Ten things to bear in mind when setting up shop in France

France has long laid out a welcome mat to international firms looking to grow their business – and even more so since the business-friendly President Emmanuel Macron came to power in 2017. But getting used to French working habits can prove tricky and so knowledge of the local culture is essential.

As a result, here are some of the key benefits and challenges you can expect to experience when setting up shop in France:

1. The upside of Brexit for France

France has made a big effort to position itself competitively in the race among European countries to benefit from potential company relocations as a result of Brexit. President Macron has focused on cutting corporation tax, relaxing labour laws and introducing a ‘Choose France’ drive for inward investment. His attempts at exploiting the uncertainty caused by the UK leaving the European Union (EU) have led to a 16% increase in the number of investment projects, which include research facilities, factory openings and expansions, since 2016.

As a result, Paris’ business district is experiencing a boom in terms of building new office blocks, which provide comparatively cheap office space. A massive extension of the public transport system is also underway.

Moreover, if Brexit leads to the loss of London’s ‘passporting rights’, which allow international financial firms access to EU markets, it will not just be UK-based businesses that are looking to relocate. Asian companies, which plan to set up in Europe and historically focused on London to do so, are also likely to join the mix. This means that Brexit could open France up to these new entrants.

2. Starting a business

France ranks 25th in the world in terms of starting a business, according to the World Bank’s Ease of Doing Business report. It takes five separate procedures and three-and-a-half days to do so, which includes registering with the Centre de Formalités des Entreprises and having your company books stamped and initialled by the clerk of the Commercial Court.

3. Labour laws

France’s dismissal process has become easier since a standardised dismissal letter template was published on the government website. Employers summarise the reason for dismissal in the template and, while other steps are still necessary, the process is simpler than it used to be.

The redundancy process has also been improved. It is no longer required that redundancy plans take into account the financial health of foreign entities within the same group, which now makes it easier to close down French factories. Sizeable ‘voluntary resignation’ agreements will also be encouraged to avoid mass layoffs during redundancy initiatives.

A new labour law has likewise capped redundancy indemnities based on the number of years an individual has held a senior position. The aim here is to make the rules more transparent and reduce corporate risk.

4. Having electricity connected

Being connected to an electricity supply can prove an arduous task in France, taking around 70 days and five separate procedures to complete. The application process alone takes 20 days and obtaining a compliance certificate another 20.

5. Registering property and obtaining an internet connection

Due to the historic nature of most French towns and their environs, registering property can be a long-winded and complicated process, but obtaining an internet connection even more so. While a private individual can manage it in less than a week, for businesses to obtain ADSL or fibre connections can take more than two months - and even longer for VPNs - which is a definite challenge.

6. Accessing credit

Access to credit is one of the most important requirements to expand your business, but it is a notoriously tricky thing to do in France. The country is home to a robust and up-to-date financial system but ranks 90th in the world for ease of obtaining credit.

Opening a bank account is another challenge because of the bureaucratic procedures involved in complying with Know Your Customer regulations, which include anti-money laundering and anti-terrorism financing rules.

7. Paying taxes

President Macron recently announced plans to cut capital gains tax in order to attract business investment to France and restore the damaged relations that resulted from corporate tax hikes. He has also updated employment law to make it more amenable to the business world.

Nonetheless, the 2018 Financial Complexity Index ranked France sixth in terms of intricacy relating to accounting and tax matters, up from 11th place in 2017. Although President Macron may be making progress in some areas here, 2019’s planned move to withhold personal income tax at source and reflect it on employees’ monthly payslips may again increase complexity for employers, at least in the short-term.

On the plus side though, French corporation tax rates for large companies have fallen from 33.33% to 28% and will progressively drop to 25% during the 2022 financial year. Personal tax rates will also rise to 45% in tranches, while a single flat rate of 30% for capital gains tax is to be applied on savings and investment income and gains as of this year.

Employers are required to make nine tax payments per year and the country’s standard VAT rate is 20%. It is worth noting that taxation can account for a significant chunk of a company’s earnings.

8. Enforcing contracts

France has a modern legal system that is well equipped to enforce contracts in a timely fashion. It takes an average of 395 days to do so, which is well below the Organization for Economic Cooperation and Development’s (OECD) average of 577. This means France ranks 15th here in the World Bank’s Ease of doing Business report.

9. Resolving insolvency

Resolving insolvency situations is a streamlined process in France, and the recovery rate of 73.5 cents in the dollar is a little higher than the OECD norm. But it is a slow process, taking on average one year and nine months. This scenario is influenced by rather long payment terms, even though the Loi de Sécurisation Financière  did significantly help to reduce them to a more acceptable level, capping them - in theory at least - at 60 days.

10. Culture

Being able to adapt to French business culture is an important consideration when setting up shop in the country. It is important to take formalities seriously and it is worth bearing in mind that the French are extremely proud of their language. Their passion for good food and wine should also be noted. Organisations that can get to grips with differences in etiquette, approach and business style are most likely to succeed.

By David Orme-Lynch, managing director of TMF France.

