Corporate tax in France

Summary

Corporate Income Tax Rate (%) 33V3 (a)
Capital Gains Tax Rate (%) 0 / 15 / 33V3 (a) (b)
Branch Tax Rate (%) 33V3
Withholding Tax (%)
Dividends 30 / 75 (c) (d) (e)
Interest 0 / 75 (c) (f) (g)
Royalties from Patents, Know-how, etc. 33V3 / 75 (c) (f) (g)
Branch Remittance Tax 30 (h)
Net Operating Losses (Years)
Carryback 1 (.i)
Carryforward Unlimited (j)

 

a) For resident companies, surtaxes are imposed on the corporate income tax and capital gains tax. For details, see Section B.

b) For details concerning these rates, see Section B.

c) These are the withholding tax rates under French domestic law. Tax treaties may reduce or eliminate the withholding taxes.

d) Under the European Union (EU) Parent-Subsidiary Directive, dividends dis­tributed by a French subsidiary to an EU parent company are exempt from with holding tax, if, among other conditions, the recipient holds or commits to hold at least 10% of the subsidiary’s shares for at least two years.

e) The withholding tax rate is 75% for distributed profits paid into uncoopera­tive states.

f) No withholding tax is imposed on interest and royalties paid between associ­ated companies of different EU member states if certain conditions are met. For details, see Section B.

g) The withholding tax rate is 75% for interest on qualifying borrowings and royalties paid into uncooperative states.

h) Branch remittance tax may be reduced or eliminated by double tax treaties. It is not imposed on French branches of companies that are resident in EU mem­ber states and are subject to tax in their home countries.

i) Losses carried back may not exceed EUR1 million.

j) The amount of losses used in a given year may not exceed EUR1 million plus 50% of the taxable profit exceeding this limit for such year.

Taxes on corporate income and gains

Corporate tax. The taxation of French companies is based on a territorial principle. As a result, French companies carrying on a trade or business outside France are generally not taxed in France on the related profits and cannot take into account the related losses. However, under the French controlled foreign company (CFC) rules contained in Article 209 B of the French Tax Code, income earned by a French enterprise through a foreign enterprise may be taxed in France if such income is subject to an effective tax rate that is 50% lower than the French effective tax rate on similar income (for further details, see Section E). French com­panies are companies registered in France, regardless of the nation­ality of the shareholders and companies that have their place of effective management in France. Foreign companies carrying on an activity in France are subject to French corporate tax on their French-source profits.

Profits derived in France by branches of nonresident companies are deemed to be distributed, normally resulting in the imposition of a branch withholding tax of 30% on after-tax income. This tax is not imposed on the profits of French branches of companies that are resident in EU member states and that are subject to corporate income tax in their home countries. It may be reduced or eliminated by tax treaties. Although branch withholding tax normally applies to undistributed profits, such profits may be exempted from the tax if an application is filed with the tax au­thorities and if certain requirements are met.

Rates of corporate tax. The standard corporate tax rate is 331/3%.

A social security surtax of 3.3% is assessed on the corporate income tax amount. This surtax is imposed on the portion of cor­porate tax due exceeding EUR763,000 before offsetting the tax credits granted under tax treaties (see Foreign tax relief). The 3.3% surtax does not apply to companies whose annual turnover is lower than EUR7,630,000 if at least 75% of the company is owned by individuals or by companies that themselves satisfy these conditions.

Members of consolidated groups must take into account the global turnover of the group to determine whether they reach the EUR7,630,000 threshold mentioned above.

In addition, a temporary additional surtax is assessed on the corpo­rate income tax amount due from companies with turnover exceed­ing EUR250 million. Under the 2014 Finance Bill, this temporary additional surtax is increased to 10.7% for fiscal years ending between 31 December 2013 and 30 December 2016. For fiscal years ending on or after 31 December 2011 until 31 December 2013, the surcharge was 5%.

Taking into account the social security surtax, the marginal effec­tive rate of French corporate income tax is 34.43% (33.33% + 1.1%). If the temporary contribution also applies, this rate is increased to 38% (34.43% + 3.56%).

A reduced corporate tax rate of 15% applies to the first EUR38,120 of the profits of small and medium-sized enterprises if certain conditions are met, including the following:

  • The turnover of the company is less than EUR7,630,000.
  • At least 75% of the company is owned by individuals or by companies that themselves satisfy this condition and the above condition.

The minimum tax was eliminated, effective from 1 January 2014.

