A foreign company willing to set up in France has three options:

• A liaison office
• A branch
• A subsidiary

Depending on your objectives, the degree of autonomy you want to give to your new French office and the resources allocated to the project, understanding the key differences between the three options will help you to start off on the right foot.
What are their respective roles? The pros and cons? Here is everything you need to make a first assessment.

Step 1 – The liaison office – a lightweight solution

Simple structure to set up, the liaison office has no legal or tax personality and no assets of its own : it belongs entirely to the parent company.
It is first and foremost a legal way of carrying out your market research as well as prospecting and gathering information. Your parent company is in full control.
A legal representative is in charge of management, its actions limited to dealings with various parties such as suppliers and potential customers. Only can it represent your company and promote your image with the aim of paving the way for the next steps.

Pros :
• Low set-up costs
• Low admin burden: no bookeeping, no corporation tax, no VAT.
• Your parent company is in full control and leads all commercial actions.
• Simplified registration process:

1. Address (it will appear on the legal documents)
2. Declaration of existence with the INPI.
3. Trade registration with the RCS, only if you need to open a bank account.

Cons :
• Limited lifespan (around three years)
• The liaison office cannot receive customer orders, sell anything or sign contracts.
• No decision-making authority. Then, in the event of debt, mismanagement or a criminal offence, the legal representative is not liable, the parent company is.
• No commercial activity. The parent company must be extra careful, otherwise the liaison office could be requalified as a permanent establishment. At the risk of being reassessed, it will be subject to the same legal, tax and financial obligations as a branch.

Step 2 – The branch – an intermediate solution

Like the liaison office, the branch has no legal personality of its own and no assets of its own. It is a structure defined as a secondary establishment, exempt of VAT. The branch office must be identical to the parent company and also must report to it.

Financially and commercially attached to the parent company, the branch nevertheless has autonomy of management and direction. It is headed by an expatriate employee and manages its own commercial activities and relations with customers and suppliers.

Subject to the same tax and accounting obligations as any French company, the branch is taxable in France on the profits it makes from its operations (no double taxation for the parent company in case of a bilateral agreement between France and its country of origin). Lastly, the branch incurs the liability of the parent company in the event of disputes, litigation or insolvency.

Pros :
• Simple process for registration, same as the liaison office with the starting capital of €0.
• The branch allows the parent company to develop its business identically on the French market.
• The branch is entirely dependent on the head office and receives help and assistance from it. The parent company can manage the branch more effectively in its decision-making.
• As the branch is not a company incorporated under French law, it is not required to file annual accounts or hire external auditors.

Cons :
• A branch is subject to all commercial taxes. Profits made on French territory must be declared and are taxable.
• The branch is advised to keep its own accounts. The parent company has a duty to include the assets and liabilities in its balance sheet. In the event of a tax audit, the French authorities may require accounting documents translated into French (balances, ledgers, etc.).
• The branch is mainly limited to the activities of the parent company, which makes it more difficult for it to develop in other areas.
• The lack of legal personality means that the parent company has to sign all the contracts.
• The parent company is liable for all the debts of the branch, which may expose shareholders to financial risks.

Step 3 – The subsidiary – the stable and long term solution

Setting up a subsidiary = setting up a French company. Same legal, tax and social rules and regulations to follow than any other companies in France. If the parent company controls more than 50% of the capital it is then controlled by the parent company.
A subsidiary has its own right with its own legal personality and its own assets. It is therefore taxable in its own name.

Pros :
• Same incorporation formalities as for a French company.
• Self-managing, with no restrictions, and remains free to decide on its commercial strategy and to explore any economic opportunities on the French market.
• A subsidiary offers greater liability protection for the parent company and its shareholders. In the event of a fault, the parent company’s liability may be limited to the amount of its capital contribution.

Cons :
• Setting up a subsidiary can involve significant investment costs, depending on the type and the scale of your project (i.e. manufacturing plant)
• A subsidiary may have to deal with regulatory, social and cultural standards different from the country where the parent company originates, hence the importance to build an accurate knowledge around the areas of tax, labour and corporate French laws before the set up in France.
• In the event of unprofitability or financial losses, the subsidiary may be sold to another national company, which may give rise to complex and costly legal and financial negotiations.

You have now knowledge to make a first choice depending on your project, bearing in mind than you can move from any step to the step above to a more engaging form of layout.

HODL Consulting team has more 10 years of experience in dealing with foreign companies in France. Give us a call to discuss your project or follow us on our social networks to get more information about investing in France.