, significantly reducing both administrative and accounting complexity. The company simply needs to declare its employees locally and comply with French social security (URSSAF) and tax withholding obligations, without triggering full corporate tax residency.
2. Low-Risk Market Entry:
This structure provides an excellent way to explore the French market with minimal risk. Companies can hire staff, conduct market research, or promote their services without establishing a formal presence. It’s ideal for testing demand or supporting local clients before making long-term investments.
3. Cost Efficiency
Since there’s no need for notarial procedures, formal registration, or maintaining a legal entity, companies benefit from lower initial and ongoing costs. This lean model is especially useful for activities like marketing, customer support, or back-office operations.
4. Maintaining Non-Resident Status
ESEF allows foreign companies to maintain their non-resident tax status in France while still having a commercial footprint. However, it’s important to ensure the French activities do not amount to a “permanent establishment” under international tax treaties.
Key Activities that Trigger Tax Obligations
Even without a physical or legal establishment in France, foreign companies may still be liable for French taxes if they:
- Employ staff based in France
- Act as property dealers with assets located in France
- Rent or lease property (residential or commercial)
- Have ownership interests in French partnerships or property companies (e.g., SCI, EIG, SNC)
- Generate revenue from operations or services performed in France
According to Article 218 A(2) of the French General Tax Code, foreign entities with no registered office in France but who carry out operations or own assets there are taxable in France at a location defined by the Ministry for the Economy and Finance.
Where Are Non-Established Firms Taxed?
As per Article 23 of Appendix IV, the place of taxation depends on the nature of the activity:
- For active business operations with establishments: At the location of the main place of business
- For commercial or professional activity without establishments: Under the jurisdiction of the Foreign Business Tax Department
- For property-based activities: At the location of the property
If multiple taxable activities occur in various locations, the Foreign Business Tax Department will consolidate the tax obligations.
Corporation Tax Obligations
Non-established companies with taxable income in France must:
- File their corporate tax return (Form No. 2065-SD) electronically
- Do so on the second business day after May 1 (for calendar-year companies) or within three months after the financial year-end (if different)
- Compute and pay corporate income tax using forms 2571-SD (instalments) and 2572-SD (balance)
Foreign companies engaged in property-based activities or with interests in French partnerships are also subject to French corporate tax laws.
Here are the tax brackets you will be subject to:
- For profits between €0 and €42,500:
- 15% if the company’s turnover is €10 million or less.
- 25% if the turnover exceeds €10 million.
- For profits above €42,500: 25%
VAT Obligations and Reporting
Foreign companies from EU Member States with no permanent establishment in France must comply with VAT obligations if they:
- Sell goods with delivery in France
- Make intra-community acquisitions in France
- Engage in distance selling to France (over the threshold of €35,000 annually)
- Provide taxable services to French clients
Key points to Keep in Mind
- VAT registration is mandatory
- Depending on the transaction, the reverse charge mechanism may apply
- VAT must be reported and paid to the French Public Finances Directorate General
The 3% Tax on Real Estate Holdings
Foreign companies owning property in France, directly or indirectly, may be subject to the 3% tax on the market value of these assets under Articles 990 D to 990 G of the French General Tax Code.
- Applies to legal entities (French or foreign) holding rights over French real estate
- Tax is assessed annually on January 1st
- Return No. 2746 must be filed by May 15 each year
Requirements for Enabling a Tax Audit
When a foreign company is audited in France but has no premises in the country, it must meet two main obligations:
- Propose a Location for the Audit:
Even if the company doesn’t have a physical office in France, it must propose a location within France where the audit can be carried out. This could be:
- The office of their accountant or tax advisor
- A designated meeting space
- The French tax authority’s own premises (by agreement)
According to Conseil d’État ruling No. 379626, the location must in principle be in France, but exceptions may apply.
- Appointing a Local Representative
The foreign company must designate a person (e.g., accountant, lawyer) to act as its representative during the audit. This person will:
- Present all relevant accounting records and supporting documentation
- Answer questions and represent the company’s interests before tax authorities
- Risk of Non-Compliance
Failure to provide a location or appoint a representative can be considered opposition to tax control, leading to a 100% tax penalty.
Want to get an audit done? – Contact us today for a free consultation!
Operating in France without a legal establishment may simplify business entry but still involves several important tax, VAT, payroll, and reporting obligations. Foreign companies must remain proactive in understanding these rules to avoid penalties and ensure full compliance.