Written in conjunction with TMF Group
France has long fostered a business-friendly environment, one especially attractive to firms seeking to expand their operations internationally. More than 20,000 foreign companies are currently housed in France. The country is also home to an outstanding educations system that turns out motivated and highly skilled talent. The country's diverse range of grandes écoles and public universities produce graduates specializing in various disciplines, including engineering, science and management.
There are certain challenges associated with doing business with Western Europe’s largest nation. Navigating through cultural and legal differences can be difficult, which makes local assistance especially valuable.
Reasons for Doing Business in France
France’s tax structure is appealing to many businesses. France maintains special tax treaties with African countries where French is the national language. The income tax rates for license and patent revenues are some of the lowest available. Companies should be aware, though, that they are subjected to a corporate income tax, VAT and other smaller taxes.
The research and development tax credit, combined with other subsidies are great incentives for doing business with France. They can cut costs for a tech company or start up by around 30 percent – some of Europe’s highest rates available. Under certain conditions the tax credits can be exchanged for cash.
There are quite a few mandated employee contributions such as welfare, pensions, and healthcare, which are governed by the French system. These components can account for as much as half of the employee’s gross salary. Certain state tax reduction strategies can reduce this to 20 percent or even lower, particularly on lower salaries.
Another excellent reason for doing business in France is the outstanding quality of life that the country offers. The French people are well known for their love of fine wine and good food; their pursuit of excellence in business is no different. Businesses that mirror their high standards for quality of production and services and that acknowledge and respect the differences in business style and etiquette stand a very good chance of doing well.
Challenges of Doing Business in France
As with entering into any foreign market, doing business in France does present some challenges. While they do not present insurmountable barriers, any company moving its business to France should be aware of them and carefully consider the potential impact.
The World Bank and International Finance Corporation ranks France 27th globally in ease of doing business. A company requires five actions and seven days before it can be set up. The company must be registered with the CFE, and the company books must be initialed and stamped by the clerk of the commercial court, among others, so potential business owners must be well versed in these critical steps.
Investor protection is another area for consideration. Businesses will need to understand the differences between common law countries (outside investors get the strongest protection) and civil law countries (weakest protection for outside investors). Business owners can ward off problems by getting advice from an experienced partner in order to reduce risk.
France’s tax administration can pose a barrier to the advancement of some companies. The transfer pricing rules are very strict and many international companies wind up with tax audit adjustments because of them. Knowing the appropriate documentation and forms to complete as well as what to declare in order to remain compliant can be a struggle for business owners who are unfamiliar with the regulations. Failure to comply can lead to legal action that may result in significant sanctions and penalties.
A lack of cultural awareness can alienate stakeholders and undermine your business efforts. That is why it is essential to learn how culture and etiquette play an integral part of doing business in France. Know that developing trust with customers, employees, partners, local teams, and regulators requires time and effort. It is also highly recommended to develop fluency for the language.
Conclusion
It can sometimes take years for a company to accrue enough local knowledge to operate without needless difficulty. This interval can be greatly shortened by partnering with experts who have deeper awareness of local laws and regulations. This is doubly important when it comes to the more challenging aspects of expanding operations in this region.
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