In France, more than in any other country, the more important a company is the greater the burden of taxes and duties it must bear in relation to turnover.
Corporation Tax in France
Individual entrepreneurs whose business is not considered a trade activity declare their results based on their cashbox accounts.
All other businesses, particularly corporations, draw up their taxable income in two stages: first of all, they determine their results according to the rules of the [French] General Chart of Accounts. In other words, the book result determined for tax purposes is exactly the same as that mentioned in the financial statements (see accounting regulations in France). Next, a certain number of charges or products are added or deducted to arrive at the taxable income. The latter, for French affiliates of foreign groups, is most of the time taxed at a rate of 33.1/3%. They can however benefit from the lower rate of taxation (15%) if they fullfill certains requirements (see sketch below).
The total tax is submitted to an additional contribution for amounts in excess of €763,000.
The rows as outlined above can be summarized as follows:
Capital gains are taxed at the common law rate. As an exception, equity interests benefit, under certain conditions, from a 4% taxation.
Refunds/deductions are not meant to significantly alter the effective tax rate (corporation tax/pre-tax profit) unless the deductions are applied to tax credits. Under certain conditions, any company can have between 30% of its research & expenses refunded through the CIR. They can benefit from the statut JEI- Young Innovative Company Status under certain conditions as well.
Withholding at source
Dividends sent by French affiliates to their shareholders located in USA and the UK have a 5% withholding rate applied, since they hold at least 10%. Amounts paid to corporations located in the United States undergo a 5% withholding at source, and sums paid to British companies have no withholding applied.
Value Added Tax in France (VAT)
All commercial transactions, except in a few rare occasions, are subject to value added tax (VAT), except those benefiting companies that are not-domiciled in France. In principle, the VAT paid on acquisitions is not a charge for the company because it can be deducted from the VAT billed and collected from sales.
There are two VAT rates. The normal rate, 20%, applies to all transactions, goods and services. As an exception, transactions involving consumer staples (foods, pharmaceutical products, culture) undergo a tax rate of 5.50%.
Since the VAT is borne by the customer in the end, the tax debtor according to law is always the company billing and not the customer. The company must file a VAT statement, more often than not on a monthly basis, or quarterly in the case of small enterprises or individual entrepreneurs.
The main local tax in France borne by any company and commercial activity is the Territorial Economic Contribution (CET). As from January 1st, 2010, this tax replaces the tax on professional activities.
The CET comprises two sub-taxes. The first one, called the Real Estate Contribution (CFE) is calculated according to the cadastral value of the property used for its operations. The second one, the Economic Added Value Contribution (CVAE), by far the most important of the two, is calculated on the added value produced by the company during the previous financial year.
Only enterprises whose turnover in the previous year was below €0.5 mn pay this second tax. The rate applied to the above-mentioned added valued is gradual, reaching 1.50% starting from a turnover of €50 mn.
In the same way as in corporation tax, the added value for tax purposes is calculated according to the rules of the General Chart of Accounts (see above). Basically it is turnover, less external consumption, with the exception of long-term rent.
Telephone networks and photovoltaic plant operators, banks and insurance companies all pay CET according to specific sector rules.
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