Capital gains. Capital gains derived from the sale of fixed assets by French companies are subject to corporate income tax at the standard rate of 33.33% (34.43% including the 3.3% social secu­rity surtax).

Capital gains derived from the sale of qualifying participations are exempt from tax. Qualifying participations must satisfy both of the following conditions:

  • They must be considered to be titres de participation (specific class of shares for accounting purposes that enables the share­holder to have a controlling interest) or be eligible for the divi­dend participation exemption regime.
  • They must have been held for at least two years before their sale.

However, for tax years closed on or after 31 December 2012 the corporate income tax applies to 12% of the gross capital gains realized on qualifying participations. As a result, the effective tax rate on such gains is 4%.

Capital losses incurred with respect to such qualifying partici­pations may no longer be offset against capital gains. Long-term capital losses existing as of the closing date of the tax year pre­ceding the first tax year beginning on or after 1 January 2007 are forfeited.

A reduced 15% tax rate applies to the following:

  • Capital gains derived from sales of shares in venture mutual funds (FCPRs) and venture capital investment companies (SCRs), if these shares have been held for a period of at least five years
  • Income derived from the licensing of patents or patentable rights
  • Capital gains realized on patents or patentable rights held for at least two years, unless the disposal takes place between related companies

Long-term capital losses relating to interests qualifying for the 15% category may only be offset against long-term capital gains corresponding to the same category.

The reduced rates also apply to various distributions made by venture mutual funds (FCPRs) and venture capital investment companies (SCRs).

Capital gains derived from sales of participating interests in com­panies that are predominantly real estate companies are subject to tax at the standard rate of 33.33%. For listed real estate compa­nies, the rate is reduced to 19%.

Long-term capital gains derived from the first sale of participat­ing interests in companies whose assets’ value is mainly com­posed of television broadcasting rights are subject to tax at a rate of 25%.

Administration. In general, companies must file a tax return with­in three months following the end of their financial year.

Corporate income tax is prepaid in four installments. Companies that have their financial year ending on 31 December must pay the installments on 15 March, 15 June, 15 September and 15 Decem­ber. The balance of corporate tax is due by 15 April of the follow­ing year. Other companies must pay the balance of corporate tax due within four months following the end of their financial year. The rules governing the payment of corporate income tax also apply to the payment of the 3.3% surtax.

Companies that generated a turnover exceeding EUR15 million (ex cluding value-added tax [VAT]) during the preceding year must file their corporate income tax and VAT returns electroni­cally. If a company does not comply with this requirement, a 0.2% penalty is imposed. Other companies may elect to file such re­turns electronically.

In general, late payment and late filing are subject to a 10% pen­alty. If additional tax is payable as a result of a reassessment of tax, interest is charged at 0.4% per month (4.8% per year). Many ex ceptions and specific rules apply to interest and penalties.

Dividends. Dividends paid by French companies no longer carry a tax credit (avoir fiscal). However, under the parent-subsidiary re gime, dividends received by French companies or French branch­es of nonresident companies are exempt from corporate income tax, except for a 5% service charge computed on the gross divi­dend income (net dividend income and foreign tax credits) and added back to the recipient’s taxable income. Effective from 1 January 2016, such service charge is reduced to 1% for recipi­ents that are part of a tax-consolidated group with respect to dividends distributed by a French company that is part of the tax-consolidated group or by a European company that could have been part of the tax-consolidated group if resident in France.

The parent-subsidiary regime does not apply to the following:

  • Profit distributions that are deductible from the distributing company’s taxable income
  • Dividends distributed within an arrangement or a series of ar­rangements which, having been put into place for the main purpose, or one of the main purposes, of obtaining a tax advan­tage contrary to the object or purpose of the participation ex­emption regime, are not genuine having regard to all relevant facts and circumstances (that is, not put into place for valid commercial reasons that reflect economic reality)
  • Dividends received from a subsidiary established in an uncoop­erative country (as defined in Article 238-0 A of the French Tax Code; see Section E)

The parent-subsidiary regime applies if the recipient holds at least 5% of the share capital of the distributing company for at least two years.

In general, a 30% withholding tax is imposed on dividends paid to nonresidents. This tax may be reduced or eliminated by tax treaties. In addition, under the EU Parent-Subsidiary Directive, dividends distributed by French subsidiaries to EU parent compa­nies are exempt from withholding tax, if, among other conditions, the recipient holds 10% or more of the shares of the subsidiary for at least two years (the 10% threshold is lowered to 5% if the effective beneficiary cannot credit the French withholding tax in its country of residence).

