# French tax resident with US C Corp - Company taxed in France or not (Operated in France rule article 209)



## L337 (5 mo ago)

Hi,

I am looking for an answer to where a US C Corp (Owned to 100%/ one man company that is citizen in an EU country, not American) is taxed in the following situation:

1. *The owner is a tax resident in France* carrying out the daily activities for the company and controlling it from France. 

2. All the company income is from *selling products online in the US and UK* (No french customers or income derived from business activities in France).

3. *There is no real presence in the US*, no office, employees or management. It's a one-man company (The owner).

4. The company would be *registered to pay social security and French taxes *on all salary paid to the owner.

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When reading some threads regarding Americans coming and living in France, it sounds like you can have a US C Corp separated from yourself as a free-standing entity if work is done for US customers. 

Article 209 of the tax code (CGI) talks about the place of operations and that this determines if a company is tax resident in France or not. 

If found this information that make me question and believe that the above described situation will fall under "operated in France".

"
The term "operated in France" means an entity which carries on a regular business in France, either in an autonomous establishment or, if there is no establishment, through representatives without independent professional status, or as *part of operations forming a complete business cycle. *

Therefore, a permanent establishment (including a branch) in France is always subject to corporate tax in France.
"



https://www.oecd.org/tax/automatic-exchange/crs-implementation-and-assistance/tax-residency/France-EN-Tax%20Residency.pdf



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*Questions:*
A. Will the case above without any income derived in France but the company controlled and managed within France fall under *the place of operation in France *and thus be tax resident in France? 

B. *If selling the business later* as stock sale and for that tax year becoming tax resident in another country (Not falling under the exit tax rules in France, hence under 6 years in France last 10 years) will there be any tax to be paid on capital gains or other tax implications in France?


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## Bevdeforges (Nov 16, 2007)

I'm not sure of the exact impact on your situation, but be aware that France distinguishes between a personne morale (i.e. a business entity, association or other "legal person") and a personne physique, which is a living breathing human being. 

As far as the French are concerned, if you are the one "operating a business in France" it really doesn't matter where you customers are, how you are paid or where, etc. You are considered tax resident in France - for both the personne physique and the personne morale. Now, I suppose the personne morale (i.e. the C corp.) could be said to be the owner of the actual business that is operating in France, but you still need a French business entity to register for taxes (and "payroll taxes" aka "cotisations"). And, it depends on the type of business entity you have established in France whether the taxes are simply flowed through your French personal income tax forms (and thus you would be responsible for the cotisations) or if the business entity declares and pays its own taxes, and thus you only need include your "salary" on your French tax declarations as salary. 

You may want to talk to the CCI in your area to get clarification on just how your business in France is (or should be) set up.


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## L337 (5 mo ago)

Thank you for your answer, that is very interesting information.

With this information in mind, I still do not understand the full picture and if this will be applicable to the situation described above. Will, of course, reach out to a professional later on, to get everything verified.

By products, I mean physical goods sold directly to the consumer, directly shipped from China to a warehouse in the US. What I do not understand is the strict definition of "*business activity in France*" and "*transactions that are part of a complete business cycle*" in France.

It is easy to understand that any work done by a freelancer or similar would have "business activity in France," but I do not see a clear line when having an online shop selling exclusively to US customers with all transactions within the US. In my head, business activity in France would be someone performing a service or selling a product to a customer within French territory. 

I guess it is all up to the strict definition of "Business activity in France".

Is it really classified as business activity/ having a place of operation in France to maintain a US-based online web shop and have to pay corporate *tax in France instead of the US? *

This is what the official French government site says about *operations in France*:

“

The concept of "*place of operation*", within the meaning of Article 209 I of the French General Tax Code, includes the customary exercise of a business activity that is:

…

Subject to the provisions of international agreements, *foreign companies are liable for taxes in France if:*


Without owning an establishment in France, they make use of representatives that do not have a professional status separate from theirs. These intermediaries are considered to be genuine agents carrying out a *business activity in France* on behalf of the foreign company
Without having either an establishment or a qualified representative in France, they carry out *transactions that are part of a complete business cycle*
”

Can a foreign company be liable for corporation tax in France ?



Bevdeforges said:


> Now, I suppose the personne morale (i.e. the C corp.) could be said to be the owner of the actual business that is operating in France, but you still need a French business entity to register for taxes (and "payroll taxes" aka "cotisations").


Is it really mandatory to create a French entity?

