Understanding the Types of Cross-Border M&A

Cross-border mergers and acquisitions (M&A) refer to transactions where companies from different countries combine their operations through a merger or acquisition. These deals allow businesses to expand globally, access new resources, and strengthen competitiveness. This blog will help you understand the types of cross-border M&A in EU, the regulations around them, and other factors essential for companies to consider when pursuing international growth. What Is Cross-Border M&A? A cross-border M&A takes place when one company merges with or acquires another company based in a different country. Unlike domestic mergers, these transactions involve navigating not only commercial negotiations but also complex cross-border merger regulations, including legal, tax, and compliance requirements of multiple jurisdictions. Such mergers are widely used by companies to establish a stronger presence in international markets, acquire innovative technologies, and gain competitive advantages on a global scale. Types of Cross Border M&A Under EU law, businesses can pursue three main types of cross border mergers and acquisitions. These structures define how assets, liabilities, and legal entities are consolidated during the transaction: Merger by AbsorptionIn this structure, the target company transfers all assets and liabilities to the acquiring (transferee) company. Once complete, the target company is dissolved without undergoing liquidation.For example, a French consumer goods company acquires a Spanish competitor and absorbs all its assets and liabilities. The Spanish company ceases to exist, and the French company continues operations under its own brand, quickly expanding market share in Spain. Merger by Absorption of a Wholly-Owned SubsidiaryHere, a subsidiary fully owned by the parent company is absorbed into the parent. Since the transferee already owns the target, the process involves fewer formalities and regulatory requirements compared to other merger types.For example, a German parent company absorbs its fully-owned Italian subsidiary. Since it already owns the subsidiary, the merger is straightforward, allowing the parent to streamline operations and reduce administrative overhead. Merger by Formation of a New CompanyTwo or more companies transfer their assets and liabilities into a newly established entity. After the transfer, the original companies are dissolved without liquidation, and the new company becomes the operating entity.For example, a Belgian tech firm and a Dutch software company merge to create a new joint entity. Both original companies are dissolved, but the new company leverages combined technologies, talent, and customer networks to enter multiple European markets under a unified brand. Type What Happens Key Advantage Merger by Absorption Target company transfers all assets/liabilities to acquirer; target dissolved Streamlined integration, full control Absorption of Wholly-Owned Subsidiary Subsidiary absorbed into parent Fewer formalities, simpler regulatory approval Formation of New Company Two/more companies form a new entity Neutral structure, joint control possible Choosing the Right Structure in Cross Border Mergers and Acquisitions When considering the types of cross border mergers and acquisitions, selecting the right structure is crucial. The decision depends on several key factors: Strategic Goals – Businesses must align the merger structure with long-term objectives. For instance, if maintaining brand identity is a priority, forming a joint venture may be more suitable than a full absorption.When planning a deal, ask yourself: Does this structure align with your long-term brand and market strategy? Will it simplify integration, or add complexity? Financial Considerations – The financial health and resources of the merging entities influence the structure. Companies should carefully evaluate capital requirements, potential synergies, and transaction costs associated with each option. Regulatory Environment – Each jurisdiction has its own cross border merger regulations. Seeking legal guidance ensures compliance and helps companies choose a structure that minimizes legal hurdles. Consulting local legal and tax advisors early can help avoid surprises. Why Do Companies Pursue Cross Border M&A? Companies choose cross-border mergers and acquisitions for a range of strategic benefits: Market Expansion – Gaining access to new geographic markets and customers. Access to Resources – Acquiring new technologies, skilled talent, or raw materials. Diversification – Spreading business risk by entering new industries or regions. Increased Competitiveness – Combining strengths to improve market positioning. Cost Savings – Achieving economies of scale through consolidated operations. Key Risks to Consider in Cross-Border Mergers Every merger comes with risks, but cross-border M&As introduce additional layers of complexity. Companies should assess the following risk areas before finalizing a deal: Legal Risks – Contract disputes, IP issues, and differing local regulations can slow integration. Conducting due diligence and working with legal experts helps mitigate these risks. Financial Risks – Currency fluctuations can significantly affect deal valuation and future performance. Businesses often adopt hedging strategies to protect against exchange rate volatility. Operational Risks – Integrating operations, systems, and cultures across countries can be challenging. Companies should identify integration risks early and develop contingency plans to ensure smooth post-merger operations. Early due diligence and integration planning are critical to reducing these risks. Jurisdictional Considerations in Cross-Border M&A The jurisdiction chosen for a merger or acquisition can have a major influence on the transaction’s success. Since laws and cross border merger regulations differ from one country to another, the location of the deal determines not only its feasibility but also its long-term benefits. For this reason, companies planning any of the types of cross border mergers and acquisitions must carefully evaluate the legal and economic landscape of the target country before proceeding. Key Factors When Choosing a Jurisdiction When assessing potential jurisdictions for a cross-border M&A, businesses should take into account: Legal Environment – A clear understanding of the target country’s legal framework is essential. Factors such as the predictability of laws, the independence of courts, and the efficiency of dispute resolution can greatly influence the outcome. Tax Environment – Tax rules differ widely across jurisdictions and can significantly affect the cost and structure of a deal. Consulting international tax advisors ensures that companies are aware of potential liabilities and opportunities for optimization. Political Stability – A stable political climate is critical for long-term success. Companies should evaluate the likelihood of policy shifts or regulatory changes that could disrupt post-merger operations. How Does an EU Cross-Border Merger Work? Although the cross border merger regulations

