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Companies in France are not taxed on non-French income?

K

kranj99

Member Plus
Nov 28, 2017
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#1
For those who understand/read French - I came across this off the French Tax Ministry website:

https://www.impots.gouv.fr/portail/international-professionnel/impot-sur-les-societes
"Votre entreprise est imposable à l'IS sur ses bénéfices uniquement si elle est exploitée en France. Cela veut dire qu'elle doit y exercer une activité commerciale habituelle. En principe, votre société n'est donc pas imposable sur les bénéfices qu'elle réalise à l’étranger."

Basically it says that a French company is only subject to income taxes on net revenue, only on income that is generated from within France. Foreign earned income is not subject to tax.

You don't get proper privacy or anonymity with a French company but if France doesn't tax companies on their foreign earned income, it might be an interesting place to set up a holding company.

Any thoughts or insights on setting up a French company?
 
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#2
I was not aware of these rules and always thought they only apply offshore jurisdictions. Nice to know, very useful actually, thank you :)
 
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#4
Indeed - thanks for the Deloitte link. I mean France is by no means a tax haven. You can even call it a tax hell with all the social security charges. But say you use France for just a holding company, holding shares in various onshore/offshore trading companies etc. potentially there might be something interesting here.

Of course if you use a French company and hire employees etc. with it then this is less interesting given the high labour costs in France, high payroll taxes etc.

Generally speaking though, France does give a lot of tax write-off possibilities (i.e. "defiscalisation" in French) compared with most other countries.

I'm based in Belgium but I keep some activities in France. Once covid clears up and we're a bit more mobile, I will get back out there to explore this a bit more.

Will report back when I do....
 
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#5
vbam99 said:
Basically it says that a French company is only subject to income taxes on net revenue, only on income that is generated from within France. Foreign earned income is not subject to tax.
Click to expand...

You need to check detail and not headline statement they make ;).

"A resident company is subject to CIT in France on its French-source income. In that respect, income attributable to foreign business activity (if there is no treaty in force between France and the relevant foreign country) or to a foreign PE (if a tax treaty applies) is excluded from the French tax basis."
 
#6
Seems like there is massive withholding tax on outgoing dividends and also lots of penalties for doing business with companies from blacklisted countries.

https://home.kpmg/xx/en/home/insights/2018/07/european-tax-france-country-profile.html
Also:

“All EU countries except France tax worldwide profits. In France, however, only profits made by enterprises operated in France are liable to corporation tax, whatever their nationality. This means that profits made by a French company in enterprises operated in countries other than France are not liable to French corporation tax; likewise, a foreign company is liable to French corporation tax only on the profit made from enterprises it operates in France.
Consequently, companies liable to tax in France may not deduct losses made by enterprises they operate in other countries from their taxable profit.
The term “enterprise operated in France” means an enterprise which carries on a regular business in France, whether in an autonomous establishment or, if there is no establishment, through representatives without independent professional status, or as part of operations forming a complete business cycle.
Note that these criteria apply only in cases in which no international tax treaty is in effect.”
https://www.impots.gouv.fr/portail/files/media/1_metier/5_international/french_tax_system.pdf
“The French tax system is based on the principle of territoriality. Resident companies are subject to corporate income tax on income derived from enterprises operating in France or enterprises the taxation of which is attributed to France under a tax treaty. Therefore, subject to various treaty provisions, business income derived from foreign operations is not assessable to French tax. In this respect and along the report, restructuring operations affecting a foreign permanent establishment of a French company and foreign subsidiaries will generally not have any corporate tax effects in France.
Exceptions to the territoriality rule include the consolidation tax regime1 (upon prior
approval of the tax authorities), the CFC legislation2 and temporary tax-free provisions
3 for investment abroad.”
https://ec.europa.eu/taxation_customs/sites/taxation/files/resources/documents/annex_5_fr.pdf
I wonder how one would be able to exploit this. A “foreign enterprise” would certainly require a permanent establishment in another country, and then that other country would obviously be able to tax the profits. Add to that the CFC and another anti-avoidance rules, tax treaties, ... it becomes pretty unattractive soon.

But then again, people on this board have claimed they have paid 3% taxes in Norway, so what do I know, maybe it’s exactly countries like France that have the biggest loopholes. ;-)
 
#7
This is certainly not as that simple from my loved country FRANCE.
haha
""Les conventions fiscales bilatérales conclues par la France en vue d’éviter les doubles impositions répartissent entre les États les droits d’imposer les revenus.
Ces textes prévoient en consequence l’imposition ou l’exonération en France des revenus, bénéfices et plus-values qui ont leur source hors de France ""

As little recap France with Germany and Us is the countries with more bilateral treaty or tax agreement. The laws is simply saying that your income generated outside France, will be subject to no Tax if and only if the following case :
"" France do not have a bilateral tax agreement with the country that generate the cash flow"" ( good luck to find one )
"" France let the country where the cash is generated to tax the activity locally"" ( they do that only with other high Tax countries and us)

For the rest good luck to escape.
 
#9
Correct, or where banking will be impossible.

This is for that that it is really difficult to avoid such powerfull countries like EU, Us because they hold the power of banking system.
 
#10
So basically it is a headline grabbing joke from France. After which you will battle with French tax man to claim any advantage from it. And once in then Exit Taxation will strip you naked on way out.
 
#11
My guess would be that there are historical reasons, especially considering the number of French overseas territories. As time went by, they eventually closed all the loopholes, instead of changing the fundamental principles in the tax code.
That would be my theory.

I think France even has mandatory social security tax on rental income. That’s about as insane as it gets. I doubt they have any nice loopholes left, but of course you never know...
 
#12
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