The withholding tax rate is increased to 75% for distributed prof­its paid into uncooperative states (see Section E).

In addition, a 3% tax applies to distributions paid by dividend or deemed dividend distributing entities (including French branches of foreign companies that are deemed to distribute their yearly profits) to all French or foreign companies that are liable for cor­porate income tax in France, excluding collective-investment ve­hicles (CIVs). Exemptions to this tax concern distributions made within French tax consolidated groups, distributions made by French branches of EU or EEA companies, distributions paid in stock and other distributions from specific entities.

This tax must be paid together with the first advance payment of corporate income tax following the distribution payment.

In addition, withholding tax no longer applies to profits derived from stock, interests or assimilated shares distributed to CIVs created under foreign law and located in an EU member state or in a state that has signed a treaty with France that includes an administrative assistance provision aimed at combating tax fraud. However, to benefit from the withholding tax exemption, foreign CIVs must meet the same definition as French CIVs, and the content and actual implementation of the administrative assis­tance provisions must effectively allow the French tax authorities to obtain from the foreign tax authorities the information needed to verify this condition. A 15% withholding tax applies to distri­butions of income exempt from corporate income tax that are made by French real estate investment trusts (so-called SIICs and SPPICAVs) to French or foreign CIVs.

Withholding taxes on interest and royalties. Under French domes­tic law, withholding tax is no longer imposed on interest paid to nonresidents. However, a 75% domestic withholding tax is im­posed on interest on qualifying borrowings paid into uncoopera­tive states (see Section E).

A 331/3% withholding tax is imposed on royalties and certain fees paid to nonresidents.

However, as a result of the implementation of EU Directive 2003/49/EC, withholding tax on interest and qualifying royalties paid between “associated companies” subject to corporate income tax of different EU member states was abolished. A company is an “associated company” of a second company if any of the fol­lowing conditions is satisfied:

  • The first company has maintained a direct minimum holding of 25% in the capital of the second company for at least two years at the time of the payment or commits itself to maintain such holding for a two-year period.
  • The second company has maintained a direct minimum holding of 25% in the capital of the first company for at least two years or commits itself to maintain the holding for the two-year period.
  • A third company has maintained a direct minimum holding of 25% in the capital of both the first and second companies for at least two years or commits itself to maintain such holding for a two-year period.

In these three situations, if the company chooses to undertake to keep the shares for at least two years, it must appoint a tax repre­sentative in France who would retrospectively pay the withholding tax if the shares are sold before the end of the two-year period.

Domestic withholding tax on royalties may be re duced or elimi­nated by tax treaties.

Foreign tax relief. In general, French domestic law does not allow a foreign tax credit; income subject to foreign tax and not exempt from French tax under the territoriality principle is taxable net of the foreign tax paid. However, most tax treaties provide for a tax credit that generally corresponds to withholding taxes on passive income.

Determination of trading income

General. The assessment is based on financial statements prepared according to French generally accepted accounting principles, sub­ject to certain adjustments.

Deductibility of interest. In general, interest payments are fully deductible. However, certain restrictions are imposed.

Interest accrued by a French entity with respect to loans from its direct shareholders may be deducted from the borrower’s taxable income only if the following two conditions are satisfied:

  • The share capital of the borrower is fully paid-up.
  • The interest rate does not exceed the average interest rate on loans with an initial duration of more than two years granted by banks to French companies.

The above restriction also applies to interest paid outside France by international treasury pools established in France.

Under thin-capitalization rules, related-party interest is tax-deductible only if it meets both an arm’s-length test and a thin-capitalization test. These tests are applied on a stand-alone basis by each borrowing company. Effective from 1 January 2011, the thin-capitalization rules are extended to interest paid to third par­ties on the portion of the debt that is guaranteed by a related party, or by a party whose commitment is guaranteed by a related party of the French borrowing entity.

Under the arm’s-length test, the interest rate is capped to the higher of the following two rates:

  • The average annual interest rate on loans granted by financial institutions that carry a floating rate and have a minimum term of two years
  • The interest rate at which the company could have borrowed from any unrelated financial institution, such as a bank, in simi­lar circumstances (that is, the market rate)

The portion of interest that exceeds the higher of the above two thresholds is not tax-deductible and must be added back to the company’s taxable income for the relevant financial year.