Is Upcycling Legal? Upcycling vs Infringement

Upcycling luxury brands has become one of the most exciting trends in today’s sustainable economy. It transforms old, unwanted, or unsold products into something new and more valuable. From turning vintage jeans into handbags to reworking luxury scarves into accessories, upcycling appeals to both environmentally conscious consumers and creative entrepreneurs. But while the environmental and artistic benefits are clear, the legal risks are not always as obvious. Many upcyclers face a difficult question: is upcycling legal? At what point does creative reuse of branded items cross the line into trademark infringement or even counterfeiting? What Is Trademark Infringement? Trademarks protect the symbols, names, and logos that allow consumers to identify the source of goods. In France, Article L.713-2 of the Code de la Propriété Intellectuelle prohibits the use of a registered mark in commerce without the owner’s consent. In practice, infringement occurs when: The mark is used without authorization, In a way that creates confusion about origin, endorsement, or quality. The Principle of Exhaustion France and the EU follow the principle of exhaustion of rights, which is similar to the “first sale doctrine” in other countries. This means: once a branded product is put on the market in the EU/EEA with the consent of the trademark holder, the trademark owner’s control over resale of that particular product is exhausted. Example: Buying a genuine Nike shoe in Paris and reselling it second-hand on Vinted is perfectly legal. However, exhaustion does not cover modifications. The protection applies to resale of the same product, not a new product derived from it. If the item is materially altered, and especially if the logo remains visible, exhaustion no longer applies. When is Upcycling Legal? Upcycling luxury brands does not automatically equal infringement. There are situations where it can be done legally and responsibly: Resale of unaltered goods – Selling second-hand branded items in their original form is allowed under exhaustion. Upcycling without visible trademarks – Transforming old clothes into patchwork textiles, where logos and brand names are no longer identifiable. Private or artistic use – Personal projects or one-off creations not placed on the market. Marketing under your own brand – Emphasizing your own creative identity, not the original brand’s, avoids confusion. When Upcycling Becomes Infringement The risk arises when consumers could be misled into thinking the upcycled luxury goods are still connected to the original brand. In particular: Visible logos remain: If a Louis Vuitton bag is cut into smaller wallets that still display the “LV” monogram, the new products may appear endorsed by LV. Minimal alteration: If the item looks almost the same as the original but is resold as “custom” or “reworked,” confusion is likely. Use of brand names in marketing: Phrases like “Upcycled Gucci bracelet” use the trademark commercially and may imply endorsement. Damage to brand reputation: If the upcycled product is of lower quality or inconsistent with the brand’s image, courts may find infringement even if disclaimers are used. Case Law Examples of Upcycled Luxury Goods Chanel v. Shiver + Duke (US, 2021) A jewelry company turned genuine Chanel buttons into earrings and necklaces, selling them as “upcycled Chanel jewelry.” The court sided with Chanel, ruling that: The first sale/exhaustion doctrine did not apply because the products were materially altered. Keeping the Chanel logo visible created a risk that consumers would believe Chanel endorsed the items. Key takeaway: Even when using authentic materials, transforming them into new products that display the original trademark can be trademark infringement. Practical Tips for Upcyclers If you are considering selling upcycled luxury goods, or any upcycled products, here are steps to reduce legal risks: Avoid visible logos – Remove or cover any trademarks when repurposing. Market under your own brand – Emphasize your creativity instead of piggybacking on another brand’s reputation. Be transparent – If you mention original materials, use clear disclaimers such as “Made from upcycled materials. Not affiliated with [Brand].” Focus on transformation – The more the item is creatively reworked, the stronger the argument it is a new product of your own. Consult an IP lawyer – If you plan to scale, professional advice is essential, particularly since luxury brands are aggressive in litigation. Upcycling is a valuable part of the circular economy, supported by environmental goals and increasingly demanded by consumers. Yet, the legal framework in France and the EU shows that trademark rights remain a barrier when branded items are reused in ways that could confuse consumers or damage a brand’s reputation. The safest approach for upcyclers is clear: build your own creative identity, avoid visible logos, and respect the boundaries of trademark law. This way, upcycling can thrive as a force for sustainability without crossing into infringement.

