Contractors with contracts requiring them to work in France for more than three months may find that becoming the French equivalent of a self-employed sole-trader, which includes the Statut d’Independant, profession libérale and enterprise individuelle (EI), is the most effective trading vehicle.
Incorporating a French company, such as a Société Anonyme (SA) or a société à responsabilité limitée (SÀRL, Sàrl, sàrl or S.à r.l.) is an alternative way to trade, but does not deliver the tax benefits that a UK company does.
“France is one of the most popular destinations for contractors working on contracts outside of the UK,” notes CXC Global’s French expert Charles Daw. “Taxation and social security costs are higher than the UK but remain comparable with other countries in continental Europe, making using a limited company or French umbrella equivalents very costly.
“As a result, the most tax efficient and convenient trading solution for UK contractors to adopt is to use a service provider with the right local knowledge and expertise to help them to become a local freelancer registered with the most suitable status based on their profession and personal circumstances.”
Do contractors need visas to work in France?
The European Union’s (EU) principles of freedom of labour mean that UK citizens do not require a visa to work in France. UK-based contractors of any EU nationality are free to live and work in France.
However, nationals from other countries may require visas, and Daw urges non-British / non-EU contractors to check with their local French consulate before applying for a France-based contract.
“Although contractors from the UK don’t need visas, there is a formal registration process to obtain a Carte de Séjour for visitors who want to live and work in France,” adds Daw.
Can contractors trade in France using their UK-based limited company?
“Whether a contractor can use their UK limited company to trade in France depends on the nature and length of the contract,” continues Daw. “If the client is based in France, but the contractor works mainly in the UK with only an occasional visit, then it can be OK to use a limited company.”
Daw notes these are always complicated decisions and it is essential to review the options in detail and seek professional advice where required, as cross border provision of services, even within the EU, remains a complex undertaking.
“Using a UK company is also OK for short-term contracts lasting less than around three to six months, or when the contractor is certain they won’t fall short of the number of days to remain UK-resident according to UK tax residency rules.
“However, when a contractor has a contract they know is likely to be more than six months and which will result in their tax residency changing, they should opt to use a French form of trading.”
EU reciprocal tax treaties ensure that tax nets out
Like most tax authorities, the French tax office is keen to ensure that anyone working or running a business in France is paying the appropriate level of tax. Social security payments are significantly higher in France when compared to the UK.
Daw explains: “If a contractor works far in excess of a few months and achieves tax residency in the host country, at the end of the tax year, or when appropriate, they will need to retrospectively declare all revenue in the host country backdated to day one of the contract.
“However, reciprocal tax treaties between all EU member states will ensure that taxes are not due on the same earnings in both countries. Taxes paid in one EU member state would be credited against any further declarations in another EU member state.”
Daw also highlights that the tax residency rules apply only to tax, and not to social security payments. For example, a contractor would need to obtain an A1 / E101 form from HMRC to prove to the French authorities that they are paying social security, in the form of National Insurance Contributions (NICs), in the UK.
Incorporating a French company provides no tax advantage
As a result of France’s efforts to be more accommodating to inward investors, incorporating a French company is quite straightforward, and in theory can take as little as two weeks to a month.
“However, the shareholders and directors of a French company do not gain the same tax benefits and efficiencies as a UK limited company,” says Daw. “The running costs are also higher, as a company has to fund the social security costs of its employees which can be as high as 37% of the employee’s salary.”
With an EI, a contractor operates in their own name as they and the entity are essentially one and the same, just like sole traders in the UK. The setup is quick and inexpensive, but contractors should remember that their liabilities are unlimited and the business owner has personal liability for any debts created by the business.
What contractors should do when starting contracting in France
Although there are no visas required, a contractor must first apply for a Carte de Séjour, and to obtain this, a contractor first needs a residence.
Next, the contractor needs to work through the formal registration process of their freelance registration (Statut d’Independent, profession libérale or enterprise individuelle) to obtain:
- A tax reference number
- Social security number
- VAT number.
“Assuming the contractor is using a UK-based service provider,” continues Daw, “their service provider will help them through this process with local assistance via a French accountancy practice.”