The thin-capitalization test may limit the deductibility of interest payments even if the amount of the interest expense complies with the arm’s-length test described above. Under the thin-capitalization test, the interest paid in excess of the three following thresholds is not tax-deductible:

  • The debt-to-equity ratio threshold, which is calculated in accor­dance with a formula. For the purposes of this formula, A is the amount of interest that meets the arm’s-length test, B equals 150% of the net equity of the borrower at either the beginning or the end of the financial year, and C equals the total indebted­ness of the French borrowing company resulting from borrow­ing from related companies. The following is the formula:

A x B

C

  • The earnings threshold, which equals 25% of the adjusted cur­rent income. The adjusted current income is the operating profit before the deduction of tax, related-party interest, depre­ciation and amortization, and certain specified lease rents.
  • The interest income threshold, which equals the amount of inter­est received by the French company from related companies.

If the interest that is considered to be tax-deductible under the arm’s-length test exceeds each of the three above thresholds, the portion of the interest that exceeds the highest of the above thresholds is not tax-deductible unless the excess amount is lower than EUR150,000.

The nondeductible portion of interest is added back to the taxable income of the borrowing entity. However, it can be carried for­ward for deduction in subsequent financial years. A 5% annual reduction of the interest balance that is carried forward applies beginning with the second subsequent financial year.

The thresholds that limit the deductibility of interest do not apply if the French borrowing company can demonstrate that the con­solidated debt-to-equity ratio of its group is higher than the debt-to-equity ratio of the French borrowing company on a stand-alone basis (based on its statutory accounts). In determining the consol­idated debt-to-equity ratio of the group, French and non-French affiliated companies and consolidated net equity and consolidated group indebtedness (excluding intercompany debt) must be taken into account.

In the context of a tax-consolidated group, excess interest that is not tax-deductible under the thin-capitalization test cannot be carried forward by the company that has incurred the excess interest (see Groups of companies).

The deduction of interest related to the acquisition of qualifying participations is limited for companies that have qualifying par­ticipations worth more than EUR1 million if the company does not demonstrate that it effectively makes the decisions concern­ing these investments and that it has effective control or influence over the acquired company. The nondeductible portion is com­puted by applying the ratio of the acquisition price to the debts of the acquiring company. The limitation applies to fiscal years be­ginning on or after 1 January 2012, and to the eight years follow­ing the acquisition. Consequently, it may apply to existing loans. This limitation does not apply if the debt is not connected to the acquisition or if the group debt-to-equity ratio is higher than the ratio of the French borrowing company.

In addition, the 2013 Finance Bill introduced a general interest deduction cap based on the amount of the net financial expenses incurred during a fiscal year (that is, the financial expenses re­duced by financial income). As of 1 January 2014, only 75% (previously 85% for the 2012 and 2013 fiscal years) of the net financial expenses incurred in the 2014 fiscal year and future years is deductible. For purposes of this rule, financial expenses (or income) are any amounts that are accrued in remuneration for monies put at the disposal of the company (or by the company to another party). For a tax-consolidated group, the interest cap ap­plies to the net financial expenses of the tax group (excluding intercompany transactions). This provision applies to all entities subject to corporate income tax in France, including permanent establishments of foreign companies. However, it does not apply if the net financial expenses incurred by the company or by the tax group during a fiscal year are below EUR3 million.

The 2014 Finance Bill introduced a new anti-hybrid financing measure limiting the deductibility of interest accrued to related-party lenders. Under this measure, the tax deduction is disallowed if the French taxpayer cannot prove, at the request of the French tax authorities, that the related lender is liable to corporate income tax on such interest that is at least 25% of the corporate income tax that would have been due had the lender been established in France. Consequently, interest received by the related entity must be subject to tax at a rate of at least 8.33% (potentially higher if the borrower is subject to additional and/or exceptional taxes with respect to corporate income tax). In case the lender is domiciled or established outside France, the French corporate income tax is determined as if the lender were established or domiciled in France. If the lender is a transparent entity, such as a partnership or an investment fund, the limitation of interest deduction only applies to the extent that such entity and its relevant members are affiliated, and the minimum corporate income tax rate of 25% is considered at the level of the entity’s members or shareholders. These new rules apply retroactively to fiscal years ending on or after 25 Sep tember 2013.

Inventories. Inventory is normally valued at the lower of cost or market value. Cost must be determined under a weighted average cost price method. A first-in, first-out (FIFO) basis is also gen­erally acceptable, but a last-in, first-out (LIFO) basis is not per­mitted.

Reserves. In determining accounting profit, companies must book certain reserves, such as reserves for a decrease in the value of as­sets, risk of loss or expenses. These reserves are normally deduct – ible for tax purposes. In addition, the law provides for the deduc­tion of special reserves, including reserves for foreign investments and price increases.