Everything You Need to Know About Insolvency Proceedings in France

Understanding insolvency law in France is essential for businesses operating in the country or planning to expand into the French market. Insolvency law provides a structured framework to manage companies facing financial distress, offering pathways for restructuring, debt repayment, or orderly liquidation. This blog explores the key aspects of insolvency proceedings in France, including the conditions for entry into different procedures, and the distinction between insolvency, bankruptcy, and restructuring. What Is Insolvency Law? Insolvency law in France governs the legal processes applicable when companies face financial distress, including restructuring or winding-up procedures. Put simply, it is the framework established to manage companies that can no longer meet financial obligations, ensuring orderly treatment of creditors and attempts at business rescue where feasible. When Is a Company Considered Insolvent? In France, a company is deemed insolvent when it reaches the state of “cessation des paiements”, meaning it is no longer able to meet its financial obligations as they become due with the available liquid assets. This status triggers the legal obligation for directors to act quickly, either by initiating insolvency proceedings in France or by seeking early-stage solutions like conciliation. Difference Between Insolvency, Bankruptcy, and Restructuring It is important to distinguish insolvency from related concepts: Insolvency vs. BankruptcyInsolvency is a financial condition indicating that a company cannot pay its debts on time. Bankruptcy, on the other hand, is a legal declaration by a court that the company is insolvent, often leading to judicial liquidation or reorganization. Not all insolvent companies are automatically declared bankrupt; insolvency is a trigger, whereas bankruptcy is a legal consequence. Insolvency vs. RestructuringRestructuring involves reorganising a company’s debts, assets, or operations to restore financial health while maintaining business continuity. Insolvency is the condition that may necessitate restructuring. Understanding these distinctions is crucial for directors and investors, as it informs which legal options are available under French insolvency law and the timing for taking protective or corrective action. Legal Framework Governing Insolvency in France The core legal basis for insolvency proceedings in France is contained in Book VI of the French Commercial Code (Code de Commerce), which outlines procedures applicable to enterprises in difficulty. These commercial provisions apply to all legal persons carrying out commercial, artisanal, agricultural or independent professional activities. Triggers for Insolvency Proceedings: “Cessation des paiements” The critical trigger for formal insolvency proceedings in France is the status known as “cessation des paiements,” which occurs when a company cannot pay its due debts with available liquid assets. This state of illiquidity, even if temporary, mandates swift legal action. Upon entering this state, company directors are legally required to file for restructuring or liquidation within 45 days, unless they have already initiated conciliation proceedings Court-Administered Proceedings Three main judicial options exist once insolvency is reached: Safeguard Proceedings (Procédure de sauvegarde)Initiated when the enterprise is not yet in cessation des paiements, allowing reorganization under court protection—often comparable to Chapter 11 in U.S. bankruptcy law. Judicial Reorganisation (Redressement judiciaire)Triggered when insolvency is confirmed. The court imposes a period of stabilization, during which the company continues operations while formulating a debt repayment or disposal plan. Judicial Liquidation (Liquidation judiciaire)Applied when recovery is not viable. The court orders the sale of assets to repay creditors, and the company is ultimately dissolved. Criteria for Entry into Each Restructuring Procedure Under French law, the determination of insolvency is based primarily on a cash-flow test. A company is considered insolvent (“en état de cessation des paiements”) when it cannot pay its due and payable debts from available liquid assets or assets that can be quickly converted into cash. This assessment takes into account undrawn credit facilities, other available credit reserves, and any moratoria or standstills agreed upon with creditors. Based on this framework, the entry criteria for different insolvency proceedings in France are as follows: Ad Hoc Proceedings – The company must generally be solvent. In rare cases, these proceedings have been used for companies that were temporarily insolvent, but only for a very limited period. Conciliation Proceedings – The company must be experiencing actual or anticipated legal or financial difficulties. Insolvency is permissible if it has lasted less than 45 days prior to filing the petition. Safeguard Proceedings (Procédure de Sauvegarde) – The company must still be solvent but facing difficulties that it cannot resolve on its own. There are no strict limitations on how “difficulty” is defined. Judicial Reorganisation (Redressement Judiciaire) – The company must be insolvent; however, recovery or rescue must still be realistically achievable, rather than impossible. These distinctions are crucial for determining which insolvency proceedings in France a company may pursue and for ensuring compliance with legal requirements under French insolvency law. The insolvency proceedings in France, whether conciliation, safeguard, judicial reorganisation, or liquidation, provide structured paths for potential recovery or orderly exit. Key to effective navigation is the prompt recognition of financial difficulties (cessation des paiements), adherence to legal timelines (such as the 45-day rule), and informed decision-making between proactive restructuring and necessary liquidation. By comprehending these legal pathways, businesses and their advisors can better safeguard assets, preserve value, and ensure compliance throughout financial turbulence. Want to learn about other proceedings in France? Check out our dedicated posts on accounting and tax obligations in France, transfer pricing requirements, or French GAAP.