The whole form-filling and registration process can take up to six weeks, and Daw suggests this is another reason not to set up a local trading solution if the contract is of minimal duration.
How contractors are taxed in France
According to Daw, taxation in France appears pretty steep compared to what contractors are used to in the UK: “The top rate of tax is 43%. But it is not actually the tax that is high – income tax rates are not hugely different from the UK.
“It is the social security costs that are so high. For example, a contractor trading as a SÀRL will pay out around 35% of their income after expenses on social security, much higher than what a business would pay in the UK.”
“A retention level of 50-65% is typical,” notes Daw. “Contrast that to typical retentions of 70-80% for a limited company contractor trading compliantly in the UK.”
What expenses can contractors working in France claim?
The expenses regime in France works along similar lines to that in the UK. Legitimate business expenses incurred whilst performing duties are allowable. This includes accommodation costs, as well as travel and subsistence.
Contractors can also claim business expenses such as the cost of mobile phones, internet access and other costs, such as stationery, business cards, business equipment and consumables. Relocation costs and the costs of setting up the business are also deductible based on proof such as receipts and invoices.
“If in doubt, contractors should check with their service provider and French accountant to confirm that an expense is deductible according to local regulations,” says Daw.
What do contractors receive in exchange for high social security payments?
France remains a socialist country and this is reflected in the level of employee protection and social support provided by the state. Daw explains: “Although sole traders in France receive no paid time off, extra pay or unemployment benefit, they do have access to the French healthcare system and accrue pension benefits, albeit at a lower rate than an employee.
“The pension accruals could potentially be quite valuable in future years. There are EU regulations that say if a worker has made pension contributions for over a year in a member state, then they can claim a pension on retirement that is based on their contributions.
“In the UK, this would be worth little, but as social security contributions are so much higher in France, so would be the value of the contractor’s pension on retirement.”
Employees enjoy very generous benefits: “If an employee is made redundant or becomes unemployed, they will most likely receive 57% of their most recent salary, based on the preceding 12 months earnings, as unemployment benefit. Unfortunately, the self-employed in France don’t qualify.”
French umbrella companies: ‘Portage Salariale’
In addition to the self-employed freelance and company options, contractors have another option for operating in France, which is the use of a “Portage” solution, although in reality this would most likely only appeal to a UK contractor under very particular circumstances.
CXC’s commercial compliance manager EMEA, John Clarke, takes up the story: “A French umbrella company, or “Société de Portage”, quite literally ‘carries’ an employee into a client contract role, and facilitates the worker moving from client to client under the banner of their employment model.
“In practical terms, a contractor becomes an employee of the portage company, often with a ‘CDI’ contract of indeterminate duration and the ‘Portage’ contractor would enjoy all the benefits and protections of a regular French employee.
“A key consideration is that the portage company must also deduct the associated employment costs as well as its fees from the contractor’s contract revenue earnings. If you consider that employer’s social security contributions can reach 37%, that’s a €3,700 deduction straight off from a contractor earning gross fees of €10,000 a month.”
A portage company will typically charge between 8-14% for their management fees and, as a rule, net retention for these solutions will fall at around 45% of the contractors gross fees to the client.
Why pay so much for ‘Portage Salariale’?
As Clarke explains, in France employee rights and benefits are so good that French employees are willing to pay to maintain them: “The French system protects the employee over the employer and as well as unemployment benefits and pensions, French employees have powerful employment rights.
“There is also the social and cultural pressure. Freelancing in France is less established and sometimes poorly understood, especially when compared with the UK or its neighbours Belgium and Germany.”
Many workers use the Portage solution when moving between jobs, or if they want to work on a couple of contracts between permanent assignments without the hassle and administration of setting up as a freelancer or to maintain their employment contributions.
Portage company employees are paid through the company’s payroll and receive a payslip each month recording all of their deductions and payments. “This solution potentially benefits contractors who don’t want to run a sole proprietorship and who might be nervous of using accountants and working out expenses. Otherwise, it is a rather expensive solution,” adds Clarke.
Daw concludes: “Despite its popularity, France is still sufficiently different from the UK that contractors winning work in the country should seek professional advice to both set up and run their French contracting business.”