Legal & Tax framework
Different ways of doing business in France
Branch Registration at the Trade and Commercial registry; Personal liability for the activity carried out in France; Yearly reporting to the French Tax Authority of the corporate tax return; Yearly declaration to the Social Security Fund; Yearly filing with the Trade and Commercial registry of the financial accounts published in the country where the foreign company has its registered office.
Subsidiary Separate entity, with personnal liability; Formalities to be carried out for setting up the subsidiary: - Drawing up of the Articles of association (the registered office could be located either at the manager s private residence, under certain conditions, or within a business cluster, or at an address provided by a domiciliation company; lease agreement); - Appointment of the first Directors and, if required by law, appointment of the Statutory Auditor; - Obtaining a prior authorization from the Ministry of the Economy in cases where the activity to be carried out is classified as «sensitive» (defense, homeland security, gaming, water, health, transport, telecommunications etc); - Opening of a bank account; - Subscription to professional insurance policies.
Legal form of the subsidiary: Different types of legal forms; The «SAS»: - Could be set up by one shareholder; - No minimum share capital; - Flexible organization of the management: one «President» with full powers (possibility of limitation of powers, but not enforceable against third parties), other committees/board of directors, Shareholders meeting.
Purchasing of an existing French company Letter of intent (non binding); Due diligence; Share purchase agreement / Asset Purchase agreement (earn-out, price adjustment, transfer of employees); Representations and warranties.
Using an existing local network Benefit from the experience and network of the French distributor/franchisee; Distribuor/franchisee will bear part of the investments to be incurred by the launching and the running of the activity in France; No specific requirements for entering into such agreements: determination of the nature of the goods and of their price; Exclusive or non exclusive relationship; Two highlights: 1. Prohibition against fixing a minimum price for the reselling of the goods by the distributor/franchisee, or against imposing a minimum profit margin (otherwise, nullity of the agreement); 2. Independence of the contracting parties: risk that the commercial relationship be requalified as an employment relationship.
Employment in France
How to enter into an employment relationship The main sources of French employment requirements are the French employment code, relevant case law, and the applicable collective bargaining agreement (depending on the business activity of the company). A reform of the French employment code is under study by the government. Employment contract must be drafted in French. Indefinite-term employment contract; Fixed-term employment contract.
Indefinite-term employment contract Written contract not mandatory, but strongly recommended in order to avoid misunderstanding (variable pay, mobility clause, non-compete clause, etc.); Probation period: depending on the categories of employees, ranging from 2 to 4 months. Renewable once if collective bargaining agreement and employment contract so provide; Modifications of the terms and conditions of the employment contract: - Modification of the employment contract (i.e., switch from day work to night work, etc.): Employee s prior approval required; Employee cannot be dismissed on the ground of his/her refusal. - Change of employment conditions: Employee s refusal may be deemed to be misconduct.
Fixed-term employment contract Written contract mandatory, with compulsory provisions such as the reason for entering into such a contract (replacement, temporary increase of business); Subject to specific conditions being met in particular regarding the grounds for entering such a contract; Renewable twice, within the maximum time-period of 18 months.
Termination of an indefinite-term employment contract Termination during the probation period: No need to provide grounds, and no termination indemnity; Once the probation period is over: Termination by the employer must be based on a proper and genuine cause, which can be either personal or economic in nature.
Dismissal for personal cause Lack of competence; Misconduct; Gross negligence.
Economic grounds The employer must search for an alternative position to be filled within the company, or the group, even abroad; If the lay-off is collective, the Works council must be consulted; Especially, a job preservation plan must be drawn up within companies with at least 50 employees, when considering the dismissal of at least 10 employees within a 30-day period; The plan must provide for measures to avoid cutting positions, such as redeployment of employees inside or outside the company, reorganizing work, etc.
Termination indemnities In both cases, the termination of the employment contract by the employer gives rise to: - The accrued paid vacation indemnities; - The notice period indemnity; and - A termination indemnity: If the employee has more than 1 year of service within the company, he/she is entitled to one-fifth of his/her gross monthly pay, bonus included, for each year of service. For each additional year beyond 10 years of service, the employee is also granted two-fifteenths of his monthly wage unless a more advantageous amount is provided for by the applicable CBA; Termination indemnity and notice period indemnity are not due in case of termination for serious or gross misconduct.