Expat Income Tax in France: Determining Tax Residency & Tax Rate

Moving to France for work can be an exciting opportunity, but it also brings new responsibilities, especially when it comes to taxes. This guide explains the basics of tax residency, household taxation, progressive tax brackets, and the new reforms that may affect expat income tax in France. With clear examples, we’ll break down how much you might pay and what special rules apply if you’re earning a higher income. Who is an expat (expatriate)? An expat (short for expatriate) is someone who lives and works outside their home country, usually for work, study, or personal reasons. They are not necessarily citizens of the country they are living in. How France Determines Tax Residency Understanding whether you’re considered a tax resident in France is crucial, as it dictates your tax obligations. French tax residency isn’t solely based on the number of days spent in the country; several factors are considered: 183-Day Rule: Spending more than 183 days in France during a calendar year typically classifies you as a tax resident. Sometimes even if your stay is less than 183 days, the French tax authorities may still consider you a tax resident if your time in France exceeds your time spent abroad. Home in France: Owning or renting a home in France indicates tax residency. If you do not have a home, your main place of stay is used, and staying over 183 days generally qualifies. Professional activity in France: Performing work or running a business in France (full-time or primary activity) establishes residency, even if employment is part-time or incidental. Center of economic interests: This includes your primary investments, business headquarters, main professional activities, or the location from which most of your income originates. Meeting just one of these criteria is enough for the French tax authorities to classify you as a tax resident. Income Tax Rates in France The tax system is progressive, meaning the rate increases as your income rises. For the 2025 tax year, the income tax brackets are as follows: Income (€) Tax Rate Up to 11,497 0% 11,498 – 29,315 11% 29,316 – 83,823 30% 83,824 – 180,294 41% Over 180,2934 45% How Income Tax Is Calculated in France In France, income tax is determined based on the combined income of the household, rather than on an individual basis. This includes income from multiple sources such as wages, salaries, allowances, pensions, and property income. To account for household size, France uses a “family quotient” system: Each adult counts as one unit. Each of the first two children counts as half a unit. Each additional child counts as one full unit. The total household income is divided by the number of units, and the tax rate is then calculated according to this adjusted amount. This system ensures that larger households benefit from a lower effective tax rate relative to their combined income. Example for single person households For a single individual earning €30,000 per year, the income tax would be calculated using France’s progressive tax rates as follows: First €11,497 → taxed at 0% → €0 For income from €11,498 to €28,315 taxed at 11% → (28,315 – 11,497) * 0.11 = €1,849.98 For income from €28,316 to €30,000 taxed at 30% → (30,000 – 28,316)*0.3 = €505.2 Total income tax: €2,355.18 which represents approximately 7.85% of total income. Example for a family of three If a family has two adults and one child, the family quotient is 2.5, 1 for each adult and 0.5 for the child. Assume the household earns €60,000 per year the income on which tax is payable is €24,000 (60,000/2.5). Now the tax will be calculated as follows: First €11,497 → taxed at 0% → €0 For income from €11,498 to €28,315 taxed at 11% → (24,000 – 11,498) * 0.11 = €1,375.22 Multiply by the number of units 1,375.22 × 2.5 = €3,438.05 total tax Effective tax rate for the household: €3,493.88 ÷ €60,000 ≈ 5.73% Additional Tax for high income earners In response to growing concerns over income inequality, the French government proposed the Contribution Différentielle sur les Hauts Revenus (CDHR) in the 2025 Finance Bill. This measure ensures that high-income households contribute a minimum effective tax rate of 20% on their reference tax income. The CDHR applies to tax residents of France whose adjusted reference tax income exceeds €250,000 for single taxpayers and €500,000 for couples filing jointly. These thresholds pertain to the household’s total income, including wages, investment returns, and other taxable earnings. Calculation of Tax for High Earning Individuals CDHR = (20% of adjusted reference tax income(RFR)) – (total income tax + exceptional contributions (CEHR) + withholding taxes) French Expat Incentives: Impatriate Regime France offers an Impatriate Regime to attract skilled foreign workers. If you qualify, this regime provides: Partial Exemption: A portion of your foreign-source income may be exempt from French taxation for up to 8 years. Eligibility: To benefit, you must have been a tax resident outside France for at least five years before starting your employment in France. Your employment must be with a French company that recruits you from abroad. However, it’s important to note that social security contributions still apply under this regime, and the exemptions pertain only to income tax, not to all forms of taxation. Double Taxation Agreements (DTAs) France has signed Double Taxation Agreements (DTAs) with Singapore, Australia, and New Zealand to prevent individuals from being taxed twice on the same income. These agreements typically allocate taxing rights between the countries and provide mechanisms for relief from double taxation, such as: Tax Credits: Allowing you to offset taxes paid in one country against your tax liability in the other. Exemptions: Certain types of income may be exempt from tax in one of the countries. It’s essential to consult the specific DTA between France and your home country to understand the exact provisions. For Singaporean, Australian, and New Zealand citizens working in France, tax residency is the deciding factor in whether you pay taxes locally. Once considered a French

