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01 September 2021
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6 minutes

Top 9 challenges of doing business in France

France has long laid out a welcome mat to international firms looking to grow their business. However, getting used to French working habits can be difficult and cross-cultural awareness is essential.

France has a history of welcoming international firms looking to grow their business and this approach has continued since the business-friendly President Emmanuel Macron came to power in 2017.

 In January 2019, at the ‘Choose France’ summit, the government reiterated its desire to promote the attractiveness of France and encourage foreign investment. ‘La French Tech’ – the startup scene in France – has been established, bringing together investors, startups, policy makers and community builders, with the mission to make France “one of the greatest places in the world to launch and grow global companies”.

However, entering the French market is not without its challenges. Getting used to French working habits can be difficult and cross-cultural awareness is essential, so having local help on hand can be a real asset when expanding to France.

Here are some key hurdles you can expect to face.

1. Brexit and trading across borders

In the race among European cities to benefit from potential relocations due to Brexit, France has clearly stepped up. The French government has been increasingly focusing on corporation tax cuts, easing labour laws and an impactful ‘Choose France’ drive for inward investment. It has been leveraging the uncertainty, and this has led to a 16% increase in investment projects, including research facilities, factory openings and expansions, since 2016.

Paris’ business district is in a building boom of new office buildings and a massive extension of the public transport system is underway. TMF Group’s broad footprint of local offices across EMEA are advantageous to those comparing the pros and cons of different locations.

2. Starting a business

France ranks 37th in the world for ‘ease of starting a business’, according to the World Bank’s Doing Business 2020 report. It takes five procedures and four days to set up, including registering with the Centre de Formalités des Entreprises (CFE) and having company books stamped and initialled by the clerk of the commercial court.

3. Labour laws

France’s dismissal process has been eased, with a new standardised dismissal letter template drafted and published on the government website. The reason for dismissal can be quickly summarised in the template. There are still steps to take before the employee can be dismissed, but this is an improvement. Last but not least, the new labour law has now capped the redundancy indemnities based on a number of years of seniority. This is providing more transparency on rules and reducing risks linked to uncertainty for companies.

The redundancy process has also been improved for employers, with plans no longer needing to consider the financial health of other units of the same group outside of France, making it easier to close down French plants. Sizeable ‘voluntary resignation’ agreements will also be encouraged in order to avoid mass layoffs during redundancy plans. Various other changes are in discussion, so having local knowledge and support in this area is invaluable.

4. Bank accounts

Opening of bank accounts has always been problematic in France. The process is mandatory, complex and time consuming. There are a few situations where you are exempted from it but, even then, opening a dedicated account for your business should be a priority.

5. Getting credit

Access to credit is one of the most important requirements for expanding businesses, but it is a notoriously tricky thing to achieve. France is home to a robust and contemporary financial system, but the World Bank Doing Business 2020 report ranks it 104th in the world for ‘ease of getting credit’, highlighting the importance of having local help when liaising with banks.

Even more important is highlighting that opening a bank account is a challenge for companies due to the administrative procedures surrounding the ‘know your customer’ processes of French banks, including anti-money laundering and anti-terrorism financing regulations.

6. Paying taxes

The government recently announced plans to cut capital gains tax to attract business investment to France and restore damaged relations that resulted from corporate tax hikes. It has also updated employment law to make it more amenable to company requirements. However, TMF Group’s Global Business Complexity Index 2021 ranks France 2nd, following an increase in the complexity of its business environments since it was placed 12th in 2020. France’s place as the second most complex jurisdiction is driven by complexities in accounting and tax processes, and heavily employee-centric HR regulations. All accounting in France is subject to local language requirements, which can prove challenging to non-French speaking businesses. In addition, France has been one of the first jurisdictions to put the EU regulation of SAF-T (an electronic exchange for accounting data) into place. The French government has strongly endorsed a process of digitalisation, with all tax audits expected to be completed digitally in the near future.

Although the government is making progress to make some areas less complex, Covid-19 has further added to complexity with the introduction of chômage partiel (France’s equivalent of the furlough scheme) which has been very generous to employees. Yet from an employer standpoint this scheme has added complexity, necessitating updates to payroll software and the addition of tax credits or postponed payments.

The French corporate tax rate for large companies has dropped from 33.33% to 28%, and it will be progressively reduced to 25% for the 2022 financial year.

The standard VAT rate is 20% while personal tax rates go up to 45% (in tranches). From 2018, a single flat rate capital gains tax of 30% was applied on savings and investment income and gains.

Businesses are required to make nine tax payments each year, and taxation can take a significant chunk of money from a company’s earnings.

7. Enforcing contracts

France has a relatively modern legal system which is well equipped to enforce contracts in good time. It takes an average of 447 days to enforce contracts, which is well below the OECD average of 590, and France is ranked 16th in the World Bank’s Doing Business 2020 report on this topic.

8. Resolving insolvency

Resolving insolvency is a streamlined procedure in France, and the recovery rate of 74.8 cents in the dollar is a little higher than the OECD norm. However, it is a slow process, taking an average of one year and nine months and it is also influenced by rather long payment terms in practice, although the LSF (Loi de Sécurisation Financière) did significantly help to reduce payment terms, which are now capped at 60 days (in theory).

9. Culture

Adapting to French business culture is important when considering cross border moves. Very few suppliers speak French which o French speakers to help them go through their administrative duties.

Formality is important and the French are extremely proud of their language and cultural heritage. Their passion for good food and wine should be observed, and businesses that appreciate differences in etiquette, approach and style in business are most likely to succeed. Underestimating this can have a negative impact on the speed of setting up a business in France. Local assistance is therefore crucial to navigate the maze of administrative and linguistic complexity.

Talk to us

TMF Group France has the local knowledge to help you identify and face any challenge or opportunity for your business.

Whether you want to set up in France, or need help to streamline your existing French operations, get in touch to ask us a question.

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