Subsidiary vs. Branch in France - 2023 Procedure
Subsidiary vs. Branch in FranceUpdated on Thursday 16th March 2023
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Setting up a subsidiary or a branch in France is a great way for foreign companies to expand their activity. The most notable difference between the two forms of legal entities is their dependence (or lack thereof) upon the foreign parent company. Below our lawyers in France make a brief comparison between the branch office and the subsidiary in this country. We can also help with the registration of these business forms.
Most of the times, foreign companies find it hard to decide between subsidiaries and branch offices, which is why our lawyers in France have made a comparison between the two types of structures covered by the Commercial Code. We also offer specialized assistance in opening both branch offices and subsidiaries in France with the formalities for 2023.
Requirements for subsidiaries and branches in France
In terms of requirements for opening a branch or a subsidiary in France, both companies will need the same:
- both types of entities are considered tax residents in France, therefore they will need registered or legal addresses here;
- both types of structures will need to have their own statutory documents filed with the French Companies Register;
- the opening of separate bank accounts from those of the parent company is mandatory only in the case of the subsidiary;
- the foreign company is required to obtain the necessary licenses and permits which enable the branch or subsidiary to operate in France;
- both types of entities must register with the French tax authorities and obtain tax and VAT numbers.
When it comes to the business permits of a subsidiary, this can complete additional services than the parent company, therefore the licensing requirements can be more extensive. Reffering to the share capital requirements for opening a branch or a subsidiary in France, things are radically different, because the subsidiary needs to fulfill the share capital requisites in accordance with the chosen type of structure. Considering the subsidiary can be established as a private limited liability company or a public company, the foreign company must secure at least 37,000 euros in the case of the public company.
When deciding for a French branch office, there is no minimum share capital to be deposited, however, the foreign company must decide on the amount needed based on its operations and costs associated with doing business in France.
One should note that the registration of a branch in France doesn't exceed 3 weeks. On the other hand, compared to branches, subsidiaries are subject to several formalities and preparation of documents, which is why international investors need representation and guidance.
Here is an infographic with more details:
The branch office in France
A foreign branch is an extension of the parent company in another country. It has no independent legal personality and reports directly to the foreign company headquarters. Because this type of company does not have a separate identity, the laws and regulations that apply to the foreign company also apply to it. One advantage for the branch deriving from its dependence upon the foreign parent-company is that the latter is financially responsible if the branch encounters financial issues.
The parent-company benefits from the rights acquired by the branch. However, the branch does bear responsibility for goods and has a business initiative. It deals with its clients directly but it still acts on behalf of and in the best interest of the parent company. In order to set up a branch of a foreign company in 2023, the following documents must be submitted in French (translated by an authorized translator when necessary):
- an application form issued by the French Trade Register for registering a branch;
- copies of the Certificate of Incorporation of the parent company issued by the Trade Register in its home country;
- the Memorandum and Articles of Association of the parent-company (translated into French);
- the documents of incorporation of the branch office which must be notarized by a French public notary;
- information about the representative of the foreign company who will represent the branch office in relation with the French authorities.
The company must have a registered office in France and present a proof of possession for the premises in which it will operate. The branch must be registered with the Trade Registry. After its registration, the company must also be registered for VAT. The branch must have a person entitled to act on behalf of the company.
International investors interested in forming a branch in France as a French SARL must consider the incorporation fees. Thus, the company registration fee is around EUR 65, while around EUR 1,000 is the company formation fee which includes personalized services and features.
Opening a subsidiary in France in 2023
Companies that want to establish a permanent entity in another country may prefer to set up a subsidiary: an autonomous company incorporated under French law and governed by it. Legally, 50% of a subsidiary’s capital is owned by the parent company. The latter may still have a decisive influence in managing the subsidiary, due to the amount of share capital it possesses. The parent-company will not be liable for the debts of its subsidiary. The French subsidiary acts in its own name and only follows general goals from the parent company. A subsidiary may have certain tax benefits and it will pay all applicable taxes.
The legal entities under which a subsidiary may be established are: SARL (limited liability company), EURL (single owner limited liability company), SA (public limited company), SAS (simplified joint stock company) or SNC (general partnership).The documents need to open a subsidiary in France are:
- the company’s incorporation documents which must be drafted and notarized by the public notary;
- information about the parent company, such as its date of incorporation and objects of activity;
- information about the legal representatives of the French subsidiary, whether hired in France or sent from the home country of the parent company;
- the specific application form issued by the Companies Registrar in France.
Although a branch has the advantage of conquering a larger geographical region and it is protected in many aspects by a powerful company, a subsidiary may find the advantage of certain benefits when acting as a locally incorporated company.
Accounting requirements for subsidiaries and branches in France
One of the most important requirements which need to be considered when having to choose between a French subsidiary company and a branch office is related to the accounting regulations these are subject to. This aspect is important because the subsidiary is considered a French tax resident and must comply with the accounting standards imposed here. The subsidiary must file VAT returns on a monthly or quarterly basis and file its tax returns on an annual basis.
The accounting requirements for a branch office in France are different because both the French company and the parent company must comply with the accounting standards imposed in this country. The branch office is required to file monthly VAT returns and annual tax returns; however, the parent company is also required to send its annual accounts and information about the French branch office’s assets and liabilities with the local Trade Register. Also, it is the branch office’s responsibility to maintain its own accounting records. It is not mandatory for a branch office to have a French bank account.
Branch or subsidiary in France?
The representatives of foreign companies facing a choice between a branch office and a subsidiary in France can take into consideration the following facts:
- the subsidiary is a totally independent business form which allows it to complete other activities than the parent company;
- the branch office cannot carry out any business activities outside the scope of the foreign company;
- from a taxation point of view, the subsidiary will be taxed on its worldwide income in France;
- the branch office will be taxed only on the income generated in France;
- the branch office is considered a permanent establishment and falls under France’s double tax treaties;
- the subsidiary can benefit from numerous tax exemptions or deductions if considered an SME;
- when it comes to the costs of incorporation, it is cheaper to open a branch office.
Find in the video below the main differences between French subsidiaries and branches:
Business registration services offered by our lawyers in France
Foreign investors and companies seeking to register companies in France in 2023, respectively branch offices or subsidiaries here can rely on the legal services offered by our French law firm. We offer personalized solutions related to the registration of various business forms. Foreign companies seeking to establish branches or subsidiaries in France can also benefit from tailored advice in choosing the best option in accordance with their market expansion plans.
We can draft the necessary documents for a faster incorporation procedure and we also offer virtual office services which can be very useful when setting up a branch office in France. We can also help with the creation of a bank account for companies setting up subsidiaries in France, as this procedure is more time-consuming. If you need legal advice related to the tax laws imposed in France, you can ask our lawyers about every aspect related to the taxation of your business here.
In the case of the corporate tax in France, this is levied on the total income of the subsidiary established in this country. As an example, if such a structure is formed as a limited liability company, the minimum amount is EUR 3,000, while EUR 1,750 is imposed to joint-stock companies.
If you need legal advice or assistance for opening a branch or a subsidiary in France in 2023, you may contact our French lawyers. You can rely on us for professional assistance in opening any type of company in France.