How to Stay Compliant with France’s Influence Act of 2023

France’s Influence Act establishes clear rules for influencer marketing, protecting consumers and ensuring fair competition. The France influencer act defines obligations for influencers, agents, and advertisers, covering transparency, prohibited promotions, contracts, and liability. Understanding these influencer regulations is essential for anyone engaging in online promotional activities targeting the French market. France’s Influence Act of 9 June 2023 France has positioned itself as a pioneer in influencer regulations with the adoption of the Influence Act in France on 9 June 2023. This law was introduced to address the risks linked to influencer marketing, setting clear rules for influencers, their agents, and the brands that work with them. Background and Adoption of the Act The France Influencer Act emerged in response to the rapid rise of influencer marketing, where promotional practices often lacked transparency and consumer protection. Its main objectives are to safeguard consumers, particularly minors, and to ensure fair competition between businesses operating in the digital economy. Defining Influencers and Influencer Agents The law provides an official definition of both influencers and influencer agents, making their roles and responsibilities explicit. Influencers are defined as individuals or legal entities who, in exchange for payment or benefits, use their reputation to share online content that directly or indirectly promotes goods, services, or causes. Influencer agents are those who, also for consideration, represent influencers in their commercial activities, negotiating agreements and collaborations with brands or organizations. In addition, the Act introduces a specific status for child influencers. This provision builds on the law of 19 October 2020 regulating the commercial exploitation of children under sixteen on online platforms. It not only protects minors involved in influencer marketing but also guarantees the preservation of their income. Main Provisions of the France’s Influence Act Mandatory Written Contracts Under the Influence Act, all agreements between influencers, their agents, and advertisers must be formalized in writing. These contracts should clearly outline the roles, responsibilities, remuneration, and legal obligations of each party. Although no official decree has set an exemption threshold, written contracts are currently required for all collaborations, regardless of audience size or payment. Transparency of Sponsored Content The Influence Act in France places strict rules on sponsored content. Influencers must label such content clearly using terms like “advertisement” or “commercial collaboration”. Content modified with filters or AI tools must also carry labels such as “edited image” or “virtual image” to ensure transparency for audiences. Bans on the Promotion of Certain Products Certain types of promotions are strictly prohibited under French influencer regulations. This includes advertising: Gambling or other activities with high Plastic surgery and aesthetic medicine (Including all actions, interventions, procedures, techniques, or methods related to cosmetic treatments_ Therapy substitutes (Products, procedures, or methods presented as comparable, preferable, or substitutable to medical therapy) Risky Financial products and services (Especially cryptocurrencies and other high-risk investment instruments.) Nicotine products (This includes electronic cigarettes, “IQOS” style heated tobacco devices, and similar products.) Services such as sport coaching subscriptions or predictive sports forecasts. Influencers located outside France who promote any of the prohibited products or services listed above will have their content blocked for breaching the influence act in France. The France influencer act ensures that these influencer regulations apply to all content targeting the French audience, regardless of where the creator is based. Liability and Penalties Joint and Several Liability Influencers, their agents, and advertisers can be held jointly and severally liable for any breaches or consumer harm arising from influencer marketing. This shared responsibility ensures that all participants adhere to the influence act in France and maintain high compliance standards. Types of Penalties Violating the law can result in severe consequences, including fines of up to €300,000, imprisonment, temporary bans from promoting products, and additional compliance obligations. For example, an influencer who fails to meet transparency or content rules may face both financial penalties and restrictions on future promotional activities. The Order of 6 November 2024 The Order of 6 November 2024 introduced targeted updates to the France’s Influence Act, aligning national rules with EU directives, particularly on unfair commercial practices. These amendments refine transparency obligations, penalties, and territorial requirements for influencers and their agents. Rewriting of Provisions on Commercial Intent The order clarifies how influencers must disclose commercial intent. Sponsored content must now explicitly indicate its commercial nature, ensuring consumers are fully informed when content is paid for. Clarification of Applicable Penalties The wording of sanctions has been refined to improve understanding and enforcement. Penalties may include fines, temporary bans on promotional activities, and additional compliance obligations. These adjustments make the influencer regulations more precise and actionable. More Flexible Rules for Edited and Virtual Images Disclosure requirements for content modified with filters or AI tools have been made more flexible. The updates aim to ensure proportionality and sustainability, taking into account rapid technological changes and European AI regulations. Influencers must still clearly label edited or virtual images for their audience. Adjustments to Article 9 on Territoriality Article 9 now specifies that the influence act in France applies to individuals and entities targeting the French public. Influencers based outside the EEA or Switzerland must also maintain professional liability insurance within the EU, ensuring accountability across borders. Influencer Liability for Non-Conforming Purchases or Non-Delivery Under France’s influence act, influencers are generally not liable for defective products or non-delivery when promoting partner brands. Purchases occur directly on the brand’s website, making the brand responsible for orders. Legal action against an influencer is only possible for unfair or misleading commercial practices under EU Directive 2005/29/EC. However, if the influencer owns their own brand, their company is directly liable for any order issues. Always contact customer service rather than the influencer on social media. To learn more about dropshipping laws in France, consult our dedicated blog post. Compliance with the France’s influence act is crucial for influencers, their agents, and advertisers. By following the influence act in France and related influencer regulations, including proper disclosure, avoiding prohibited products, and clear contracts, content creators can protect consumers, reduce legal risks, and build trust

