France has always been considered a dream destination for culture, arts and heritage. It is also one of the richest and most developed countries in the world. Many entrepreneurs move to Europe to leverage the financial opportunities and live the lifestyle that it provides. France is the second richest rich country in Europe. Moving your business here provides you with many benefits, but also puts forth challenges that you might not have had in your home country . What if you want to do business in this country? How supportive are they for business ventures? What is the tax scene? What is the level of governmental support? In this post we will examine the key factors for starting or expanding business in the land of wine and cheese.
First we will go through most economically significant regions of France and their major thriving sectors, division of Businesses in French system, France Visa introduced for Entrepreneurs, the Funding scenario for startups, and finally the Tax benefits for Startups as well as the government support are discussed.
Paris is one of the most sought after hub for industries, but there are also many other locations in France which are beaming with economic and startup activities. Every region has its own economic identity.
Economically most prosperous region is Paris, also known as Île-de-France, based on highest per-capita in the country. It produces almost 30% of the country’s gross domestic product (GDP). With a GDP of 552 billion Euros representing 5% of the European Union’s GDP. It is the second leading global location (and 1st European one) for the 500 largest international companies. 720,000 industrial, commercial or services companies are based there . The regional economy is shifting towards high-value-added service industries (finance, IT services etc) and high-tech manufacturing (electronics, optics, aerospace, etc) .
The second most prosperous region in France is Rhône-Alpes which comprises of cities like Lyon( the second-largest metropolitan area in France after Paris) and Grenoble. This region is one of the four motors of Europe . It is the 6th most prosperous region in whole of Europe. This region has put its money on the service sector, which now provides most of its employment (56% of private sector jobs). Industries flourishing are light engineering and high-tech, mechanical engineering in the area of Annecy, and precision machining in the area of Cluses. Other prominent services include nanotechnology in Grenoble, optic and design in Saint-Etienne, and tourism with the Alps in Lyon, Grenoble and the Ardèche . This region also serves as a prominent educatoinal hub, with major universities in Lyon, Grenoble and Saint-Etienne. The area of the region that lies close to Switzerland has an economy linked to that of Geneva. This area forms a hinterland for the Geneva hub .
Economically the is the third most important region in France is Provence-Alpes-Côte d’Azur. The important cities are Marseille (administrative capital city of the region), Nice, Toulon, and Aix-en-Provence. The region’s economy is dependent on tourism but also a majority of its economy is dependent on coastal activities. The region is also in the lead when it comes to innovative sectors such as high technology, biotechnology and microelectronics. Education for its part is well developed with various universities, international schools, preparatory classes for specialist university courses, engineering and business schools. Sophia Antipolis is a technology park northwest of Antibes and southwest of Nice. It primarily has companies in the fields of computing, electronics, pharmacology and biotechnology. It houses the European headquarters of W3C and the European Telecommunications Standards Institute.
Other than Paris, the startup ecosystems are being developed in many cities around the country like Grenoble, Lyon, Toulouse, Marseilles, Bordeaux, Nantes, Lille etc. Every city has its own specialties ranging from digital to biotech to finance hubs .
There are several ways to do business in France. You can either start your own business, buy an already existing business, invest in equity or do a merger. French businesses are divided into categories of activities:
- Commercial/sales – buying and selling products
- Artisanal/trades – creating, making, fitting and selling products
- Freelance professions – pure service providers
All of them have different registration process and legalities. Taxation will also vary depending on type of your business .
Entrepreneur’s Visa in France
The French government wants the expansion of business ecosystems in France. France makes its best efforts for not discriminating between French national and foreign nationals. At Le Web, the economic minister, Emmanuel Macron, made statement about support that the government wants to provide to new businesses. “To be clear about the French momentum, we are accelerating,” he said. “They key question for us is how to accelerate, and how to help create new businesses. … My job is to be sure that in the coming years we create thousands of new businesses to replace the old ones. … My job is to protect people and allow them to be innovative and take risks.”
Government has launched an initiative called “La French Tech” . It is for all the people working for or with French startups , in France or abroad. This ecosystem is said to be made up of entrepreneurs, and also investors, engineers, designers, developers, associations, bloggers, media, big companies, and government agencies. All the players who are working towards startups’ growth and international promotion. As a part of this initiative in December 2014, the government announced it had created a $250 million fund to invest in startup accelerators across the country. It seeks to support nine startup ecosystems around the country.
In June 2015, France introduced a visa package called the French Tech Ticket. With this package, foreign entrepreneurs could get a work visa, a $14,000-$28,000 grant (€12,500-€25,000) for each team member, free office space in an incubator in Paris as well as an English-speaking administrative advisor. It is limited to 500 applications for now, teams who want to apply need to be co-founders, with at most three co-founders and one French founder who lives abroad. They need to work on a startup, speak English and stay at least six months in France. The French Government is partnering with the city of Paris for the incubator part of the package. Every six months, around 50 people will be awarded this French Tech Ticket — the first batch will start in January 2016.
France has also introduces Talent Passport to make it easier for skilled professionals and workers to come to France. Holders of the “Talent Passport” and their families will be offered four-year renewable visas. The initiative covers seven categories – highly qualified workers; investors; qualified young graduates; researchers; foreigners with an international reputation in science, literature, intellectual work, education or sports; and artists. The government plans to issue 10,000 foreign nationals with a ‘Talent Passport’ every year.
