Focus on France

France and Germany are mutually important trading partners. For many German – and French – companies, the other country is a (if not the most) significant market.

When you do business across this particular border, it is crucial to know what legal and tax-related issues you should be aware of. This particularly applies if you are gradually moving your company closer to the French market. The classic first step in this process is to post employees to France – on a visit to a French business partner or to work temporarily on a project there, for example. This is frequently followed by a permanent presence in France, starting with sales staff, moving on to a warehouse, and culminating in a permanent establishment or subsidiary. Preparing preliminary VAT returns and tax returns, setting up an accounting system, preparing annual financial statements in both Germany and France, and preparing German and French payrolls quickly become very important.

It is not just companies – in their capacity as both business partners and employers – who have numerous things to think of: the same applies to employees from Germany and France who, as “frontier workers” (Grenzgänger), literally cross borders to go to work. Every day over 25,000 frontier workers travel in both directions between France and the German border regions of Baden, Südpfalz and Saarland and need to reflect this in their income tax returns.

Overview

Posting of employees to France

If employees of a German firm work in France, on a project for example, this is referred to as “posting” abroad. Depending on the duration of the posting, there may be income tax and social security issues to be aware of. As a rule, if an employee is posted to France, he or she must be registered with the labour inspectorate (Inspection du Travail) at the place where the service is to be provided before the period of the posting begins. The posting registration must contain a variety of information, including details of a legal representative for the German company and its representative in France. It must also provide information on where the work is carried out, the expected duration of the work, the name and citizenship of the posted employee, and the start date of the posting. The posting registration must be submitted via the SIPSI online portal set up by the French Ministry of Labour (Ministère du Travail) for that purpose. Other requirements also apply during a posting to France. The employees themselves or a local representative must carry a copy of the employees’ posting permit, employment contract, wage statement, an A1 certificate providing proof of health insurance coverage and a current health certificate, and present them to the competent authorities on request during inspections. Depending on the specific situation, other documents may also need to be carried. As well as preparing and advising on the SIPSI registration and necessary documentation, we frequently act as local representative for our clients.

Hiring employees in France

As well as posting employees from Germany to France, German companies often hire permanent employees in France. This immediately raises numerous questions. Once an employee performs the majority of his or her duties in France (e.g. in a sales role), wage/salary statements must be issued in France and income tax and social security contributions, if applicable, must be deducted and paid in France. Other questions arise in relation to the classification of the activity for the purposes of tax on profits. Depending on the employee’s tasks and responsibilities, you may (unintentionally) create a permanent establishment in France – with the result that the profits of the business are partially taxable in France.

Schultze & Braun offers payroll accounting in France, provides tax advice in as well as cross-border between France and Germany, identifies the consequences of various scenarios and thus minimises the risk of unwelcome outcomes from the outset.

Creation of permanent establishments and subsidiaries in France

A permanent establishment in France might be a branch office, for example. In most cases permanent establishments are set up deliberately, but sometimes it happens unintentionally. Regardless of how a permanent establishment comes about, it must be registered with the French tax authorities and additional consequences considered. Usually an accounting system for a permanent establishment is needed so that the preparation of annual financial statements can be reliably carried out in France. The same applies when a subsidiary is established in France.

As experienced tax advisors, Schultze & Braun takes care of all your French tax obligations. We help you set up permanent establishments or subsidiaries and stay on top of all the requirements that your company may be subject to in France.

What else you need to know if your company has permanent establishments or subsidiaries in France

Companies with permanent establishments and subsidiaries in France also need to know the right way to handle transfer pricing. Transfer prices are charged for supplies of goods and services between individual companies within a corporate group. But be aware: transfer pricing is a particular target for the tax authorities, who look very closely at how these prices are determined. This may result in tax-related risks. You should therefore be able to provide detailed documentation about the method used to set your transfer prices.

Specialist advice is also important if you intend to transfer assets in France from or to German taxpayers. Regarding gift and inheritance tax – especially in the case of business assets – attention must be paid to the requirements of both German and French tax law and the double taxation convention between Germany and France. In order to preserve assets and put in place tax-optimised arrangements for passing them on, it is recommended to seek the support of a tax advisor who is familiar with both the French and German tax system and can use the available options to your advantage.

Expertise

Focus on France with Schultze & Braun

With its expert team, Schultze & Braun is an experienced partner regarding tax implications when crossing the Franco-German border. We draw on experience acquired in numerous projects in Germany and France providing advice and support to our clients well beyond the border region in both countries.

Our in-house experts on both sides of the border will be delighted to explain and assist you with any matters with a Franco-German dimension – whether you are a company and employer or an employee. Our clients are assigned a contact who answers all their questions in their native language and coordinates and keeps an eye on all their legal and tax-related concerns in both countries.

What can we do for you?

Contact

Jérémy Reis
Expert-comptable (tax adviser admitted in France), Master CCA (Master Comptabilité, Contrôle, Audit)

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Call +49 7851 9388-0 Direct message