For fiscal years closed on or after 31 December 2012, a new tax of 7% applies to sums placed in the capitalization reserve for insurance companies. The tax is deductible for corporate income tax purposes.

Capital allowances. In general, assets are depreciated using the straight-line method. However, new qualifying industrial assets are generally depreciated using the declining-balance method.

Depreciable assets composed of various parts with different char­acteristics must be depreciated on a separate basis (these assets must be split into a principal component or structure on the one hand and into additional components on the other hand). The de­preciable amount of each asset must be spread out over its likely useful life for the company, which corresponds to the time period during which the company may expect to derive a profit from it. The de preciation method applied to each asset (straight-line method or accelerated method) must also be consistent with the pace at which the company expects to derive a profit from the asset.

Periodic assessment of the residual value of each component must be conducted to establish a (non-tax deductible) provision for impairment if needed.

For tax purposes, the depreciation of assets that have not been split into components and the depreciation of the asset’s principal that has been split into components can be spread out over the useful life commonly accepted in business practices. This rule does not apply to buildings acquired by real estate investment companies. The following are some of the acceptable straight-line rates.

Asset Rate (%)
Commercial buildings 2 to 5
Industrial buildings 5
Office equipment 10 to 20
Motor vehicles 20 to 25
Plant and machinery 5 to 10*

* These are the general rates. Alternatively, new plant and machinery may be depreciated using the declining-balance method at rates generally ranging from 12.5% to 50%.

Certain specified assets may be depreciated using accelerated de preciation methods. For example, pollution-control buildings completed before 1 January 2006, as well as qualifying software, may be fully depreciated over a 12-month period. Land and works of art are not depreciable. Intangible assets are depreciable if the company can anticipate that the profits derived from the assets will end at a fixed date. In general, goodwill is not depreciable.

Relief for tax losses. Losses incurred for financial years ending after 31 December 2003 may be carried forward indefinitely. How­ever, for fiscal years closed on or after 31 December 2012, the amount of losses used in a given year may not exceed EUR1 mil­lion plus 50% of the taxable profit above that amount for such fiscal year.

In addition, enterprises subject to corporate tax may carry back losses against undistributed profits from the prior fiscal year. The carryback results in a credit equal to the loss multiplied by the current corporate tax rate, but losses carried back may not exceed EUR1 million. The credit may be used to reduce corporate in­come tax payable during the following five years with the balance being refunded at the end of the fifth year. A significant change in the company’s activity, particularly an addition or a termina­tion of a business that infers a decrease of 50% or more of either the revenue or the average headcount and fixed assets, may jeop­ardize the loss carryover and carryback.

Groups of companies. Related companies subject to corporate tax may elect to form a tax-consolidated group. Under the tax-consolidation regime, the parent company files a consolidated return, thereby allowing the offset of losses of one group entity against the profits of related companies. The parent company then pays tax based on the net taxable income of companies included in the consolidated group, after certain adjustments for intra-group provisions are made, in particular, the following:

  • Intra-group asset or share transfers, as well as any subsequent depreciation related to these transfers, are neutralized.
  • Intra-group dividends not subject to the parent-subsidiary regime are neutralized.
  • Intra-group provisions for bad and doubtful debts are neutral­ized.
  • Waivers of debts and subsidies between members of the group are neturalized.
  • Interest not deductible at the level of a member company in application of the thin-capitalization rules (see Deductibility of interest) becomes, with certain conditions and limitations, de­ductible at the level of the consolidated income.

If a company is acquired from a shareholder controlling the group and becomes a member of the tax-consolidated group, the amendment Charasse provides that an amount of the financing expenses of the group must be added back to the consolidated income within a nine-year period starting with the purchasing year. This amount is calculated as follows:

Group financing expenses x  Acquisition price of the shares

Average amount of the group’s debt

The group includes the French subsidiaries in which the parent has a direct or indirect shareholding of at least 95% and for which the parent company has elected tax consolidation.

The Second Amended Finance Bill for 2014 implemented “hori­zontal tax consolidation” into French law, allowing a French company or permanent establishment to form a French tax con­solidated group with other French companies or permanent estab­lishments if all are owned at 95% or more by a foreign parent company or permanent establishment that is subject to a tax equivalent to French corporate income tax in another EU country or European Economic Area (EEA) country. The 95% ownership test can be met directly, or indirectly, through intermediate com­panies or permanent establishments that are all subject to tax in an EU/EEA country or through other French consolidated com­panies. This new regime applies to fiscal years closed on or after 31 December 2014.

