Every foreign company that wants to open an establishment in France without necessarily moving their headquarters to the country has three main options.
It depends on the degree of independence from the parent company that they would like for their secondary establishment, as well as its purpose.
In that regard, a foreign company, with a physical address in France, can choose to open a “bureau de liaison”, which is the French equivalent of a representative office, a “succursale”, or branch office, and a “filiale”, whose activity is that of a subsidiary.
While a representative office and a branch office depend more on the laws of the country where the headquarters are, there are still some aspects to take into account when creating either one in France. On the other hand, the subsidiary depends entirely on the French law and is considered as a resident company.
THE REPRESENTATIVE OFFICE
A representative office is a secondary establishment used mainly to expand the international image of a company. Its activity is non-commercial and its purpose is mostly focused on the prospection in the country where it is created, as well as studying the market to determine the degree of success should the parent company decide to carry out its commercial activity there.
This is an optimal solution for companies that don’t have a big budget as it’s the least expensive type of secondary establishment and allows for knowing in advance the risks of developing their activity in France. However, this type of establishment is conceived to last for a short term and it’s advised to evolve to other form after a maximum of five years.
With regards to opening a representative office in France specifically, it’s important to know that while it’s not compulsory to register the company in the Commercial Court (as mentioned above, its activity is exclusively non-commercial) neither in the registry of companies, it’s highly advisable to at least be registered in the latter. By registering, the representation office obtains a ‘k-bis’ number, which is required in most cases when interacting with third parties. Additionally, it’s compulsory to have an address in the French territory as well as a legal representative in the country.
The dependence of a representative office to the parent company is complete, and it’s considered as a non-resident company. For this reason, it’s normally exempt from paying the taxes in France (except the residence tax, which has to be paid).
THE BRANCH OFFICE
A branch office is a secondary establishment that depends on the parent society in terms of capital and legal status and which acts in its name in a different location. This type of establishment can, unlike the representation office, carry out commercial activities in the foreign countries.
Nevertheless, this also means that they have to be registered in the Commercial Court and they are subject to all the taxes that a resident company faces, although they have a non-resident status. Its activity is indeed the same as that of the parent company, even though the branch office can decide, for example, how to manage its merchandises, propose new ways to develop the business, and has its own clientele, different from that of the parent company. As in the representation office, a representative with the power of decision over the branch office is necessary.
Because the branch office doesn’t have its own capital, it’s not mandatory for them to declare their annual revenues in the Commercial Court, which they only have to do in case of fiscal investigation. However, it does have to keep a track of its accounts as the parent company has to declare the activity of the branch office. Indeed, the taxation normally takes place in the country where it is implanted and not in both. It’s important to mention that, in case of debt, the parent company has to back the branch office up with its capital.
This type of structure is often used by banks and other finance-related companies.
THE SUBSIDIARY
A subsidiary is the most independent secondary establishment as it has its own legal form, the resident status in the country where it’s implanted, may choose its own name and, in certain cases, can decide on its professional activity.
Like in the case of a branch office, it is has to be registered in the Commercial Court and is subject to all the taxes, and additionally, it also has to keep its own accountancy and present it on a yearly basis.
In France, the process to create a subsidiary is exactly the same for French companies as it is for foreign ones. In the case of a subsidiary, whether the parent company is French or from abroad, the parent company doesn’t have to respond for the debts of their secondary establishment, and it has to ensure its legal and economic independence.
The parent company owns compulsorily more than 50% of the capital of the subsidiary. In case of transferring funds between the parent company and the subsidiary without any justification or their capitals aren’t distinguished, the latter can be considered as a shell company.
This type of establishment is more suitable for foreign companies that wish for their secondary establishment a resident status in the target country and want such establishment to enjoy a higher degree of independence.