France has long laid out a welcome mat to international firms looking to grow their business. However, getting used to French working habits can be difficult and cross cultural awareness is essential.
France has long laid out a welcome mat to international firms looking to grow their business, more so since the business-friendly President Emmanuel Macron came to power in 2017. However, getting used to French working habits can be difficult and cross cultural awareness is essential. Having local help on hand can be a real asset when expanding to France.
But entering the French market is not without its challenges. Here are some key hurdles you can expect to face.
1. Brexit and trading across borders
In the race among European cities to benefit from potential relocations due to Brexit, France has clearly stepped up. President Macron has been focussed on corporation tax cuts, easing labour laws and an impactful 'Choose France' drive for inward investment. He has been leveraging the uncertainty, and this has led to a 16% increase in investment projects, including research facilities, factory openings and expansions, since 2016.
Paris' business district is in a building boom of new office buildings, which provide comparatively cheap office space, and a massive extension of the public transport system is underway. If Brexit means the loss of London's 'passporting rights', which allow international financial firms access to EU markets, it won't just be British-based businesses looking to relocate but also Asian companies planning to set up in Europe who historically have looked to London. Brexit could open up France to these new European entrants. TMF Group's broad footprint of local offices across EMEA are advantageous to those comparing the pros and cons of different locations.
2. Starting a business
France ranks 25th in the world for starting a business, according to the World Bank's ease of doing business report. It takes five procedures and three and a half days to set up, including registering with the Centre de Formalités des Entreprises (CFE) and having company books stamped and initialled by the clerk of the commercial court.
3. Labour laws
France's dismissal process has been eased, with a new standardised dismissal letter template drafted and published on the government website. The reason for dismissal can be quickly summarised in the template. There are still steps to take before the employee can be dismissed, but this is an improvement. Last but not least, the new labour law has now capped the redundancy indemnities based on number of years of seniority, this is indeed providing more transparency on rules and reducing risks linked to uncertainty for companies.
The redundancy process has also been ameliorated, with redundancy plans no longer needing to consider the financial health of other units of the same group outside of France; making it easier to close down French plants. Sizeable 'voluntary resignation' agreements will also be encouraged in order to avoid mass layoffs during redundancy plans. Various other changes are in discussion, so having local knowledge and support in this area is invaluable.
4. Getting electricity
Getting connected to an electricity supply can be an arduous task in France, taking around 70 days to be completed and five procedures. The application alone takes 20 days and obtaining a compliance certificate, another 20.
5. Registering property for an internet connection
Due to the historic nature of most French towns and vicinities, registering property can be long-winded and complicated, but getting an internet connection even more so! A private individual can get a connection in less than a week, however, for businesses, getting ADSL or Fiber takes more than two months. For VPN, even longer. Considering our hyper-connected world, this is indeed a challenge.
6. Getting credit
Access to credit is one of the most important requirements for expanding businesses, but is a notoriously tricky thing to achieve. France is home to a robust and contemporary financial system, but ranks 90th in the world for ease of getting credit, highlighting the importance of having local help when liaising with banks.
Even more important is highlighting that opening a bank account is a challenge for companies due to the rather administrative procedures surrounding the KYC processes of French banks, including AML and anti-terrorism financing regulations.
7. Paying taxes
President Macron recently announced plans to cut capital gains tax to attract business investment to France and restore damaged relations that resulted from corporate tax hikes. He has also updated employment law to make it more amenable to company requirements. However, the 2018 Financial Complexity Index ranks France 6th - an increase in accounting and tax complexity since its 11th placing in 2017. Although President Macron is making progress to make some areas less complex, 2019's planned move to withhold personal income tax at source and reflect it on monthly employee payslips may again increase complexity for businesses in the short term.
The French corporate tax rate for large companies has dropped from 33.33% to 28%, and it will be progressively reduced to 25% for the 2022 financial year.
The standard VAT rate is 20%, personal tax rates go up to 45% (in tranches). From 2018, a single flat rate capital gains tax of 30% is applied on savings and investment income and gains. Further information on foreign companies paying tax in France can be found here.
Businesses are required to make nine tax payments per year, and taxation can take a significant chunk of money from company's earnings.
8. Enforcing contracts
France has a modern legal system which is well equipped to enforce contracts in good time. It takes an average of 395 days to enforce contracts, which is well below the OECD average of 577, and ranks France 15th in the World Bank ease of doing business report on this topic.
9. Resolving insolvency
Resolving insolvency is a streamlined procedure in France, and the recovery rate of 73.5 cents in the dollar is a little higher than the OECD norm. However, it is a slow process, taking an average of one year and nine months and it is also influenced by rather long payment terms in practice, although the LSF (Loi de Sécurisation Financière) did significantly help to reduce payment terms to a more acceptable level: capped at 60 days in theory.
Adapting to French business culture is important when considering cross border moves. Formality is important and the French are extremely proud of their language. Their passion for good food and wine should be observed, and businesses which appreciate differences in etiquette, approach and style in business are most likely to succeed.
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TMF France has the local knowledge to help you identify and face any challenge or opportunity for your business.
Whether you want to set up in France, or need help to streamline your existing French operations, ask us a question today.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.