Invest in France Agency international Office

Ambitious reforms

For the past five years the French government has been pursuing an ambitious policy to reduce corporate taxation, with particular benefits for foreign investors: capping of business tax at 3.5% of added value, infinite loss carry-forwards, phasing out of tax on stock options, reform of research tax credit, reduction in patent license rates, a range of tax relief measures in favor of new innovative companies including social security payment exemptions for the first 8 years.

French tax rates on a par with the European average

The corporate tax rate in France has come down from 50% in the 1990’s to 33.33%. It is now on a par with the average tax rate in other developed countries. Moreover, the temporary 1.5% surcharge was phased out in 2006.

On a European level, comparisons between nominal corporate tax rates show that: 
• France is higher than Germany (with a rate of 25%) but that the methods of assessment are more favorable in France, which brings the actual tax burdens into line,

• The French rates of tax are similar to those in many other European countries including the Netherlands (29.1%), the United Kingdom (30%) and Italy (33%).

The base figure of 33.33% does not truly represent the business tax environment in France because it is incomplete. A true tax comparison should also take into account other taxes that weigh on company profits: business tax and other local taxes. In this respect, France at 34.9% ranks ahead of Germany (38.7%), Italy (37.3%) and Spain (35%).
Comparisons between companies should also take into consideration rules for determining the basis of assessment used to calculate tax. French regulations regarding depreciation, which have recently been improved, are now among the most favorable in Europe and contribute to lowering the actual amount of tax to be paid.

A more modern and attractive tax system

In more general terms, the government is attempting to reduce compulsory withholding (taxes, duties, social security contributions) which weigh on businesses and households. The positive impact of these measures on the economic attractiveness of France in terms of tax and regulatory environment for financial investment, can be seen in the results of the latest report published by the European Association of “Venture Capitalists” (EVCA). For the first time, France is ranked among the top three, moving from 10th position in 2004 to 2nd position in 2006, after Ireland and ahead of Great Britain.
Finally, the tax administration has undergone restructuring to provide a modern quality service for businesses, by developing “rescrit” advance ruling procedures in order to improve investors’ legal and fiscal security; contacts with the administrative services have been simplified with the introduction of a single tax office for businesses and online tax return filing and payment.

Transparent, reasonable and ensuring full legal security for investors, the French tax system has proved its capacity to carry out ambitious and rapid reforms (Barometer of tax competitiveness 2007 – Ernst & Young).

What are the advantages of a withholding policy?

On an individual level and on a business level, it is important to underline what these taxes are used to fund: they prove to be financially advantageous for both the family unit and for businesses.

Taxes in France are used for example to finance a free high quality educational system, the best healthcare system in the world which is available to everyone, dense and highly efficient transport and telecommunications networks, a high level of public security, public financial support for R&D activities… Each person living in France and their family benefit from a favorable environment in all these areas.
These “public services” are provided by the French State and not by private businesses.

Business creations and extensions or developments can also benefit from public financial support, particularly for their R&D activities, which is also funded by taxation.