These reforms have been accompanied by strong support for an enterprise culture, particularly through the introduction of a simplified legal status for the self-employed (auto-entrepreneur status).

Labor law has been made more flexible, allowing employees to work longer hours, giving businesses greater freedom to organize employee working hours and ensuring greater democracy in the workplace.

Tax cuts have been introduced both for individuals – and expatriates in particular whose tax position has been further improved – and for companies, whose new investments are now exempt from local business tax. The removal of this tax on productive investments has applied to new investment flows as well as existing investments as of the beginning of 2010.

Corporate law has been simplified and modified.

Modernization of regulations governing financial asset management are due to bolster the standing of the Paris investment market and make the French legal environment even more attractive to portfolio managers, investors and savers alike.

Moves to encourage innovation have been made through a number of new measures, from improving the terms of research tax credits and simplifying the patent filing system to extending high-speed broadband internet access.

France, A new tax El Dorado for holding Companies?

If the Netherlands and Luxembourg are traditionally the preferred gateways for international groups. investing in Europe, France has now become one of the most attractive countries in which to set up holding companies.

Tax incentives in France include the following:
There are no duties when registering newly formed companies
Contrary to what is practiced in certain countries,
France fully exempts nearly all company setups from registration duties.

The French tax system presents numerous advantages concerning the tax liabilities of holding companies that mainly hold and manage equity shares.

Subsidiaries
Subject to the reinstatement of a share of expenses allocated to dividend income that may be set at the fixed rate of 5% of total equity income, any dividends received by holding companies are exempt from corporate tax on the condition that:

• They emanate from subsidiaries in which they hold more than 5% of equity (Luxembourg and the United Kingdom require a higher level of ownership),

• The shares are fully owned and have been held for a minimum of two years.

Equity share transfers
Any capital gains realized upon transfers of equity shares, with the exception of those of companies holding predominantly real estate assets, and which have been held for at least two years are tax-exempt subject to the reinstatement of the share of expenses allocated to dividend income set at 5% of the net result of equity share transfer capital gains, i.e. an effective tax rate of 1.67%

Be deducted
Interest expenses are, in principle, tax-deductible whatever their purpose (acquisition of a subsidiary or other assets). French thin-capitalization rules are very favorable, providing more security than they create constraints.

Contrary to the Netherlands where acquisition costs have not been tax-deductible since February 2005, equity share purchase duties (transfer duties, commissions paid to intermediaries, fees, etc.) are deductible over a 5-year period.

French tax law allows a French holding company to be the sole taxpayer for the corporate tax owed by those French subsidiaries in which it holds at least 95% of the share equity. As such, this option allows, at the holding company level, the losses suffered by certain group companies to be aggregated with the other companies’ profits, thus reducing the French group’s overall tax burden.

Any losses that cannot be offset may, with no limit to the amount, be carried forward indefinitely (contrary to the Netherlands, which sets a carry-forward time limit for such tax losses and Germany, which limits the sums which can be offset).

The ability to combine the tax-consolidation system with deductions of interest expenses is unique in Europe and places France among the top countries for groups wishing to set up a holding company on the “Old Continent”.

France is the world’s third leading recipient of foreign investment - second only to the U.S. and China, and this is the result from the changes.


                                                                                   Cecilia Helland