I found this answer in another thread; maybe I am missing something. It suggests that the US C Corp could be registered in France and pay out a salary directly, including all social charges.

What is referred to in this answer as “French taxes” may be the corporate income tax, be taxed in France instead of the US?



255 said:


> Alternatively, you can register your U.S. company, in France to pay French taxes and social charges directly: Registering for social security in France - Welcome to France











American Living in France


Hi, I'm an American digital marketing consultant living in France. I have a titre de sejour (residency) and am living here with my French husband and our son. I currently own an LLC in the United States. I am having a lot of issues figuring out taxes here and basically how to not get completely...




www.expatforum.com


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## L337 (5 mo ago)

After a bit more reading, I now understand that the management and control rules are making the US C Corp tax resident in France. That his only could be changing if there was real substance in the US with employees and management there. 

This video was very helpful in understanding more about the full picture: 





So, now that this is clear. The question remains if it is possible to go for the most simple solution with only a US C Corp, taxed and registered to pay social security in France, or if there is a must to have an additional French entity or branch in France.

There are many advantages with a US C Corp with the situation described so, and as the French corporate tax rate at 25% compared to 21% in the US, it is not a big deal.


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## 255 (Sep 8, 2018)

@L337 -- This is your mistake: "3. *There is no real presence in the US*, no office, employees or management. It's a one-man company (The owner)." You need to establish a U.S. presence! This can be done relatively easily with a "virtual office." They can be set up rather inexpensively, with a street address, telephone service (perhaps with an answering service tied in,) all licenses and administrative tasked performed from the U.S. address, bank accounts, bills paid, etc. If you don't do these things, any creditor will be able to "pierce the corporate veil," proving that your company is indeed an "alter ego" of yourself and not a real company. There are many companies in the business to provide these services and often have a contract for an office and even conference rooms for you to use when visiting your companies' office. In other words, your C Corp. will have it's primary place of business and all operations will come from the U.S. You can then be an employee, a contractor working for your C Corp or another entity (potentially French,) that will make all your French tax/social charge declarations. Unless your making gobs of money (in which case, it may make sense to incorporate elsewhere.) You could even hire a U.S. payroll company to do these things on your companies behalf (if you don't see it as "over kill.")

It's not hard to zero out any taxes owed, on a small C Corp. in the U.S. There are also other alternatives, like an S Corp. election or reform as an LLC (pass through entity,) with zero U.S. income tax.

Of course, it is possible for your U.S, C Corp. to register with the French authorities to pay social insurance and tax withholding on you as an employee. Re-read the link above that you quoted from one of my previous posts. Remember, your C Corp. is a separate entity ("person") than yourself. All dealings with the C Corp. should come from it's U.S. office! Cheers, 255


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## L337 (5 mo ago)

255 said:


> @L337 -- This is your mistake: "3. *There is no real presence in the US*, no office, employees or management. It's a one-man company (The owner)." You need to establish a U.S. presence! This can be done relatively easily with a "virtual office."


*Is the presence a must from the US side of things, *or is it to ensure the entity would not have tax residency in France? 

As I understand it, I will have to get a virtual address when starting a US C Corp. US Bank account will, of course, also be opened, which is one of the big pluses of having a US entity, with all bills paid from this account. 

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I would say that simplicity is the important thing, which would be prioritized over minor savings such as paying 21% instead of 25% corporate income tax. Most likely, all the things needed for "real presence" will eat up this four percentage points saving (And also take time and focus). 

Following is how I see it would be the simplest; I wonder if it is all possible. With @Bevdeforges indicating that you need a France entity, I am unsure if it can be this simple. 

*Simple setup with US C Corp:*

Incorporated in Delaware (Virtual office, US bank account, etc.)
Taxed in France at 25% (No "real" presence in the US, no employees or managers)
Registered in France to pay social security, paying out salary directly to the owner in France.

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*Reasons for looking at a US C Corp*

The main reason for having a US Corp is that be able to sell it later on to a US buyer (Almost completely US-focused). At the moment, I get the feeling that it will be possible to keep most profits within the company and at a later stage or when selling the business, to be sure to be a tax resident in a "tax-friendly" country. 
The second reason is to open up for taking in American business partners to help expand further. 
The third reason is simplicity, with easier bookkeeping (Automation), lower cost insurance, and to save on transaction costs, now taking around 2.0% of total revenue.

