France: Holding Company Fiscal Regime

For a country to be an attractive location in which to set up a holding company four criteria must be satisfied:

• Incoming Dividends: Incoming dividends remitted by the subsidiary to the holding company must either be exempted from or subject to low withholding tax rates in the subsidiary's jurisdiction.
  
• Dividend Income Received: Dividend income received by the holding company from the subsidiary must either be exempted from or subject to low corporate income tax rates in the holding company's jurisdiction.

• Capital Gains Tax on Sale of Shares: Profits realized by the holding company on the sale of shares in the subsidiary must either be exempt from or subject to a low rate of capital gains tax in the holding company's jurisdiction.

• Outgoing Dividends: Outgoing dividends paid by the holding company to the ultimate parent corporation must either be exempt from or subject to low withholding tax rates in the holding company's jurisdiction.

By these criteria France is not a particularly attractive jurisdiction in which to locate a holding company:

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Withholding Taxes on Incoming Dividends

As a member of the EU France is governed by the provisions of the EU's Parent-Subsidiary directive, whose effect is that where a French holding company controls at least 10% (reduced from 15% on January 1, 2009) of the shares of an EU subsidiary for a minimum period of 12 months any dividends remitted by the EU subsidiary to the French holding company are free of withholding taxes.

Where the provisions of this directive do not apply (or where anti-avoidance provisions are in place) French holding companies can rely on an extensive network of double taxation treaties the effect of which is to obtain a reduction in withholding tax rates on dividends remitted to France from the subsidiary jurisdiction.

France has over 110 double taxation treaties in place. The greater a country's network of double taxation treaties the greater its leverage to reduce withholding taxes on incoming dividends. An elaborate network of double taxation treaties is thus a key factor in the ability of a territory to develop as an attractive holding company jurisdiction.

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Corporate Income Tax on Dividend Income Received

Since the 'precompte' system was abolished in 2005, dividends received by a French corporation from a foreign subsidiary are taxable as income.

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Capital Gains Tax on the Sale of Shares

In France capital gains made by a French holding company on the profitable sale of its shares in a foreign subsidiary are subject to a reduced capital gains tax rate. In 2006, gains on the sale of shares in subsidiaries held for at least two years were taxed at a reduced rate of 8%. From January 1, 2007, 95% of these capital gains are excluded from corporate income tax, the remaining 5% portion being taxed at the standard 33.33% rate. Capital gains realized by non-resident investors on the sale of shares in French companies that are subject to corporate income tax are taxed (from 2006) at the rate of 16%, provided the non-resident investor has held at least 25% of the share capital of the French company at any time over the past five years.

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Withholding Taxes on Outgoing Dividends

Dividends paid by French holding companies are subject to a standard rate of 25% withholding tax unless:

• The parent corporation is resident in the EU and has held 10% of the shares (15% prior to 2009) in the French holding company for at least 12 months in which case no withholding taxes are levied.
  
• The parent corporation is not an EU entity but the rate is reduced by the provisions of a double taxation treaty usually to 0-15% with lower rates often granted if the foreign parent corporation has a higher shareholding. France has over 100 double taxation treaties in place.

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