Funding in France
Startup incubators are a public and private initiatives. There are incubation centers from Orange, Air Liquide, Credit Agricole, Innovation village in Paris and many more. There are many venture coaching clusters, like Genopole, Agropole, Technopôle which provide technical and financial support specific to your sector.
Government is providing tax credit called Crédit d’Impôt Recherche (CIR) for companies spending at least 15% on RnD. This has resulted into companies which do RnD in France and Fundraising from abroad . France is making conscious efforts to improve its fundraising scenario. Bpifrance has set up an 8 billion Euros fund to be invested by 2015 for late-stage growth companies within France . The Venture Capitalist scenario is not as bleak as it has been projected by media. An article by LSC breaks myths on success of VC in US over Europe . A lot of public money has been injected into VC firms or directly into VC-like public institutions over the past few years. France Digitale recently proposed to divert a tiny amount of life insurance assets — 0.2% to 0.3% — to venture capital; it could almost double French VC firepower, at no cost to the French state.
New businesses are granted exemption of the “local economic contribution” (contribution économique territoriale) tax in their first year, and possibly second year by local decision. This region you operate from is quite important in France, since many taxes and funding grants vary from region to region.
Interest-free loans from public-private partnerships are available through different organizations (France Active, Initiative France, Réseau Entreprendre, ADIE, NEF, …), generally jointly with the region and the department. They come under different names (Prêt d’honneur, Prêts solidaires, NACRE, …) with a primary purpose to support entrepreneurs and enable them to further obtain access to bank loans. Generally a leverage is provided by banks: i.e., for EUR 1 obtained with these loans, the entrepreneur will obtain EUR 7 from banks. They are also provided customized business assistance during the first years of the business .
Startups can also leverage crowdfunding. Crowdfunding now has legal framework since October 1st 2014 in France. Two different regulated status have been created (respectively conseiller en investissements participatifs and intermédiaire en financement participatif), depending on the activity carried out by the platform: equity investments or loans.
There are over 250 government and EU funds that are available for startups in France, across all the economic sectors. These funds and grants are listed here in the France guide by JustLanded .
Tax benefits for businesses
For business, France is not the typical socialist country which eats up all your profits. There are many support structures provided by the government and organizations. To accelerate the relatively slower growth of French economy, government has proposed many benefits for investors and businesses in term of tax . According to government data, in the period from 2007 to 2011 France has seen total increase of 562,000 businesses, as compared to 95,000 in US in the same period and is highest among the G-7 countries. This increase is a result of change in policy by French government in 2009, and introduction of a status called as auto entrepreneur. It reduces the total tax on people who run small business.
When you are running your own company in France, you may be taxed under the personal income tax system (Impôts sur le Revenu, IR) or company taxation system(Impôts sur les Societiés, IS). Other taxes related to trading and VAT are also to be taken care of. The article on tax by expita  provides a good insight into the tax structure of France.
A five-year and €2.5 billion ($2.7 billion) program of tax breaks to encourage industrial investment has been announced by France President on April 2015. This tax break is applied to industrial investments that will be made till April 2016. It will allow companies to deduct 140 percent of the value of their industrial investments against their taxable benefits over five years, as well reduce their business taxes. The state-held investment bank is also to step up lending to companies by 2.0 billion euros. The French government has also announced Responsibility Pact which would give €40 billion in tax breaks through 2017. The purpose of this pact is to create more jobs in France.
The legal status of young innovative companies (Jeune Entreprise Innovante — JEI) provides a number of tax and social security exemptions for SMEs given that at least 15% of their costs are for R&D. What’s more, and this is cumulative with the JEI, companies that incur expenses for basic research and experimental development can benefit from a tax credit, the Crédit d’Impôt Recherche (CIR). It gives start-ups a 30% tax credit on their R&D expenses.
There are vast catalogue of tax incentives that favor early stage investments in France. You can figure out which category your business belongs to and then leverage the benefits provided by the government.
As a summary, in France as a business angel investor, when you invest in a startup, you will pay less tax. As an entrepreneur, when you create a company and hire people, you will pay less corporate tax for the first few years.
Points to Ponder
The labor laws are pretty much rigid here. French labor code which imposes to a 10-person company the same obligations as those of a big corporation. Hence it is difficult for entrepreneurs to manage the staffing of the startup. The minimum labor wages are relatively high and they also work less number of hours with respect to other rich European Nations. Also it is difficult to quickly fire the employers if things go bad for the company. The government is somehow making efforts to reform labor laws for small and medium companies, which defiantly has impact on number of employees in French startups . But the quality of Engineers is pretty much high, and are twice less costly than in US.
France is also famous for its Social Security system. Hence it has sponsored health care or plans that makes it convenient for startups. Social Security pays for the healthcare insurance. Entrepreneurship is a risky business. The unemployment benefits here are viewed as safety net in case things go south. It also encourages more people to plunge into the risks of entrepreneurial ventures.
Working in France makes your access to other European markets easier. This gives you a huge market.The wealth is better distributed with respect to non-European countries which gives you a larger customer base. But all the countries have very different markets and culture. There are also differences in government rules and regulations. It is these legal challenges that you need to swim through if you plan to make your startup present across different European countries.
By keeping these factors into consideration, doing business in France is a real good deal!
 “L’Industrie en Ile-de-France, Principaux Indicateurs Régionaux” (PDF). INSEE. Retrieved 24 November2014.