France

Corporate Treasury in France

France is the second-largest economy in the eurozone and one of the founding members of the European Union. Here, we highlight some of the key benefits relevant to treasury and cash management in France.

Financial Market Development

• The World Economic Forum ranks France 14th in the world for its financial system in The Global Competitiveness Report 2019.
• It ranks France 39th in the world for the soundness of its banks. It also rates it reasonably highly for market capitalisation as a percentage of GDP and venture capital availability.
• France has good business infrastructure and a sound legal environment. The efficiency of its workforce is improving.
• There are no foreign-exchange controls in France.

Sophistication of Banking Systems

• There are more than 350 banks and credit institutions operating in France, including more than 20 banks with headquarters outside of the EU. All of the large international commercial banks have either a branch or a representative office in France.
• France’s foreign-exchange market has an average daily turnover of USD167.12 billion, accounting for 2% of global turnover (Bank for International Settlements Triennial Central Bank Survey 2019).
• France has a well-developed debt market with both government and corporate bonds widely available. The market is dominated by public-sector issuers. Outstanding debt securities stood at USD4,655 billion at the end of the first quarter of 2020.

Regulatory Bodies

• The banking industry is regulated by the Autorité de Contrôle Prudentiel et de Résolution (ACPR), which is attached to the central bank, Banque de France. As a eurozone country, France is also covered by the Single Supervisory Mechanism.

Tax

• The corporate income tax (CIT) rate is 28% for the tax year on or after 1 January 2020, falling to 26.5% for the tax year on or after 1 January 2021, and 25% for the tax year on or after 1 January 2022.
• Companies pay a social contribution tax of 0.16% on revenue excluding Value Added Tax (VAT) and after a deduction of EUR19 million relief.
• Resident companies and non-resident companies are subject to tax on their French-sourced income. Foreign income is not taxable until it is repatriated to French-resident corporations. Withholding tax (WHT) is levied on net profits after tax from French branches of non-resident, non-EU headquartered companies at a rate of 30%, which will reduce to 25% in 2022, unless a tax treaty allows for a reduction.
• The standard turnover tax (operates as VAT) rate is 20% with certain goods and services qualifying for lower rates of 10%, 5% and 2.1% or are zero-rated.
• Capital gains are generally taxed as ordinary income. However, a reduced rate of 10% is available for capital gains on the disposal of patents, and significant relief is available on the sale of shares in subsidiaries held for at least two years.
• Interest income is taxed as corporate income. Interest expenses are generally tax-deductible if certain conditions are met. For financing by a related party, interest deductions would be allowed if the lender is subject to CIT on the interest that equals 25% or more of the CIT that would be due. Net financial expenses also cannot exceed the higher of either EUR3 million or 30% of the taxpayers adjusted taxable income.
• Registration duties range from 0.1% for the transfer of certain shares, to 3% for the transfer of goodwill with a transfer price between EUR23,000 to EUR200,000, and 5% for the transfer of goodwill with a transfer price in excess of EUR200,000, to 5.09% for the transfer of real estate. Certain exemptions may apply.
• A financial transaction tax of 0.3% is levied on equity securities and similar securities.
• Payments to resident companies are not subject to WHT, but a rate of 21% or 30% on dividends and 0% on interest will be withheld on payments made to non-resident companies where there is no tax treaty. Where a tax treaty is in place and the non-resident can provide the Certificate of Residence, rates range from 0% to 30% on dividends. In the majority of cases no WHT is charged on interest, although in some case rates of up to 50% are applied.
• France has tax treaties with more than 105 countries and territories.
• France is a signatory to the Organisation for Economic Co-operation and Development’s Multilateral Competent Authority Agreement, through which information is exchanged between tax administrations, to provide a single, global picture on some key indicators of economic activity within multinational enterprises.

Benefits for Regional Treasury Centres

• France’s regulatory and fiscal framework is designed to facilitate corporate treasury centres, with no WHT on interest in most cases.
• Paris is the leading offshore renminbi centre in the eurozone.
• Cash concentration is available in France on a domestic and cross-border basis, as long as certain conditions are met. For example, the operations must be at arm’s length, the participants must sign a treasury agreement and the agreement and cash-pool structure must be authorised by a special deliberation of the board.
• Notional pooling is available but because cross-guarantees are difficult to obtain it is more expensive to arrange.
• France has Central Treasury Units, which are unique to the country and enable participants to avoid WHT on interest paid to a non-resident sister or parent company, if five conditions for treasury operations are met.
• France is a member of the pan-European TARGET2 real-time gross settlement system.
• France has one of the most extensive tax treaty networks in the world.
• France is a eurozone country with trading hours that overlap with Asia, Europe and North America.

