FRANCE LAW AND PRACTICE Contributed by: Michael Doumet, François-Xavier Naime, Guillaume Nataf, Léna Sersiron, Eléonore d’Anthonay, Nella Picou, Pauline Celeyron and Magalie Dansac Le Clerc, Baker McKenzie Paris
Interest Interest payments are exempt from withholding tax unless paid in an NCJ, where a 75% rate applies. Royalties Royalties paid by a French resident to a foreign resi - dent are subject to a 25% withholding tax, increased to 75% for NCJs (subject to the safe harbour rule). Intra-group royalty payments between EU companies are exempt if certain conditions are met. Double tax treaties generally reduce the applicable withholding tax rate to between 0% and 10%. Payments and Fees Payments for services provided or used in France by a foreign resident with no permanent establish - ment in France are subject to a 25% withholding tax, increased to 75% for NCJs (subject to the safe har - bour rule). Most double tax treaties eliminate such withholding tax. Limitations Please note that the availability of any withholding tax or treaty relief mechanisms is subject to the following: • appropriate formalism; • beneficial ownership; and • anti-abuse and anti-treaty shopping provisions. 9.3 Tax Mitigation Strategies Any tax mitigation strategy must be driven by strong business rationale. Anti-abuse rules may apply. When acquiring a business, the acquisition structure significantly impacts the taxes payable. Acquiring shares in a company incurs a lower transfer tax rate (0.1%) and allows retention of the target’s tax loss - es but does not allow a step-up in the depreciable basis of the assets. Conversely, acquiring the busi - ness and assets directly triggers a higher transfer tax rate (approximately 5%), immediate taxation of latent capital gains and profits, and the forfeiture of any unused tax losses – but it also results in a step-up in the depreciable basis of the acquired assets. Financing an acquisition with debt allows interest deductions if the debt is supported by business reasons rather than driven primarily by tax consid -
eign companies doing business in France. Cross-bor - der transactions are subject to special rules. Transfer Tax Transfer tax applies to certain asset transfers, with rates varying based on the transaction types, such as the following: • transfer of a stock company’s shares – 0.1% (intra - group exemption available); • transfer of a non-stock company’s interest ( parts sociales ) – approximately 3% (intragroup exemp - tion available); • transfer of a land-rich company’s shares – 5%; • transfer of a going concern, client base or assimi - lated assets – approximately 5%; and • transfer of real estate assets – generally approxi - mately 5.9% to 6.3% (0.6% surtax for office, commercial and warehouse assets located in Île de France), with lower rates available subject to com - mitments to build/resell. Other Taxes French resident companies and French permanent establishments may also be liable for other taxes in France. Notable examples are business property tax, business VAT, companies’ social security contribution, local property taxes, and payroll tax. 9.2 Withholding Taxes on Dividends, Interest, Etc Dividends Under French domestic law, dividends paid by a French opaque company are subject to the following withholding tax rates: • 25% for foreign corporations; • 12.8% for non-resident individuals; and • 75% for certain non-compliant state jurisdictions (NCJs), subject to the safe harbour rule. These rates can be reduced through double tax trea - ties – generally to 15%, 5% or even 0% in certain situations – or through the parent-subsidiary regime, which allows a full exemption for companies in the EU or the European Economic Area (Norway and Iceland) that meet specific conditions (eg, 10% ownership for two years).
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