Create a business in France? Consider this

France is known for its strong economy and vibrant culture. These characteristics make it an attractive destination for starting a business. Entrepreneurs can find many reasons to establish themselves in France, from its strategic location in Europe to its skilled workforce.

However, starting a business in France requires careful consideration of several factors. The economic situation of the country, legal and regulatory requirements, applicable taxation and labor laws are crucial aspects that must be addressed. Understanding these elements is essential to successfully launching and operating a business in France.

By effectively meeting these requirements, entrepreneurs can take full advantage of the opportunities offered by France.

Economic overview

France, the seventh largest economic power in the world, is going through a period of cautious optimism. After the pandemic rebounds, growth is expected to slow, but positive signs remain.

The World Bank forecasts growth of 3% in 2024 and 3.4% in 2025, a notable deceleration from 2022. However, major relief comes in the form of a slowdown in inflation, which has peaked at nearly 11% in 2023 and is expected to fall to around 4.3% in 2024. This reduction in inflation should provide some relief to consumer spending.

The labor market remains tight, with relatively low unemployment rates supporting household incomes through wage growth. The government also plays an important role by increasing social spending and raising the minimum wage to help household finances.

However, the economic outlook is not without challenges. Geopolitical tensions, notably the war in Ukraine, continue to disrupt supply chains and drive up energy prices, impacting both French businesses and consumers.

On a positive note, the recent release of frozen EU funds is expected to boost investment, providing potential to boost future growth. Although near-term growth may be moderate, the strong labor market, declining inflation and potential investment growth offer a promising outlook.

Legal and regulatory framework

France has simplified its business registration system. The Single Window for Business Formalities (GUFE) acts as a one-stop shop, allowing online registration for most commercial entities. This eliminates the need to visit multiple agencies, making the process more efficient.

When choosing a business structure, foreign investors often opt for one of three main types:

Individual enterprise (EI): A simple sole proprietorship but one that offers no liability protection.

Single-member company with limited liability (EURL): A single-member limited liability company that combines simplicity and protection.

Limited Liability Company (SARL): Similar to an SARL, this structure offers limited liability protection and requires a minimum share capital of €1.

Registration requires various documents, including statutes (for certain structures), identification documents for the founders and an optional business plan. Registration fees are also relatively low.

Taxation and financial management

The standard corporate tax (IS) rate in France is 25.8%, applicable to taxable profits. This rate is competitive compared to certain European neighbors. For startups, there is a reduced IS rate of 15% for businesses with profits below €42,500 in their first year of business, which is beneficial for new businesses.

Value Added Tax (VAT), or Value Added Tax (VAT), has a standard rate of 20%, applied to most goods and services. There are reduced rates of 10% and 5.5% for certain essential goods and services such as food, public transport and books. VAT registration is compulsory if your annual turnover exceeds €85,800.

Other taxes to consider include Social Security taxes, which cover health care, pensions and unemployment benefits. Both employers and employees contribute to this overall system. Social charges cover additional contributions to social security and specific training programs.

Municipalities also levy various local taxes, such as property tax and professional tax. In addition, a flat rate tax of 30% is applied to profits distributed to shareholders as dividend tax.

When it comes to tax filing, the frequency depends on your business structure, VAT registration status and profit levels. France’s extensive network of double taxation treaties can help you avoid double taxation on income earned abroad.

Hire and manage employees

French labor law requires employment contracts written in French, describing tasks, remuneration, benefits, working hours and termination clauses. Fixed-term and permanent contracts are common, and a trial period is also standard.

The normal weekly working time in France is 35 hours, on average over a reference period. Overtime has limits and requires additional pay or compensatory time off. French law notably promotes balance between professional and private life by imposing the right to disconnect outside of working hours.

France has a national minimum wage (SMIC) which is regularly adapted. Employers and employees contribute to a comprehensive social security system covering health care, pensions and unemployment benefits. Employees also receive generous benefits, including paid vacation (typically five weeks), parental leave, and sick leave.

French labor law prioritizes employee rights, with strict dismissal procedures that require justification and possible severance pay. Unions influence collective agreements and employee representation within companies. In addition, France encourages continuing training for employees, with employers sometimes contributing to training costs.

France offers many opportunities for entrepreneurs wishing to start a business, thanks to its strong economy and skilled workforce. However, it is essential to navigate its economic climate, its legal framework, its tax system and its labor law. Startups can leverage the advantages France offers and position themselves for success in this dynamic market by understanding and effectively managing these factors.