TLDR: Foreign companies in France are subject to tax restrictions based on their headquarters, the presence of a permanent establishment, and the nature of their activities. Key rules include the presumption of distribution of profits earned in France, withholding tax on distributed dividends and profits, and restrictions on deductions for payments to non-cooperative countries. Companies headquartered in the European Union or the European Economic Area (EU/EEA) benefit from specific exemptions, while those outside the EU/EEA face stricter controls, especially in the absence of international conventions against tax fraud.
Presumption of profit distribution and permanent establishment
In France, foreign companies with a permanent establishment are subject to a presumption of profit distribution for profits earned on French territory to non-resident partners. This presumption triggers a withholding tax on presumed distributed profits, unless the foreign company proves that the profits were not actually distributed or that the beneficiaries are based in France.
Exemption from this presumption is granted to companies with their effective management headquarters in an EU/EEA country, provided they are subject to a tax equivalent to the French corporate tax without the possibility of opting out or exemption. Specifically, the company must not benefit from specific exemptions on presumed distributed profits. If the foreign company is subject to a reduced tax rate, the withholding tax exemption remains valid only if the advantage does not apply to the presumed distributed profits.
For foreign companies that do not meet these conditions, the presumption of distribution applies automatically, with the obligation to pay the withholding tax. However, it is possible to request a reassessment of the withholding tax if it can be demonstrated that actual distributions are lower than the presumed taxed profits, that the beneficiaries of the distributions have their tax residence or headquarters in France, and that the taxed amounts have not been reinvested outside French territory. The request must be submitted using form n° 2777-D-SD (CERFA n° 13685).
Withholding tax on dividends and distributed profits
Foreign companies operating in France through a permanent establishment must declare profits earned on French territory and pay withholding tax, unless otherwise provided by international conventions against double taxation. These conventions may reduce or eliminate withholding tax, depending on the terms negotiated between France and the company's country of residence.
Deduction restrictions for payments to non-cooperative countries
Foreign companies headquartered in non-cooperative third countries are subject to deduction limitations. Specifically, payments made to entities residing in these countries are not deductible from the corporate tax base in France. This restriction applies to all amounts covered by Article 238 A of the French Tax Code (CGI), including interest, royalties, and services.
Reporting obligations and taxation of real estate assets
Foreign companies holding real estate in France are subject to an annual 3% tax on the value of the real estate, unless their country of residence has concluded an administrative assistance convention with France aimed at combating tax fraud or evasion. This tax applies automatically in the absence of such a convention, as confirmed by the jurisprudence of the Court of Justice of the European Union (CJUE), which ruled the measure legitimate to ensure the effectiveness of tax controls.
Transfer of residence and taxation of capital gains
Foreign companies that transfer their tax residence outside France may be subject to immediate taxation of unrealized capital gains, whereas for French companies, taxation occurs only upon the actual realization of capital gains. The CJEU has ruled that this difference in treatment may constitute a restriction on the freedom of establishment guaranteed by EU treaties.
Exemptions for maritime or air navigation companies
Foreign maritime or air navigation companies are exempt from tax in France if a reciprocal and equivalent exemption is granted to French companies of the same nature, as established by diplomatic agreements.