Banking

Banking System

• There are 350 banks operating in France, a number that includes commercial, cooperative and savings banks as well as foreign banks and branches of foreign banks.
• Following the banking reforms of the 1980s and the subsequent mergers and acquisitions between private and cooperative banks, seven large banking groups emerged to dominate the market: BNP Paribas, Crédit Agricole Group, Société Générale, Groupe BPCE, Credit Mutuel–CIC, HSBC France and La Banque Postale, which is a subsidiary of the national postal service.
• BNP Paribas is the leading bank in terms of assets.
• Traditional savings banks exist as a brand under the group BPCE, which formed from the 2009 merger of CNCE and BFBP.
• Over 130 foreign banks maintain operations in France.

Bank Accounts

• Residents may hold foreign exchange and domestic currency accounts domestically and overseas, whereby domestic currency accounts are freely convertible into foreign currency.
• Non-residents may hold foreign exchange and domestic currency accounts, whereby the domestic currency accounts may be held overseas and are freely convertible into foreign currency.
• Interest is available to current accounts.

Legal and Regulatory

• The Banque de France is an autonomous institution and a member of the European System of Central Banks (ESCB).
• The Autorité de Contrôle Prudential et de Résolution (ACPR or French Prudential Supervision and Resolution Authority) is an independent institution that is responsible for supervising the banking and insurance industries in France. The Minister for Economy and Finance is directly responsible for the regulation of these sectors.
• The European Central Bank (ECB) supervises banks within the eurozone that are regarded as ‘significant’ through the Single Supervisory Mechanism (SSM), while other ‘less significant’ banks are supervised by the national institution, such as the ACPR.
• France is one of the founding members of the EU.
• France has anti-money laundering and counterterrorism financing legislation in place, and follows EU anti-money laundering directives.
• There are no foreign-exchange controls in place.
• A company is resident if it is incorporated in France or locates its ‘effective management’ in France.
• France has set up a financial intelligence unit, the unit for Treatment of Intelligence and Action Against Clandestine Financial Networks Unit (TRACFIN), which is a member of the Egmont Group.
• Individuals entering or leaving the EU are required to declare currency of EUR10,000 to customs.

Payments

On 13 January 2018, the revised Payment Services Directive (PSD2) became law across all EU Member States. A revision of the initial PSD adopted in 2007, PSD2 updates and enhances the legal framework for payment systems across the European Economic Area (EEA) single market, to be supervised by the European Banking Authority. Supplemental regulatory technical standards are also being rolled out, from March 2018 to September 2019, to address issues of authentication, monitoring and API (application programming interface) standardisation.

The main objective of PSD2 is to provide enhanced consumer security in the developing financial technology (fintech) environment i.e. for electronic payments such as mobile payments, credit transfers, online payments and direct debits. 

Measures include:

• Prohibition of surcharges on credit/debit card payments.
• Imposition of strict security requirements including the protection of financial data.
• Increased competition between European payment service providers.
• Greater consumer rights such as ‘no questions asked’ refunds on direct debits in euros.

Payment Systems

Payment Instruments

Credit Transfers

• All credit transfers are automated in France.
• Credit transfers are a popular form of cashless payment, particularly for high-value transactions, and have grown in line with electronic payments. They accounted for 88.9% of the value of cashless payments in 2019, but only 17.1% of the volume (European Central Bank).
• High-value and urgent credit transfers are settled through TARGET2 in real time.
• Low-value and non-urgent credit transfers are settled through CORE and are used for payroll, supplier and third-party transactions.
• Credit transfers are mandatory for tax transactions for companies with a gross turnover of over EUR15 million and for social security payments (Banque de France).
• The Sepa Credit Transfers Instant Credit Scheme (SCT Inst) scheme is used for retail transactions and is available for urgent and high-priority payments up to a maximum of EUR15,000 within the SEPA.

Direct Debits (auto debits)

• Direct debits are used for low-value, regular payments such as utility bills.
• The national direct debit instruments, France's niche titre interbancaire de paiement (TIP) and télérèglement (TLR), have migrated to SEPA.eu.
• Direct debits are processed through CORE or STEP2 and settled by SEPA.
• Direct debits accounted for 6.1% of the value of total cashless payments and 17.5% of volume in 2019 (European Central Bank).