Termination by mutual consent approved by French local employment authorities Specific form to be filled in, setting forth the termination date and the termination payment; The local employment authority must homologate this agreement (free will of the employee / compliance of the agreement with legal requirements). Approval deemed to be granted if the authority does not answer withing 15 working days; No notice period, nor indemnity in lieu of notice period; For an employee with at least 1 year of service, this indemnity shall be equivalent to the statutory dismissal indemnity, unless the collective bargaining agreement provides for a termination indemnity that is more favorable to the employee.
Legal reference work duration: 35 hours/week and its exceptions Legal reference work duration: 35 hours per week; Possible overtime within the limit of 220 hours per year per employee unless provided otherwise by the CBA; Employee and employer representatives may adapt work duration to the needs of their company through a company-wide agreement, which may address specific matters (maximum annual volume of overtime, setting up of a package of days of work over a year, etc.). Maximum work duration: - 10 hours per day; - 48 hours per week; - 44 hours per week over any period of 12 consecutive weeks.
Overtime hours are paid at an increased rate: - 25% more for the first 8 hours of overtime; - 50% more as from the 44th hour of work; Possible lower rate (but not less than 10%) if provided for by the collective bargaining agreement applied to the company; Overtime pay is subject to social security contribution (also for the employer), and to income tax; Payment of overtime could be replaced by compensatory time-off.
Managerial-level employees («cadres») may work under a package of days with a maximum of 218 days per year. These categories of employees are free to organize their own work without being entitled to any overpay compensation (but they have additional days off around 10 per year). However, such schemes are subject to an increasing attention from the courts and the employer must ensure that the balance between professional time and personal time is respected. In any case, the employee is entitled to a daily rest period of at least: - 11 consecutive hours; and - weekly rest of 35 consecutives hours (in principle, on Sunday).
Paid vacation: 25 working days per year or more if the collective bargaining agreement applied to the company so provides; Paid day for family events (wedding, marriage of a child, etc.).
Costs incurred by the performance of the employment contract
Mandatory guaranteed minimum wage: 9.61/hour, i.e., 1,457.52/month for a 35-hour week; Possibility to provide the employee with benefits-in-kind and/or variable remuneration; Social security contributions: - Employee s social security contribution: 21% deducted from the gross salary; - Employer s social security contribution: 42% of the gross salary (lower rate for low wages).
Employee representatives Companies with at least 11 employees over a 12-month period, consecutive or not, within the last 3 years must elect a staff representative (Délégué du personnel). The staff representative presents to the employer the individual and collective complaints of the employees regarding wages and working conditions; Companies with at least 50 employees must elect a Works council for 4 years. The Works council is in charge of welfare and cultural facilities. It is informed and consulted on the employer s initiative regarding the organization and the management of the company; Companies with at least 50 employees must also elect a Health and Safety Committee responsible for preventing occupational risks from occuring and improving working conditions.
French tax system & Incentives
Corporate tax Corporate tax rates Standard rate: 33.33%. Reduced rates: 15% applying to: - SME up to 38,120 of earnings (standard rate above this ceiling); - Profits resulting from an IP transaction (royalties, capital gains on sale of patent held for more than 2 years).
Corporate tax base Based on the profit generated by the French activity; Profit = Income Charges, (among which management fees and/or royalties paid to a parent company, to the extent that the amounts paid are consistent with the market price Tranfer price regulation).
Israel France bilateral treaty against double taxation (1995) Withholding taxes According to the double taxation convention signed between France and Israel in 1995, the following revenues paid by a French company to an Israeli company will be subject to a withholding tax: Dividends : 5%; Royalties: 10%; Capital gains: 18%. The Israeli company will then have to pay additional taxes in Israel, such that the total taxes on such revenues will be the corporate tax rate applied in Israel, which amounts to 26,5% (for 2015).
VAT VAT rate 20% (reduced rate for specific sectors, such as hotels, restaurants, etc.); No VAT on exports.
Incentives for innovation Research tax credit Tax rebate or set-off against the French company s tax liability; Tax credit rate: 30% up to EUR 100 millions of the R&D total expenditures, and 5% above this ceiling; Tax rebate after 3 years in cases where the Company does not owe any corporate tax during a year when R&D expenditures have been incurred; Immediate tax rebate for Young innovative companies and SME.
