Doing business in France: branch or subsidiary ?

There are a few advantages to setting up a branch office in France. One advantage is that a branch office is relatively easy and inexpensive to set up. There is also less administrative burden compared to incorporating a subsidiary, as a branch office is not considered a separate legal entity from the parent company (it has no legal autonomy - its own legal personality - and no assets separate from the parent company.). This means that the parent company is fully liable for the actions of the branch office. A branch office in France is subject to corporate income tax on French-source income and as the branch is not considered as a separate legal entity, it is required to file a tax return and pay taxes on its profits in France.

On the other hand, incorporating a subsidiary in France, though more complex to organize, has its own advantages. One is that a subsidiary is considered a separate legal entity and thus will have its own legal status, estate, finances, and tax obligations. This can provide some protection for the parent company's assets and limit the parent company's liability (depending on the chosen legal form). This means that if the subsidiary incurs any debts or liabilities, the parent company is not legally responsible for them. Additionally, a subsidiary will be able to conduct business and enter contracts in its own name. It has more autonomy to make business decisions, this is beneficial when the parent company needs a local entity to run daily operations independently and be more responsive to local market dynamics. However, this separation has limits and is excluded when the parent company interferes in the management of the subsidiary, creating a misleading appearance that would allow the co-contractor of the subsidiary to legitimately believe that he was also the co-contractor of the parent company (Cass. com., June 12, 2012, n° 11-16.109). Mechanisms such as management fee agreements and cash flow agreements can provide flexibility in the relationship between the parent company and its subsidiary.

In conclusion, both Branch and Incorporation are valid options to doing business in France, Branch is simpler and less expensive to set up. Incorporation provides legal status and may allow to limit the parent company's liability. We generally recommend the creation of a subsidiary to allow the application of French law in the relationship between shareholders and it suppliers.

Hugo Monteiro Trainee

Jean-Baptiste BARSI Attorney at Law Partner