Card Payments

• Payments cards are the dominant form of cashless payment, especially debit cards used for low-value transactions with touch-and-go contactless payment facilities.
• This is reflected by the fact that card payments accounted for 58.6% of the volume of cashless payments, but only 2.2% of the value in 2019.
• In 2019 there were 84.49 million payment cards in circulation in France.
• The main credit card brands are Visa and MasterCard, although American Express and Diners Club are also in use, as well as the domestic cards, Cetelem and Cofinoga.
• Most cards are processed through the national payment card operator, Groupement des Cartes Bancaires (GCB), and the majority of cards have the GCB logo. GCB has 117 participants including Visa and MasterCard, which are co-branded with other payment card brands. All cards are SEPA- and Europay, MasterCard and Visa (EMV)-compliant.
• Card payments with domestic cards are cleared through CORE.

Online Payments

• The French government has launched a EUR10 billion plan over 2017-2020 to support innovation and development in the fintech sector. This includes the adoption of a more ‘relaxed’ approach to the regulation of digital startups and businesses as well as streamlining registration procedures.
• The EU launched an ‘action plan on Fintech’ in 2018 that broadly sets out its approach, to be rolled out in due course. The areas of focus are: to encourage innovative business models; to support technological development in blockchain, artificial intelligence and cloud services; and to increase cybersecurity and protect the integrity of the financial system.
• With the rise of mobile and other online transactions, digital payments are a growth sector, accounting for 22% of cashless payments. Recent surveys show that 67% of internet users in France are using digital banking services to pay online.
• Mobile banking has also seen a steep rise in popularity, as most domestic banks offer their own apps, such as Hello Bank by BNP Paribas and Boursorama Bank by Société Générale. Other non-bank payment providers - Lydia and CityZi for example – have also jumped into this highly competitive market.
• Mobile commerce represents 21% of the EUR81.7 billion e-commerce market.
• Digital wallets are gaining popularity and represent 20.9% of e-commerce payments, with PayPal having the largest market share, but potential security concerns are somewhat stunting growth. As such, the dominant e-commerce payment method is bank card, accounting for 53.9% of online transactions.

Digital Currencies

• France had initially adopted a cautious approach to the cryptocurrency market, imposing high tax rates and advocating strict regulation. However, the government’s stance has recently changed in favour of promoting cryptocurrency markets and blockchain innovation.
• The EU’s overall view of bitcoin is that “no member state can introduce its own currency”. Cryptocurrency exchanges are legal, depending on the country, and should be under the Anti-Money Laundering Directive, according to the European Commission.
• The French government has said it is coordinating with Germany on a joint proposal to regulate the bitcoin cryptocurrency market (Reuters).

Cash, Cheques and Other Payment Schemes

• Despite the rise of digital and electronic payment options, cash is still used for over 50% of transaction volume, though only 15% of transaction value.
• Cheque usage is still a common form of cashless payment for retail transactions.
• France is the largest user of cheques in the EU, accounting for 71% of the total cleared in the region in 2016. Cheque use is in decline, however, due to the growth in electronic payments.
• Cheques are usually truncated into electronic images and then cleared through CORE. Circular cheques (above EUR 5,000 in value or irregular cheques) have to be presented physically between banks through the Centre d'Échanges Physiques de Cheques. Cheques accounted for 4% of the value of cashless payments and 10% of the volume in 2016.
• France operates two types of bills of exchange: lettres de change relevée (LCRs) and billets à ordre relevé (BORs), which are both negotiable and transferable. LCRs are electronic trade bills which resemble post-dated cheques in terms of use, are used for commercial transactions and are supposed to be initiated by the creditor, however, are often issued by the debtor. BORs are electronically processed promissory notes and are initiated by the debtor. BORs and LCRs are truncated into electronic images and then processed through CORE.

Demographics

¹ (Main) reduced and zero-rated VAT for certain goods and services

² (Progressive) max rate will be reduced to 28% from 1 January 2020

³ (Progressive) max rate on incomes over EUR300,000

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Sources: IMF, World Economic Forum, PwC, Bank for International Settlements, Autorité de Contrôle Prudentiel et de Résolution, Association for Financial Professionals, OECD, European Central Bank, Swift, Goethe University House of Finance, DBS, The Banks, J.P. Morgan, Banque de France.

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