Entering the French market – what do you need to know?

If you are thinking of entering the French market, this is your moment.

Following Macron’s promise on Twitter to make France “a start-up nation“, France seems ready to compete with Silicon Valley as a hub for entrepreneurs. Take, for example, the newly opened “Station F” – the largest start-up campus in the world. This innovative entrepreneurial hub shows that France is well aware of the ongoing technological revolution and is evolving with it.

Another initiative funded by the French government is “La French Tech”, a network of start-up ecosystems that aims to accelerate the growth of start-ups in France. La French Tech promotes French innovation whilst attracting foreign start-ups to the country. This demonstrates once again the determination of the French government to gain a reputation as a country of innovation.

France knows that the best way to stimulate its economy is by investing in start-ups and small companies. For this reason, France has the most generous tax credit schemes and government subsidies in Europe, making it the ideal place for start-ups and small companies to invest.

The JEI status (Jeune Entreprise Innovante) and a CIR tax credit (Credit Impôt Recherche) allow firms entering the French market to enjoy tax exemptions such as a reduction of the French social security contributions during their initial few years. This is such a generous scheme that Google and Microsoft decided to set up their R&D centres in Paris.

Having said this, there are some challenges to be faced when entering the French market. The French have a penchant for bureaucracy and paperwork which means there are a few extra hoops to jump through. Read on to find out more about these challenges and how to tackle them.

1. Opening a corporate bank account

In the US or the UK, setting up a corporate bank account is usually quick and easy. However, in France, it is not unusual for the procedure to last a few months – it has become much more difficult to open a bank account than to register a new company. Regulations have become much more stringent since the application of FATCA in Europe. Banks now have good reason to refuse to open an account, whereas previously it was just a formality.

Simply put, opening a corporate bank account in France is a time-consuming process that can slow down business expansion. But do not be deterred! Knowing what to expect and what to do is essential. With experience in this field, we know and can foresee the inevitable hurdles in order to keep entrepreneurs one step ahead. Furthermore, the lucrative opportunities in the French market easily offset this slight difficulty. And put it this way; if it was easy, your competitors would already be here!

2. The level of corporate tax

French corporate tax is a matter of politics, rather than economics. The government oscillates between increasing tax to fund the state (thus pleasing political figures) and granting tax credits to encourage business.

The corporate tax rate amounts to 33.3% but the aforementioned tax exemption can help you retain your profit. If you are an innovative company, you are most likely to benefit from a 3-year exemption starting right at the incorporation step, offsetting the cost of international development.

3. Incorporation

Choosing the right legal structure for your venture in France can be challenging, and the process isn’t as speedy as it is in the UK.

Here’s our insight into this learning curve:

• Starting out as a liaison office will allow you to disclose an address and get registered in the administration database as an existing office. This is a handy solution for first contact relations with third parties, prospects, administration etc. This way, you are identifiable through an address in France but require no financial statements or VAT registration. (You are also invisible to competitors!)
• Upon the recruitment of your first employee, the liaison office turns into a branch, making you a non-resident employer. This requires you to be registered at the social contribution body (URSSAF for non-residents).
• As soon as you need a visible entity in France (for billing purposes, credibility or financial visibility) you will need to incorporate. The best practice for a non-resident investor is to incorporate as an SAS with an appointment of a national as a CEO and a non-resident as a chairman.

Maupard’s top tips for entering the French market:

1. Anticipate the delays of the administrative procedures to meet your deadlines! The market can be competitive – understanding regulations can often be the difference between success and failure.

2. You do not need to incorporate an entity as a start. Representation through a Liaison office or Branch can be a cheaper way to start out and operate in France on a remote basis as much as possible during the starting period.

3. Have the right supporting documentation ready. The French administration is very formal and if you lack the requested supporting documentation, it can be perceived as disrespectful. Being prepared will add to your competitive advantage.

4. To be fully prepared for incorporation, we advise registering VAT in advance, introducing a ruling request for R&D credit tax before starting your project and setting up your administrative address, even if there is no business yet.

Author: Emily Axelsson – Business Developer at Maupard Fiduciaire