Other significant taxes

The following table summarizes other significant taxes.

Nature of tax Rate (%)
Value-added tax 2.1 / 5.5 / 10 / 20
Territorial Economic Contribution; replaced the
Business Activity Tax (Taxe professionnelle);
capped to a certain amount of the value added
By the company; maximum rate
3
Social security contributions, on gross salary
(approximate percentages); paid by
Employer 35 to 45
Employee 18 to 23
General social security tax (contribution sociale
Généralisée, or CSG) on active income
7.5
General social security tax on patrimonial and
financial income (for example, income from
Real estate and securities)
8.2
Social debt repayment tax (contribution
Remboursement de la dette sociale, or CRDS),
on all income
0.5
Social levy on patrimonial and financial income
(including 1.1% contribution and 0.3% surtax)
3.6
Registration duty
On sales of shares in stock companies (including
sociétés anonymes, sociétés par actions
simplifiées and sociétés en commandites par
actions), shares of private limited liability
companies (sociétés à responsabilité limitée,
or SARLs) and interests in general partnerships
(sociétés en nom collectif, or SNCs); for sales
of shares in stock companies, the tax rate is
Reduced to 0.1%; intragroup transfers are exempt
3
On sales of goodwill 3 to 5
On sales of professional premises, housing,
businesses and shares of companies whose
Assets primarily consist of real estate
5

Miscellaneous matters

Foreign-exchange controls. French exchange-control regulations have been eased. French direct investments into foreign countries are now almost completely unrestricted. In general, foreign direct investments in France, except in certain sensitive sectors, are only subject to an administrative declaration. For current operations, such as loans between residents and nonresidents and the opening of foreign bank accounts by French companies, the regulations have been almost totally eliminated.

Payments to residents of tax havens or to uncooperative states or territories. Under Article 238 A of the French Tax Code, interest, royalties and other remuneration paid to a recipient established in a tax haven or on a bank account located in a tax haven are deemed to be fictitious and not at arm’s length. As a result, to deduct the amount paid, the French entity must prove that the operation is effective (that it effectively compensates executed services) and is at arm’s length. For purposes of the above rules, a privileged tax regime is a regime under which the effective tax paid is 50% lower than the tax that would be paid in France in similar situations.

If these payments are made to a recipient established in an unco­operative country or on a bank account located in an uncoopera­tive country, the French entity must also prove that the operation’s principal aim is not to locate the payment in that country. In 2015, the countries and territories considered to be uncooperative were Botswana, Brunei Darussalam, Guatemala, the Marshall Islands, Nauru and Niue.

Transfer pricing. French entities controlled by, or controlling, enti­ties established outside France are taxable in France on any prof­its transferred directly or indirectly to the entity located abroad through an increase or decrease in purchase or sale prices or by any other means. A general obligation to provide annual docu­mentation to the tax administration with respect to transfer pric­ing is imposed on companies.

Under the 2014 Finance Bill, companies are also required to pro­vide as part of the transfer-pricing documentation the tax rulings from foreign tax authorities obtained by associated companies.

Country-by-Country Reporting. The 2016 Finance Bill introduced a Country-by-Country Reporting obligation (to be further de­fined) for certain companies that are members of a multinational group with a consolidated turnover of at least EUR750 million. This applies to fiscal years beginning on after 1 January 2016, and the report must be filed within 12 months after the closing date of the accounts.

Controlled foreign companies. Under Section 209 B of the French Tax Code, if French companies subject to corporate income tax in France have a foreign branch or if they hold, directly or indirect­ly, an interest (shareholding, voting rights or share in the pro fits) of at least 50% in any type of structure benefiting from a privi­leged tax regime in its home country (the shareholding threshold is reduced to 5% if more than 50% of the foreign entity is held by French companies acting in concert or by entities controlled by the French company), the profits of this foreign entity or enter­prise are subject to corporate income tax in France. If the foreign profits have been realized by a legal entity, they are taxed as a deemed distribution in the hands of the French company. If the profits have been realized by an enterprise (an establishment or a branch), these profits are taxed as profits of the French company if the tax treaty between France and the relevant foreign state allows the application of Section 209 B of the French Tax Code.

For the purpose of the above rules, a privileged tax regime is a regime under which the effective tax paid is 50% lower than the tax that would be paid in France in similar situations (such a for­eign company is known as a controlled foreign company [CFC]). Tax paid by a CFC in its home country may be credited against French corporate income tax.

