A brief overview of french Corporate TaxationCorporate Tax law, Corporate Taxation Wednesday, July 28th, 2010
Corporation tax is a tax, in principle payable annually, on all profits generated in France by companies and other legal entities. It concerns about a third of French companies.
1. Value Added Tax (in French Taxe sur la Valeur Ajoutée – TVA)
Subject to very limited exceptions, all economic activity in France is subject to VAT. VAT is not an expense for the company, as input VAT can be offset against output VAT.
There are several different rates, which are currently applicable, but the common rate is 19.6%.
The collection of VAT and the form-filling associated therewith is considered nevertheless by many to be a considerable burden upon the company, especially upon small and medium sized entities. The highest attention should be paid to VAT aspects of international transactions.
It is to be noted that EU companies no longer have to appoint a tax representative in France for most of VAT-related issues.
2. Stamp or Registration duties.
Stamp or registration duties are payable on transactions on shares, real estate, intangible assets of all business entities. They also apply to donations, successions, leases and some specific types of contracts.
Rates vary from 1% to 15%. They are payable by the buyer or the tenant, but payment may also be claimed from the seller in certain cases.
1. Corporation Tax
Most French limited liability trading companies, Sociétés Anonymes (SA), Sociétés par Actions Simplifiées (SAS), and a majority of Sociétés à Responsabilité Limitée (SARL), are subject to the Impôt sur les Sociétés (I.S.) being the French equivalent of Corporation Tax.
This tax is payable upon the net profits of the corporation and the rate is currently fixed at 33.33%, plus a surtax of 3%, which brings the effective tax rates to 34.33%.
A reduced rate applies to a limited number of Long Term Capital Gains.
The net taxable profit is the trading income as determined in the financial statements prepared in accordance with generally accepted accounting standards, subject to adjustments concerning inventories, reserves, capital allowances, relief for tax losses, and groups of companies.
2. Other significant direct contributions and taxes
Social security contributions are levied on gross salaries at 35 to 45% for the employer, and 14 to 20% for the employee.
Separate general social security contributions are levied on all income at a rate of generally 10% in most cases.
A specific local business tax, known in French as the Taxe Professionnelle (T.P.), is payable by all French business entities, be they companies or individual undertakings. The calculation thereof is based upon the annual rental value of their tangible assets linked to a proportionate amount of the overall salary bill, (although the component based on salaries is gradually disappearing). The average annual rate is 22%, but it varies according to the geographical location of the business entity.
A number of tax rules prevent or penalise indirect transfers of profit abroad, repatriation of profits originating from a Tax Haven, and fraudulent transfers of tax residence.
The legislation on transfer prices is similar to that of other European countries.
The treaty network is pretty much developed, with 91 countries.
The foregoing is not intended to be exhaustive and for specific information on French Tax Law please click here.
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