France: Types of Company
Although French corporate taxation rates have been falling, and are currently at 33.33%, France has never been considered an attractive international financial center. However in order to attract the headquarters of foreign multinational groups favorable tax treatment has been accorded to entities known as "co-ordination centers", usually known in France as Headquarters and Logistics Centres. A co-ordination center is typically involved in the stocking, labeling, packaging, distribution, control & co-ordination of administrative and logistic activities for and on behalf of a group of enterprises under common ownership but with a multinational geographic dispersal. Prior administrative consent is required before an entity can be granted co-ordination center status.
French co-ordination centers pay corporate income tax on a fixed sum amounting to 6-10% of "operating expenses".The actual percentage depends on the operational structure of the co-ordination center and the proposed activities and where either of these factors change after the granting of co-ordination center status so too can the percentage factor.
It is often possible for the management of a co-ordination centre to make arrangements for expatriate management to receive tax benefits in France; but there is no scheme as such, and individual negotiation is required.
However, as in other Member States with co-ordination centre regimes, the European Commission has been on the attack under State Aid rules, and said in May 2003 that French co-ordination centres infringe the rules. The coordination centre regime was later amended to fall into line with European rules, although the scheme remains generally attractive.
In November, 2003, the French government introduced a package of tax incentives under which foreign executives working in France would no longer pay income tax on bonuses derived from working abroad, which some estimated at the time represented between 20% and 50% of a top executive's income.
Other measures included the deductibility of pension and healthcare contributions paid in their country of origin from taxable income.
“We know that although the image of France is good as far as its infrastructure, quality of life and workforce is concerned, it has a poor reputation for taxes and employment legislation,” a spokesman representing the Finance Ministry commented.
The measures were effective from January 1, 2004 and were expected to benefit around 3,000 executives. The measures also apply to French managers who have been paying taxes abroad for at least ten years.
In 2010, increase in the public debt and the urgent need for pension reform has led the French government to announce budget cuts resulting in an average saving of EUR10bn over two years. Most of the savings are to be achieved through cuts in tax breaks for individuals as well as businesses.