CFC rules do not apply to profits derived from entities establish­ed in an EU member state unless the French tax authorities estab­lish that the use of the foreign entity is an artificial scheme that is driven solely by French tax avoidance purposes.

Similarly, the CFC rules do not apply if the profits of the foreign entity are derived from an activity effectively performed in the country of establishment. The concerned company must demon­strate that the establishment of the subsidiary in a tax-favorable jurisdiction has mainly a non-tax purpose and effect by proving that the subsidiary mainly carries out an actual industrial or com­mercial activity.

Debt-to-equity rules. For a discussion on the restrictions imposed on the deductibility of interest payments, including the thin-capitalization rules, see Section C.

Headquarters and logistics centers. The French tax authorities issue rulings that grant special tax treatment to headquarters com­panies and logistics centers companies. These companies are sub­ject to corporate income tax at the normal rate on a tax base cor­responding generally to 6% to 10% of annual operating expenses, depending on the company’s size, functions assumed and risks borne. In addition, certain employee allowances are exempt from income tax.

Reorganizations. On election by the companies involved, merg­ers, spin-offs, split-offs and dissolutions without liquidation may qualify for a special rollover regime.

Tax credit for research and development. To encourage invest­ments in research and development (R&D), the tax credit for R&D expenditure equals 30% of qualifying expenses related to opera­tions of R&D (qualifying expenses equal the sum of 75% of the depreciation of fixed assets used in the research activity and 50% of staff expenses related to research) up to EUR100 million, and 5% for such expenses above EUR100 million. The rate is increas­ed to 40% for the first year and to 35% for the following year for companies that benefit from the tax credit for the first time or that did not benefit from the regime for the five years preceding their request for the credit.

A ruling issued in April 2008 confirmed the eligibility of recharg­ed R&D expenses.

Special tax credit. A special tax credit called the Tax Credit for Competitiveness and Employment (Crédit d’impôt pour la com-pétitivité et l’emploi, or CICE) has been introduced for fiscal years closed on or after 31 December 2013. It is computed on the basis of salaries that are below 2.5 times the minimum wage. The rate is 6% for 2014 and future years (it was 4% for 2013). Higher wages do not give rise to the CICE, even for the amount under the threshold.

Tax audits. Effective from 1 January 2014, all companies must maintain their accounting records in an electronic form when French tax authorities carry out a tax audit.

Treaty withholding tax rates

The following table is for illustrative purposes only.

Dividends

%

Interest (e)(g)

%

Royalties (e)

%

Albania 5/15 10 5
Algeria 5/15 0/10 5/10
Andorra 5/15 0/5 0/5
Argentina 15 20 18
Armenia 5/15 10 5/10
Australia 0/5/15 0/10 5
Austria 0/15 (a) 0 0
Azerbaijan 10 10 5/10
Bahrain 0 0 0
Bangladesh 10/15 10 10
Belarus 15 0/10 0
Belgium 0/10/15 (a) 15 0
Benin – (j) – (j) 0
Bolivia 15 15 15
Bosnia and Herzegovina 5/15 0 0
Botswana 5/12 10 10
Brazil 15 10/15 10/15/25
Bulgaria 5/15 0 5
Burkina Faso – (j) – (j) 0
Cameroon 15 0/15 0/7.5/15
Canada (b) 5/15 0/10 0/10
Central African Republic – (j) – (j) 0
Chile 15 5/15 5/10
China (d) 10 10 10
Congo (Republic of) 15/20 0 15
Côte d’Ivoire 15 0/15 10
Croatia 0/15 0 0
Cyprus 10/15 (a) 0/10 0/5
Czech Republic 0/10 (a) 0 0/5/10
Ecuador 15 10/15 15
Egypt 0 15 15
Estonia 5/15 (a) 0/10 5/10
Ethiopia 10 5 7.5
Finland 0 (a) 0/10 0
Gabon 15 0/10 0/10
Georgia 0/5/10 0 0
Germany 0/15 (a) 0 0
Ghana 5/15 10 10

 

Dividends

%

Interest (e)(g)

%

Royalties (e)

