When must a company pay corporate tax in France? The answer does not, in principle, depend on its nationality or the location of its registered office, but on where it actually carries on its business. This is the territoriality principle, laid down in article 209 of the French General Tax Code and central to international taxation.
This article explains this principle in simple terms, what is meant by a “business carried on in France”, the role of tax treaties, and illustrates it with two examples. As every situation is different, a lawyer’s analysis is generally useful before any decision.
In brief
- French corporate tax in principle applies to profits made by businesses carried on in France, whether the company is French or foreign (article 209 of the French General Tax Code).
- A business is in principle carried on in France where it has an establishment there, acts there through a dependent representative or carries out a complete commercial cycle there.
- Conversely, the profits of a French company made through establishments located outside France are in principle not taxable in France.
- Where a tax treaty applies, it may, depending on the case, limit France’s right to tax a foreign company to profits attributable to a permanent establishment located in France; only an analysis of the situation by a lawyer can determine whether this is the case.
- In case of doubt, a ruling request (rescrit) may, depending on the case, make it possible to obtain the tax authorities’ position.
Contents
The principle: territoriality of corporate tax
Under article 209 of the French General Tax Code, profits subject to corporate tax are determined by taking into account only the profits made by businesses carried on in France, as well as those whose taxation is allocated to France by a tax treaty.
In practice, a foreign company carrying on business in France is in principle taxable in France on the profits of that business, even if its registered office is abroad. Conversely, a French company is in principle not taxed in France on profits made by establishments operated outside France. The company’s nationality is therefore not, in principle, the decisive criterion.
What is a “business carried on in France”?
Case law in principle recognises three situations, each of which is sufficient:
| Situation | What it means | Example |
|---|---|---|
| An establishment in France | A facility with a certain permanence and a certain autonomy, with material and human resources | An office, a shop or a workshop with staff |
| A dependent representative | A person, without an independent professional activity, who acts in France on behalf of the company, for example by concluding contracts in its name | An agent who habitually signs contracts for the company |
| A complete commercial cycle | Transactions forming a complete commercial whole in France, even without an establishment | Purchase and resale of goods carried out entirely in France |
Two examples
A German company opens a restaurant in Paris
A fast-food company with its registered office in Berlin runs about ten restaurants in Germany. It rents premises in Paris, fits them out (kitchen, tables, counter) and hires five employees. It has not set up a subsidiary in France. As it has material and human resources in Paris, it in principle carries on a business in France: the profits of its Paris restaurant are in principle subject to corporate tax in France, which the France–Germany tax treaty also allows, as this is a permanent establishment.
A French company carries on all its business in Belgium
Two partners set up a company in Paris. After a market study, they decide to develop the business in Belgium, rent an office there and work there themselves. The company is French, but it has no material or human resources in France: the profits made by its Belgian establishment are in principle not subject to corporate tax in France. It nevertheless remains subject to certain obligations in France, and the analysis may become more complex, for example if management decisions are taken from France.
The role of tax treaties
Where France has concluded a tax treaty with the company’s State, the treaty in principle prevails over French law. Most treaties use the notion of permanent establishment: a fixed place of business (place of management, branch, office, factory, workshop, construction site of a certain duration, etc.) through which the business is wholly or partly carried on, or a dependent agent who habitually concludes contracts in its name. The treaty may then, depending on the case, limit France’s right to tax the profits of a foreign company to those attributable to a permanent establishment located in France, which only an analysis of the situation by a lawyer can confirm or rule out.
The table of tax treaties shows, country by country, whether a treaty exists. Complex cases are analysed on the basis of the applicable treaty, the commentaries on the OECD model convention, European Union law and case law.
How can one’s position be secured?
The boundary between business carried on in France and business carried on from abroad is not always clear, particularly with the development of remote working and online sales. In case of doubt, a ruling request (rescrit), through which the tax authorities formally take a position on a specific situation, may, depending on the case and after analysis with a lawyer, help secure one’s position in the event of a later tax audit.
FAQ
Is a foreign company selling to French customers taxable in France?
Not necessarily: mere distance sales, without an establishment, a dependent representative or a complete commercial cycle in France, do not in principle make the company liable to corporate tax in France. Other taxes, such as VAT, follow their own rules.
What is a permanent establishment?
It is the notion used in tax treaties: generally, a fixed place of business through which the business is wholly or partly carried on, or a dependent agent who habitually concludes contracts in its name. Its precise definition depends on each treaty.
Is a French company taxed in France on all its profits?
In principle no: under the territoriality principle, profits made by establishments operated outside France are in principle not taxable in France, subject to exceptions.
Can an employee working in France for a foreign company make that company taxable in France?
It depends on the circumstances, in particular the employee’s role, especially whether they conclude contracts in the company’s name, and on the applicable tax treaty, which may, depending on the case, limit France’s right to tax the company: only an analysis of the situation by a lawyer can determine whether or not this is the case.
How can one obtain the tax authorities’ position on one’s situation?
A ruling request (rescrit) may, depending on the case, make it possible to obtain a formal position from the tax authorities on a specific situation, which in principle binds them. Whether to file one and how to draft it deserve to be examined with a lawyer.