R&D expenditures are included in the tax credit, especially (with particular ceilings for some of them): Costs related to human and material ressources used for R&D, with the staff expenses related to recently qualified doctoral students being counted at 400% of their value for a period of 24 months from the recruitment date (including wages and social security contributions); Technology watch (up to 60,000 per year) & Patent filing and protection costs, even if these expenses were not incurred in France; 50% of standardization costs; Depreciation of patents acquired for research purposes; Consultancy fees incurred regarding the research tax credit application process that either exceed 15,000, excluding tax, or 5% of the research tax credit tax base Etc.
Innovative New company regime This system concerns enterprises created in the last 8 years, with less than 250 employees, less than 50 millions of turnover or 43 million asset, and that are owned by individuals at more than 50% or by companies that meet the same crioeria, and wihich R&D expenditures equal to or exceed 15% of the amount of their total charges; Tax Exemptions among which exemption of Corporate Tax: Total exemption for first profitable year, and then 50% tax relief for the following profitable year; The tax exemptions are capped to EUR 200,000 in any 3-years period.
Full exemption for 4 years from employer s social security contributions for employees dedicated to the R&D operations, and then diminished exemption for the following 4 years, with a double cap: - Individual cap: EUR 6.504 of the gross salary per employee and per month; and - Global cap: EUR 187.740 per company and per year. Exemption from capital gains relating to sale of the French company s share capital owned for at least 3 years provided that the seller and its relatives does not own more than 25% of the voting right/profit.
Example: Shemesh France SAS is developing an innovative software. It is eligible to the Innovative NewCo regime. For its first FY, it has generated a profit amounting to: 1,000,000 As a YIC, the corporate rate amounts to 333,333, but exemption in the 1st year: 0 Its R&D expenditures for its first FY 2015 are as follows: - Patent recording: 10,000 - Wages and salaries of 2 recently qualified young doctoral students, including social security contributions (to be double-counted): 100,000 - Other wages and salaries: 150,000 - Material (computers, etc): 100,000 - Total of the charges eligible to the credit tax: 460,000 Amount of the credit tax for the first year (30%): 138,000 Shemesh France SAS will be able to ask for an immediate payment in cash of the remaining tax credit.
Employment and competitiveness tax credit (Crédit d impôt pour la compétitivité et l emploi) The credit amounts to 6% of the compensations paid from January 1st, 2014 which does not exceed two and a half the minimum wage in France (SMIC). It is not capped and it is deductible from the corporate income tax. The remainder of the tax credit can be used to pay corporate tax due over the next three years. If no corporate tax is payable during that period, the credit is refunded in cash after three years. Certain companies like SMEs, innovative new companies (JEIs) and ailing companies may receive the credit immediately. The CICE only covers gross pay up to 2.5 times the statutory national minimum wage (SMIC). The CICE is calculated during the year the salaries are paid. The tax credit if not used in year N+1, may be transferred to a lending institution. SMEs will also receive a partial guarantee from Bpifrance to carry out this type of prefinancing at a commercial bank or be able to request prefinancing directly from Bpifrance.
Israel France Cooperation
France-Israel Industrial R&D Cooperation Framework - FIRAD The France-Israel Industrial R&D Cooperation Framework (FIRAD) promotes R&D collaboration between French and Israeli companies interested in jointly developing and commercializing new, innovative products, applications or services. FIRAD's mission is to foster collaborative R&D links between French and Israeli science and technology organizations and to assist in the establishment of long term French-Israeli alliances based on technological cooperation.
The DARE Program The French Tech Israel is the 2 nd hub of the French Tech and it was created right after New York. French Tech Israel is aimed to contribute to the globalization of the French entrepreneurs as well as to the French Tech s attractiveness to Israeli entrepreneurs. The DARE program is the first measure in this program. DARE France Israel is a contest open to French and Israeli start-up companies. The winners will be awarded a six-month acceleration program, which includes training and coaching sessions, a week of bootcamp in the other country and a personalized support by a network of strategic partners.
Thank you for your attention The materials available in this presentation are not exhaustive. They are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular situation, issue or problem. Use of and access to this presentation and/or information contained herein do not create an attorney-client relationship between Bersay & Associés and the user.
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