Accounting services for French branches: compliance, tax & growth strategies

French branch vs. subsidiary: legal & accounting differences

When expanding into France, understanding the key legal and accounting differences between establishing a branch and a subsidiary is essential to avoid costly mistakes.

1. Legal Status

   • A French branch is an extension of the parent company. It does not have a separate legal entity, as defined in Article L123-5 of the French Commercial Code.

   • A French subsidiary, such as a SARL or SAS, is an independent legal entity, providing a distinct structure and greater autonomy.

2. Tax Liability

   • The parent company is fully liable for the debts and taxes of a branch.

   • A subsidiary’s liability is limited to its own assets, protecting the parent company from direct exposure.

3. Setup Costs

   • Establishing a branch involves lower costs, as there is no minimum share capital requirement.

   • Creating a subsidiary comes with higher costs, starting from €1 for an SAS or €37,000 for a SARL.

4. Financial Reporting

   • A branch consolidates its financials with the parent company, following French GAAP.

   • A subsidiary prepares standalone financial statements, which can adhere to French GAAP or IFRS.

Branches are ideal for short-term projects, but subsidiaries offer long-term risk mitigation. For example, a French manufacturer recently saved €200k in tax credits by opting for a subsidiary structure.

Accounting implications for foreign companies 

Branches require meticulous alignment between parent company practices and French standards.

Checklist : 5 Risks of Mishandling French Branch Accounting

1.     Double taxation : Without a tax treaty claim, profits may be taxed in both France and the parent company’s country.

2.     Missed deadlines : Late VAT filings incur penalties up to 5% (Art. 1728 CGI).

3.     Currency mismatches : Reporting in euros (mandatory) vs. parent company’s currency.

4.     Audit triggers : Discrepancies between local and parent company reports raise red flags.

5.     Payroll errors : Misclassifying employees? Fines up to €10k per case (Code du Travail).

Step-by-step compliance with French GAAP & tax laws

French branches must align with the Plan Comptable Général (PCG), France’s accounting framework. Here’s how to stay compliant:

Step-by-Step Process :

1.     Chart of accounts : Adapt your parent company’s system to the PCG’s 7-digit structure.

2.     Liasse fiscale : File annual tax returns (including balance sheets, P&L, and annexes).

3.     Statutory audits : Required if revenue exceeds €5M (Art. L823-2, Commercial Code).

Key Difference :
Unlike IFRS, French GAAP prohibits revaluation of intangible assets and has stricter depreciation rules.

Comparative Table : French GAAP vs. IFRS

When comparing French GAAP with IFRS, notable differences arise in three key areas: asset valuation, lease accounting, and revenue recognition.

1. Asset Valuation

   • French GAAP: Based on historical cost, providing a stable and straightforward valuation approach.

   • IFRS: Allows fair value valuation, offering a more market-driven perspective.

2. Lease Accounting

   • French GAAP: Operating leases are recorded off-balance sheet, simplifying financial statements.

   • IFRS: Requires capitalization of all leases in compliance with IFRS 16, offering greater transparency but increasing complexity.

3. Revenue Recognition

   • French GAAP: Focuses on the delivery of goods or services as the trigger for recognizing revenue.

   • IFRS: Adopts a five-step model under IFRS 15, which includes identifying contracts, performance obligations, and transaction price allocation.

Need help navigating French tax laws? 

Explore our corporate tax services or contact our team today.