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As I understand the other options you mention, LLC is not really an option for an ongoing business as the tax-free thing is a bit risky interpretation, and it will be seen as pass-through in France, personally taxing the profit from every sale made. It risks being classified as "Autoentreprenur" in France, which does not allow the deduction of any costs; hence only good for the service sector with low capital expenditure. 

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I am sure a US and France expert can give a definitive answer within 10 minutes, so next step to find these experts and be sure about everything before taking the move to France. 
Some remaining thing is to see if and how booking keeping would have to be done on the French side, and if something will be in the way for the theoretical set up above.


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## 255 (Sep 8, 2018)

@L337 -- Your question: "*Is the presence a must from the US side of things, *or is it to ensure the entity would not have tax residency in France?" I would say the "presence" aspect is a must wherever you live. Even in the U.S., if in your example, you form in DE, but live and do business in VA, you would be obliged to register as a "foreign" corporation in VA, if you are doing business in VA. On the other hand, if you form in DE and own property, perhaps real estate or another "operational" business in VA, there would be no need to register in VA. If the minimal cost to maintain a presence is going to "break the bank," you should consider another business model.

Personally, I would get away from the "I'm the 100% owner, do everything and am resident in France mentality" If you plan to eventually sell the business, DE is purported to be the best choice, even if other states, like WY might be cheaper. In the past, I've gifted corporate ownership to my children and my folks put ownership of their assets into a trust. There are lots of options. If you are truly operating internationally, you also need to investigate "transfer pricing" rules. If you decide to open a French entity, that owns your DE company, you'll need to study France's CFC rules.

I would not think forming a company in DE and registering it and paying taxes in France would be simple. I'll preface that by saying I've never been a resident of France while owning a U.S. C Corp. As long as you are receiving a salary and paying French taxes and you only own shares of your DE company (or have the shares owned by a trust,) I don't think you'll be a target -- at least not until you ramp-up. However this page might be interesting to you, if you are intent on registering in France:

Registering with the Foreign Business Tax Department

Good luck. Cheers, 255

P.S. You might also consider opening a French subsidiary of your DE Corp. or perhaps use a global or French PEO solution.


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## Bevdeforges (Nov 16, 2007)

I think the problem here is that you are assuming that somehow France will "recognize" your US corporation. French taxes and US taxes are completely separate and independent. Whatever the rules are for a US C Corp, those are the rules you'll have to follow - no matter where or how you are doing business anywhere else in the world.

If you are physically present in France while doing whatever it is you do for the C Corp, then you need to be properly registered in the French system - both for cotisations (social insurances) and for income tax. Generally speaking there are three ways to handle this:

1. Your "US employer" can register with URSSAF as a "French employer with no French presence" in order to pay the appropriate social insurances (and, I think, tax withholdings) as your "employer." It is possible for the US "employer" to sign up with a French payroll agent (like ADP or something similar) to handle the paperwork and payments, though obviously that will cost you (or rather the C Corp) and the costs for one employee may not be worth it. Or, you do the paperwork yourself (and learn all sorts of stuff about how the French payroll system works).

2. You set up a French business entity and use that to handle your "salary" from the C Corp - either as a contractor (say, an auto-entrepreneur, micro-entreprise or a single person business entity). In that case, you run your business revenues through your personal French tax declaration (note, I said "revenues" - which means your gross billings before any expenses or deductions) or, if you establish a single person business (like an EURL) you then establish regular financial statements, pay your social insurances yourself and then can either choose to run the profits through your personal tax declaration or have the company pay its own taxes through its "corporate" filings. There is an option to set up a business entity with the C Corp as one of the shareholders - in which case, you'll need one or more additional shareholders and you lose the option to just run the taxes through your personal declaration.

3. You can work through a portage company - where you are basically an employee of the portage company and they handle all the payroll stuff (again for a fee, which can be a healthy chunk of what you take as "salary").

How you handle the US C Corp has basically no influence over the French side of this arrangement. Just remember that if you go it "alone" with an auto-entrepreneur or micro-entreprise arrangement, you declare and pay taxes (and cotisations) on your gross revenues with no deductions for expenses. And, once your revenues exceed the VAT threshold, you'll have to charge VAT to your C Corp "customer" back in the States. With a business entity (EURL on up) you (or the company) are taxed based on net income (i.e. after expenses) but that as "gerant" (managing director) of the company, you lose access to things like unemployment benefits and you may wind up having to pay certain minimum amounts toward retirement or other "benefits" even when the business shows a loss.


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