Requirements for E Invoicing and E Reporting in France

The government has introduced a new mandate for e invoicing and e reporting in France that will transform how businesses issue and exchange invoices. Under this system, all VAT-registered companies in France will be required to adopt mandatory e-invoicing in France, replacing paper invoices and simple PDFs with approved structured digital formats. The goal is to improve transparency, simplify tax reporting, and reduce fraud. This blog explains the key elements of the France e-invoicing requirements, including timelines, invoice formats, the 5-Corner Model, and the role of certified platforms, helping businesses prepare for compliance ahead of the deadlines in 2026 and 2027. What Is an “Electronic Invoice” Under the French E-Invoicing Mandate? Under the France e-invoicing mandate, only structured digital formats will be accepted as valid e-invoices in France. Traditional paper invoices or simple PDF files will no longer be sufficient. Businesses must now issue invoices in approved electronic formats that comply with European standards to meet the mandatory e invoicing requirements in France. The French tax authority (DGFIP) has confirmed formats the following as acceptable formats: Factur-X UBL 2.1 CII PeppolBIS  EDIFACT Timeline for Mandatory E Invoicing in France The rollout of mandatory e invoicing in France will take place gradually: From 1 September 2026: Large companies and mid-cap companies must issue electronic invoices. From 1 September 2027: Small and medium-sized enterprises (SMEs) and micro-enterprises must also comply. The French government has noted that the France e invoicing deadline may be extended by up to six months if necessary. Scope of E Invoicing in France The new rules apply to all B2B transactions in France between VAT-registered companies. The e-invoicing requirements in France cover: The sale of goods or services in France from one taxable business to another that is not exempt from VAT. Advance payments made for these operations. Public auctions of second-hand goods, works of art, collectors’ items, and antiques. New Mandatory Invoice Details Starting from September 2026 (for large and mid-cap companies) and September 2027 (for SMEs and micro-enterprises), new information must be included on all invoices. These mandatory particulars are: The SIREN number of the business. The delivery address of the goods (if different from the customer’s address). An indication of whether the invoice relates solely to goods, solely to services, or to a mix of both. A note if VAT is payable on a debit basis, where the supplier has opted for this regime. Business Obligations Under the French E Invoicing Mandate In addition to domestic invoices, companies must also comply with e reporting requirements in France by transmitting the following to the tax authority in near real-time: Cross-border B2B invoices (imports and exports). B2C receipts (domestic and cross-border). Payment statuses for B2B and B2C service transactions. Unlike domestic B2B invoices, which must follow a structured format, these cross-border and B2C documents can still be issued as PDFs or other formats. However, the transaction data must still be reported in a structured format. Securing and Preserving Electronic Invoices To ensure compliance and authenticity, the 2023 French Finance Law authorizes the use of qualified electronic seals. This seal serves three purposes: Guaranteeing the authenticity of the origin of the invoice. Ensuring the integrity of the content. Preserving the legibility of the document. In practice, the seal certifies that the invoice was created by the legitimate issuer. Additionally, French law requires that all electronic documents, including invoices, must be kept in electronic format for ten years, starting from the date of issuance. Transition to the 5-Corner Model The 5-Corner Model Explained Here’s how the 5-Corner Model works: The supplier (seller) creates an invoice. Instead of sending it straight to the buyer, the invoice first goes to the supplier’s PDP (Partner Dematerialization Platform). The buyer also has a PDP, which receives the invoice on their behalf. While passing through the PDPs, the invoice data is also reported to the French government’s platform (PPF) for tax purposes. If the buyer doesn’t have a PDP, the PPF itself forwards the invoice to them. That’s why it’s called a 5-corner model. How It Differs from Other Models There are 3 kinds of traditional models that can be used for invoicing Interoperability Model: Businesses exchange e-invoices through their service providers, who interconnect with others. This promotes flexibility but offers limited tax authority oversight. Centralized Model: All invoices pass through a single government platform, giving tax authorities full visibility but leaving less room for private-sector innovation. Decentralized Model (CTC-based): Certified service providers validate and transmit invoices to both trading partners and the tax authority. This shifts responsibility from the government to private providers. The 5 corner model is essentially a hybrid that makes sure invoices move securely between companies while the tax office automatically gets the information it needs, without businesses having to send it twice. This structure places significant responsibility on service providers, while reducing the administrative load on the tax authority. By relying on PDPs for invoice distribution and compliance reporting, the government ensures consistency, while businesses benefit from the innovation and automation offered by the private sector. Role of Peppol and DCTCE Peppol is an international network for exchanging e-invoices and other business documents. It traditionally follows a 4-corner model, where service providers (Access Points) send invoices in the Peppol BIS format. While Peppol is mandatory in some European countries, in France it is being adapted into a more advanced CTC (Continuous Transaction Controls) model. This upgraded system, also known as the Decentralized CTC and Exchange (DCTCE) model, ensures that transaction data is reported in real time to the tax authority. France’s approach combines this decentralized model with centralized elements, creating a unique hybrid system for mandatory e-invoicing and e-reporting in France. You can read more about their functioning and country specific requirements here. Role of PDPs To meet the mandatory e invoicing in France, businesses must work with a certified Partner Dematerialization Platform (PDP). The role of PDPs include: Transmitting e-invoices and lifecycle statuses to the government platform (PPF). Exchanging invoices between PDPs: If both parties use different