%

Greece – (j) 0/12 5
Guinea 15 0/10 0/10
Hong Kong 10 10 10
Hungary 5/15 (a) 0 0
Iceland 5/15 0 0
India (h) 10/15 10/15 10/20
Indonesia 10/15 10/15 10
Iran 15/20 15 0/10
Ireland 10/15 (a) 0 0
Israel 5/15 5/10 0/10
Italy 5/15 (a) 0/10 0/5
Jamaica 10/15 10 10
Japan 0/5/10 0/10 0
Jordan 5/15 0/15 5/15/25
Kazakhstan 5/15 0/10 10
Kenya 10 12 10
Korea (South) 10/15 0/10 10
Kuwait 0 0 0
Latvia 5/15 (a) 10 5/10
Lebanon 0 0 – (j)
Libya 5/10 0 0/10
Lithuania 5/15 (a) 10 5/10
Luxembourg 5/15 (a) 0 0
Macedonia 0/15 0 0
Madagascar 15/25 15 10/15
Malawi 10/25 18 0
Malaysia 5/15 15 10
Mali – (j) – (j) 0
Malta 5/15 (a) 0/10 0/10
Mauritania – (j) – (j) 0
Mauritius 5/15 0 0/15
Mayotte – (j) – (j) – (j)
Mexico 0/5/15 0/5/10 0/10
Monaco – (j) – (j) – (j)
Mongolia 5/15 10 0/5
Montenegro 5/15 0 0
Morocco 0/15 10/15 5/10/331/3
Namibia 5/15 10 0/10
Netherlands 5/15 (a) 10 0
New Caledonia 5/15 0 0/10
New Zealand 15 10 10
Niger – (j) – (j) 0
Nigeria 12.5/15 12.5 12.5
Norway 0/15 0 0
Oman 0 0 0
Pakistan 10/15 10 10
Panama 5/15 5 5
Philippines 10/15 0/15 15
Poland 5/15 (a) 0 0/10
Portugal 15 (a) 12 5
Qatar 0 0 0
Romania 10 10 10
Russian Federation 5/10/15 0 0
St. Martin 0/15 0/10 0

 

 
St. Pierre and Miquelon 5/15 0 0/10
Saudi Arabia 0 0 0
Senegal 15 0/15 0/15
Singapore 5/15 0/10 0/– (k)
Slovak Republic 10 0 0/5
Slovenia 0/15 0/5 0/5
South Africa 5/15 0 0
Spain 0/15 (a) 0/10 0/5
Sri Lanka – (j) 0/10 0/10
Sweden 0/15 (a) 0 0
Switzerland 0/15 0 5
Syria 0/15 0/10 15
Taiwan 0/10 0/10 10
Thailand –/15/20 (k) –/3/10 (k) 0/5/15
Togo – (j) – (j) 0
Trinidad and Tobago 10/15 10 0/10
Tunisia – (j) 12 5/10/15/20
Turkey 15/20 15 10
Turkmenistan 15 10 0
Ukraine 0/5/15 0/2/10 0/10
USSR (c) 15 10 0
United Arab Emirates 0 0 0
United Kingdom 0/15 (a) 0 0
United States 0/5/15 0 0
Uzbekistan 5/10 0/5 0
Venezuela 0/15 0/5 5
Vietnam 5/15 0 10
Yugoslavia (f) 5/15 0 0
Zambia 10/30 – (j) 0
Zimbabwe 10/15 10 10
Non-treaty countries 0/15/30/75 (i) 0/75 (i) 0/331/3/75 (i)
    a) Dividends paid by French companies to parent companies located in other EU member states are exempt from withholding tax if the parent company makes a commitment to hold at least 10% of the distributing company for an uninterrupted period of at least two years. However, the Finland treaty pro­vides that all dividends are exempt from withholding tax.
    b) Withholding tax rates of 5%/15% (dividends), 0%/10% (interest) and 0%/10% (royalties) apply with respect to Quebec.
    c) France has agreed with Turkmenistan to apply the France-USSR tax treaty. France applies the France-USSR tax treaty to Belarus, Kyrgyzstan and Moldova.
    d) The tax treaty between France and China does not apply to the Hong Kong SAR.
    e) As a result of the implementation of EU Directive 2003/49/EC, withholding tax on interest and royalties paid between associated companies of different EU states is abolished if certain conditions are met (see Section B).
    f) France is honoring the France-Yugoslavia treaty with respect to Bosnia and Herzegovina, Montenegro and Serbia.
    g) The French domestic law applies. As a result, the rate is 0% under normal circumstances. The rates listed for interest in the table are the treaty rates.
    h) The general rates under the treaty are 15% on dividends and interest and 20% on royalties. However, these rates are reduced in practice according to a “most-favored-nation” clause.
    i) The 75% rate applies only to payments made into uncooperative countries (see Section E).
    j) The domestic rate applies.
    k) The dash signifies the domestic rate.