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France has long laid out a welcome mat to international firms looking to grow their business – and even more so since the business-friendly President Emmanuel Macron came to power in 2017. But getting used to French working habits can prove tricky and so knowledge of the local culture is essential.

As a result, here are some of the key benefits and challenges you can expect to experience when setting up shop in France:

1. The upside of Brexit for France

France has made a big effort to position itself competitively in the race among European countries to benefit from potential company relocations as a result of Brexit. President Macron has focused on cutting corporation tax, relaxing labour laws and introducing a ‘Choose France’ drive for inward investment. His attempts at exploiting the uncertainty caused by the UK leaving the European Union (EU) have led to a 16% increase in the number of investment projects, which include research facilities, factory openings and expansions, since 2016.

As a result, Paris’ business district is experiencing a boom in terms of building new office blocks, which provide comparatively cheap office space. A massive extension of the public transport system is also underway.

Moreover, if Brexit leads to the loss of London’s ‘passporting rights’, which allow international financial firms access to EU markets, it will not just be UK-based businesses that are looking to relocate. Asian companies, which plan to set up in Europe and historically focused on London to do so, are also likely to join the mix. This means that Brexit could open France up to these new entrants.

2. Starting a business

France ranks 25th in the world in terms of starting a business, according to the World Bank’s Ease of Doing Business report. It takes five separate procedures and three-and-a-half days to do so, which includes registering with the Centre de Formalités des Entreprises and having your company books stamped and initialled by the clerk of the Commercial Court.

3. Labour laws

France’s dismissal process has become easier since a standardised dismissal letter template was published on the government website. Employers summarise the reason for dismissal in the template and, while other steps are still necessary, the process is simpler than it used to be.

The redundancy process has also been improved. It is no longer required that redundancy plans take into account the financial health of foreign entities within the same group, which now makes it easier to close down French factories. Sizeable ‘voluntary resignation’ agreements will also be encouraged to avoid mass layoffs during redundancy initiatives.

A new labour law has likewise capped redundancy indemnities based on the number of years an individual has held a senior position. The aim here is to make the rules more transparent and reduce corporate risk.

4. Having electricity connected

Being connected to an electricity supply can prove an arduous task in France, taking around 70 days and five separate procedures to complete. The application process alone takes 20 days and obtaining a compliance certificate another 20.

5. Registering property and obtaining an internet connection

Due to the historic nature of most French towns and their environs, registering property can be a long-winded and complicated process, but obtaining an internet connection even more so. While a private individual can manage it in less than a week, for businesses to obtain ADSL or fibre connections can take more than two months - and even longer for VPNs - which is a definite challenge.

6. Accessing credit

Access to credit is one of the most important requirements to expand your business, but it is a notoriously tricky thing to do in France. The country is home to a robust and up-to-date financial system but ranks 90th in the world for ease of obtaining credit.

Opening a bank account is another challenge because of the bureaucratic procedures involved in complying with Know Your Customer regulations, which include anti-money laundering and anti-terrorism financing rules.

7. Paying taxes

President Macron recently announced plans to cut capital gains tax in order to attract business investment to France and restore the damaged relations that resulted from corporate tax hikes. He has also updated employment law to make it more amenable to the business world.

Nonetheless, the 2018 Financial Complexity Index ranked France sixth in terms of intricacy relating to accounting and tax matters, up from 11th place in 2017. Although President Macron may be making progress in some areas here, 2019’s planned move to withhold personal income tax at source and reflect it on employees’ monthly payslips may again increase complexity for employers, at least in the short-term.

On the plus side though, French corporation tax rates for large companies have fallen from 33.33% to 28% and will progressively drop to 25% during the 2022 financial year. Personal tax rates will also rise to 45% in tranches, while a single flat rate of 30% for capital gains tax is to be applied on savings and investment income and gains as of this year.

Employers are required to make nine tax payments per year and the country’s standard VAT rate is 20%. It is worth noting that taxation can account for a significant chunk of a company’s earnings.

8. Enforcing contracts

France has a modern legal system that is well equipped to enforce contracts in a timely fashion. It takes an average of 395 days to do so, which is well below the Organization for Economic Cooperation and Development’s (OECD) average of 577. This means France ranks 15th here in the World Bank’s Ease of doing Business report.

9. Resolving insolvency

Resolving insolvency situations is a streamlined process in France, and the recovery rate of 73.5 cents in the dollar is a little higher than the OECD norm. But it is a slow process, taking on average one year and nine months. This scenario is influenced by rather long payment terms, even though the Loi de Sécurisation Financière  did significantly help to reduce them to a more acceptable level, capping them - in theory at least - at 60 days.

10. Culture

Being able to adapt to French business culture is an important consideration when setting up shop in the country. It is important to take formalities seriously and it is worth bearing in mind that the French are extremely proud of their language. Their passion for good food and wine should also be noted. Organisations that can get to grips with differences in etiquette, approach and business style are most likely to succeed.

By David Orme-Lynch, managing director of TMF France.

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