Dropshipping Legal Requirements in France and VAT Rules

Dropshipping in France offers entrepreneurs an attractive way to start an online business without major upfront investment. However, success depends on strict compliance with French and EU laws. From dropshipping legal requirements to VAT thresholds and the Finance Act of 2024, understanding legislation is essential to operate safely and sustainably. What is Dropshipping? Dropshipping in France is a form of online retailing that sits between two sales models: Traditional e-commerce (distance selling): where a retailer sells products directly to the customer through their own online store. Marketplace model: where platforms such as Amazon or eBay act as intermediaries, connecting third-party sellers with end customers without being the direct sellers themselves. In the case of dropshipping, the dropshipper is legally regarded as the final seller. They are responsible for the commercial transaction with the customer, even though they never handle the stock themselves. Instead, the supplier manages inventory, packaging, and shipping. The dropshipper only places the order with the supplier once a customer has made a purchase. Dropshipping Legal Requirements in France If you are wondering “is dropshipping legal in France?” the answer is yes, but there are several dropshipping legal requirements that entrepreneurs must follow to remain compliant. Below are the key requirements. Legal Notices on the Website The first step when launching a dropshipping business in France is to include mandatory legal notices on the website. This ensures transparency by clearly identifying the person or company behind the online store. The information that must include: Full identity of the business owner: name, postal address, phone number, email, legal structure, and share capital (if applicable). Identity of the web hosting provider. Information about cookies. Details about how personal data is collected and used (GDPR compliance). General Terms and Conditions of Sale (T&Cs) Another key requirement under legislation on dropshipping in France is publishing clear and accessible General Terms and Conditions of Sale (GTC). These regulate the commercial relationship between seller and buyer and are mandatory under Article L111-1 of the French Consumer Code. The T&Cs must include: Pricing and payment terms. Delivery and return policies. Legal guarantees. The 14-day withdrawal right (mandatory under EU law). They must also be written in a way that is “readable and understandable,” and be easily accessible to customers (ideally from the homepage). Dropshipping Contract with Suppliers To avoid disputes, it is strongly recommended to establish a dropshipping contract with your suppliers. This document defines the obligations of both parties, such as product quality, delivery times, and liability in case of issues. Without a written agreement, resolving conflicts, especially with foreign suppliers, can be extremely difficult. Negotiating clear clauses upfront helps secure your business and protect your customers. Can You Get in Trouble for Dropshipping in France? While dropshipping in France is legal, it can lead to serious penalties if carried out in violation of consumer protection laws. According to legislation on dropshipping in France, this business model becomes illegal when it involves unfair or deceptive practices. When is Dropshipping Considered Illegal? Under Article L.121-1 of the French Consumer Code, an unfair commercial practice is defined as conduct that goes against professional diligence and misleads or pressures consumers into making purchasing decisions they otherwise would not have made. Dropshipping may be penalized if it falls under: Deceptive practices: such as misleading product descriptions, fake claims about product quality, or creating confusion with another brand. Aggressive practices: including repeated solicitation or applying undue pressure on consumers. Lack of transparency: for example, when the seller hides their identity, fails to provide clear general terms and conditions, or does not comply with consumer law obligations. Penalties for Illegal Dropshipping The consequences of operating outside the law can be severe. Unfair commercial practices can result in fines of up to €300,000 and two years of imprisonment for individuals, or up to €1.5 million for companies. Failure to display mandatory legal notices or non-compliant T&Cs may lead to one year of imprisonment and fines up to €75,000. The DGCCRF (French consumer watchdog) has already flagged several abusive practices linked to dropshipping, including: Fake customer reviews. Misleading claims about product characteristics. Reference prices that do not reflect actual market prices. False or exaggerated promotional offers. These examples demonstrate that although dropshipping legal requirements are straightforward, non-compliance can quickly escalate into legal trouble. VAT Rules for Dropshipping and Distance Selling in France When considering how to legally start a dropshipping business in France, understanding your tax obligations is essential. VAT applies to all forms of distance selling in France, including both traditional e-commerce and dropshipping in France. Regardless of whether you are a registered business or an individual entrepreneur, you are responsible for declaring and paying VAT. VAT Rules for Distance Sellers in the EU Since 1 July 2021, the VAT One Stop Shop (OSS) scheme has made it easier for e-commerce and dropshipping businesses to comply with EU tax rules. Here’s how it works: Sales below the EU threshold: Businesses declare and pay VAT in their home country (for example, a French business charges and pays VAT in France). Sales above the threshold: Once sales exceed the set limit, VAT must be declared in the customer’s country of residence (for example, a French dropshipper selling to a customer in Germany must pay VAT in Germany). All declarations can be filed through the OSS portal, which centralizes reporting obligations. The Finance Act of 2024: Key Measures for Dropshipping in France To address the rapid growth of e-commerce and new business models like dropshipping, the government introduced the Finance Act of 2024. This law establishes stricter rules and reporting obligations for distance sales, especially when goods are imported from non-EU countries. Dropshipping and VAT Avoidance Previously, many online sellers attempted to avoid VAT by sourcing products directly from suppliers in non-EU countries and shipping them straight to French customers. The Finance Act of 2024 closes this loophole. According to Article 112, I-A and G, when the conditions for import taxation are not met, VAT becomes payable in France and must be covered

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7 Internal Controls to Manage Financial Risk as a CFO

Internal controls are the foundation of any organization’s financial health and compliance strategy. Designed to safeguard assets, ensure accurate reporting, and maintain regulatory compliance, internal controls are essential for minimizing risks and supporting confident decision-making. In this internal controls guide, we explain everything you need to know, starting with the internal controls definition, moving through the main types of internal controls (preventative and detective), and offering practical steps for implementation. We also outline the limitations of internal controls so you can spot vulnerabilities and stay proactive. What Are Internal Controls? (Internal Controls Definition) Internal controls are structured processes and policies put in place to protect the accuracy and reliability of a company’s financial reporting while ensuring compliance with applicable laws and standards. Beyond fraud prevention, these internal control procedures help improve day-to-day operations by enforcing budget discipline, guiding employee actions through clear policies, and producing dependable financial statements. Implementing strong internal controls allows businesses to manage risks more effectively, resolve cash flow challenges, and provide trustworthy data to support informed decision-making by management. Why Internal Controls Are Important? Internal controls play a vital role in assessing the effectiveness of a company’s governance framework, accounting systems, and compliance efforts. Through internal audits, businesses can evaluate whether their processes align with regulatory requirements and if financial data is being reported accurately and on time. These procedures not only promote legal compliance but also help detect operational inefficiencies early, allowing management to correct issues before they escalate or are flagged during external audits. This proactive approach strengthens transparency and accountability across the organization. Types of Internal Controls Internal control types are as follows: Preventative Internal Controls Preventative controls are designed to stop errors or fraud before they occur. These measures rely heavily on proper documentation, approval protocols, and segregation of duties. An example for preventive internal control is – no single employee being responsible for authorizing, recording, and handling a transaction and all its related assets. This separation reduces the risk of misappropriation or manipulation. Examples of preventative internal controls include: Authorization of invoices and verification of business expenses Restricted access to physical assets such as inventory, cash, and equipment Enforced approval processes for transactions and procurement activities By clearly defining roles and limiting access, preventative controls help maintain oversight and accountability across operations. Detective Internal Controls Detective controls serve as a second line of defense. Their goal is to identify and flag errors, discrepancies, or irregularities that may have bypassed the initial safeguards. Reconciliation is one of the most critical detective controls. It involves comparing two or more sets of data, such as bank records and internal ledgers, to detect inconsistencies. If discrepancies are found, corrective measures are taken promptly. Additional examples of detective internal controls include: Internal audits to review asset management, such as inventory counts Independent external audits conducted by professional accounting firms Together, preventative and detective controls form a robust internal controls system that safeguards financial accuracy, supports regulatory compliance, and ensures operational integrity. Your Internal Controls Guide An effective internal controls system relies on well-defined processes, oversight, and separation of duties. Below is a practical guide covering key internal controls procedures every organization should implement to minimize risk and enhance operational integrity. Implement Segregation of Duties To prevent misuse of authority and errors, no single employee should have control over all aspects of a financial transaction. This means: The individual who initiates a transaction should not be the one to approve, record, and complete it. Separate roles for purchasing and payment processing help reduce risk. The person who signs checks should not also prepare or authorize them. Strengthen Authorization and Oversight Ensure that all financial activities, purchases, payroll, and disbursements, are authorized by designated personnel. Supervisors should verify employee timesheets before payroll is processed, and a separate person should distribute paychecks. In smaller agencies where segregation is difficult, assign a board member or external party to independently review critical functions. Monitor and Reconcile Regularly Consistent reconciliation is a cornerstone of effective internal controls. Best practices include: Monthly reconciliation of bank accounts by someone independent of the bookkeeping and check-signing process. Matching bank statements and canceled checks with internal records to detect unauthorized or out-of-sequence transactions. Signing and dating reconciliations to confirm review. Control Use of Credit and Agency Assets To prevent misuse, limit and monitor the use of agency credit cards and physical resources: Credit card use should be business-related only, with written policies and spending limits in place. Require itemized, original receipts for all purchases. Restrict the number of cards and ensure staff understand the policy. Periodically audit expense reports, credit card charges, and use of equipment or vehicles. Establish Board Oversight and Governance The Board of Directors should be actively involved in financial governance: Review financial activity regularly, comparing actual vs. budgeted figures. Document approval of financial policies, major expenditures, and performance reviews in board meeting minutes. Evaluate leadership, approve the hiring of consultants, and require external auditors to present annual financial statements. Maintain Written Policies and Procedures All fiscal operations should follow written, board-approved procedures. These should cover areas such as: Cash disbursement protocols Employee attendance and leave tracking Expense and travel reimbursements Petty cash handling Purchasing guidelines Conflict of interest declarations Regular updates and employee training on these policies ensure consistency and accountability. Protect Cash, Checks, and Petty Funds Strong internal controls over cash management help prevent loss and theft: Keep petty cash in a locked drawer and require detailed receipts for every disbursement. Prohibit checks payable to cash and deface voided checks to prevent reuse. Issue receipts for all incoming cash and deposit funds promptly in their original form. Conduct surprise cash counts and daily reconciliations of received funds with documentation. Prevent Conflicts of Interest and Related Party Transactions Transparency is key to maintaining public trust: Maintain an annually updated conflict of interest policy. Disclose and approve all related party transactions through the Board. Avoid hiring relatives or engaging in business with Board members or staff without formal review and competitive bidding.