France

Introduction

 

About France

France is the world's sixth largest economy and the third largest in the EU. A major driver in its economy is its chemical industry which helps to stimulate other manufacturing activities and fuel overall economic growth. France is the second most populous country in the EU.

Various regulatory reforms have been implemented in France to increase the competitiveness of its economy. Entrepreneurship is encouraged through strong protection for intellectual property and an efficient regulatory framework. France has signed tax treaties with over 120 countries.

France is well-connected to Europe and the rest of the world with its world-class transportation infrastructure, enabling it to serve as a gateway to Europe, the Middle East and Africa.

France's banking system is privatized, and its banks have maintained stable credit ratings with steady loan performance and high levels of capital and liquidity.

French-Chinese cooperation has increased in recent years with growing investments by French businesses in China, including many joint ventures.

 


France Treasury Management Market Profile Infographic_small

What solutions are available in France?

Solution Description
Interest Optimisation Maximise your interest yield from for your balances held with the bank.
Sweeping/ Zero Balance Account (ZBA) ZBA are checking accounts with zero balances where funds are physically swept to eliminate excess balances and maintain greater control over disbursements.
Intercompany loans Similar to bank loans, intercompany loans refer to lending between entities within the same group.

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 33rd in the world for financial market development in The Global Competitiveness Report 2017-2018.
  • It ranks France 31st in the world for the soundness of its banks. It rates it reasonably highly for venture capital availability and financing through local equity markets.
  • 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 300 banks operating in France, including more than 130 foreign banks. 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 USD181 billion, accounting for 2.8% of global turnover (Bank for International Settlements triennial global survey 2016).
  • 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 by resident issuers stood at USD4,597 billion at the end of 2017.

 

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% on taxable income up to EUR500,000 and 33.33% on taxable income in excess of EUR500,000. For the tax year on or after 1 January 2019, the 33.33% rate for taxable income in excess of EUR500,000 will be reduced to 31%. For the tax year on or after 1 January 2020, standard CIT for all companies will be reduced to 28% and then further reduced 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. 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%, 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 0%.
  • Capital gains are generally taxed as ordinary income. However, a reduced rate of 15% 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. 25% of the net finance expenses of a company subject to French CIT are not tax deductible.
  • Registration duties range from 0.1% for the transfer of certain shares to 3% (transfer price between EUR23,000 to EUR200,000) or 5% (transfer price in excess of EUR200,000) for the transfer of goodwill and 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.
  • France has tax treaties with more than 100 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, such as 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 over 300 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) was scheduled to become 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

CORE Mulitlateral deferred net settlement system
  • Operated by Systèmes Technologiques d’Échange et de Traitement (STET).
  • CORE is used for the clearing and settlement of all domestic retail payments. It is SEPA (Single Euro Payments Area) compliant.
  • Processes low-value, non-urgent and bulk EUR-denominated retail payments, including France’s lettres de change relevée (LCRs), billets à ordre relevé (BORs) (see Other Payment Schemes) and most cheque payments.
  • CORE enables an ongoing bilateral exchange of payments between direct participants.
  • Final settlement is done through TARGET2.
  • Cross-border EUR-denominated payments can be made through EURO1.
  • Cross-border payments can also use SWIFT messaging and settle accounts with correspondent overseas banks.
  • In November 2016, STET launched a new clearing and settlement system, SEPA.eu.
  • France’s SEPA Credit Transfers (SCT) and Direct Debits (SDD) have migrated onto SEPA.eu. It accepts SWIFTNet and settles payments through TARGET2.
  • There are approximately ten direct participants, including the Banque de France, and 337 indirect participants.
  • Cheques and paper-based payments are truncated into electronic images and are then typically processed through CORE. There is a maximum threshold of EUR800,000.
  • Cheques over EUR5,000 or irregular cheques (circular cheques, chèques circulaires, which cannot be truncated into electronic images) are presented physically through Centre d'Échanges Physiques de Cheques to the drawn bank.

Single Euro Payments Area

(SEPA)

 Pan-European payment infrastructure
  • Initiated by the EPC (European Payments Council).
  • Operates a common set of payment instruments, infrastructures, procedures and standards for euro transactions within Europe. 
  • Electronic retail payments within SEPA are regarded as domestic payments.
  • SEPA is not applicable to urgent, high-priority payments or cheques.
  • SEPA countries include 28 EU member states and four European Free Trade Association member states (Iceland, Liechtenstein, Norway and Switzerland).
  • A Europe-wide legal framework for payments, PSD2, was launched in 2016, which essentially provides security for electronic payments inside and outside of the EEA.
  • There are two SEPA payment instruments: SCT, and SDD (see below).

SCT

SEPA Credit Transfer		 Pan-European instant payments system
  • Operated by the EPC.
  • 585 participants.
  • Launched in November 2017, this scheme provides EUR-denominated credit transfers up to a maximum of EUR15,000 within ten seconds, and is available 24/7, year round.
  • Currently there are eight participating countries: Austria, Estonia, Germany, Italy, Latvia, Lithuania, the Netherlands and Spain. The network will progressively cover all 34 European countries with access to SEPA.
  • Corresponding national systems were phased out in 2016.

SDD

SEPA Direct Debits		 Pan-European direct debit system
  • Operated by the EPC.
  • 585 participants.
  • There are two types of SDD: SDD Core for consumers and SDD B2B for businesses.
  • Operates whereby the payer must give approval via a mandate provided by the biller electronically or on paper. Otherwise known as creditor-driven mandate flow.
  • Corresponding national systems were phased out in 2016.
RT1 Pan-European real-time EUR credit transfer system
  • Operated by EBA Clearing, which also operates EURO1, STEP1, STEP2 and Italy's SIA Group (one of the STEP2 operators).
  • Launched in 2017.
  • 28 participants.
  • A pan-European real-time infrastructure for EUR-denominated SEPA transactions.
  • Supports transactions compliant with SCT Inst scheme.
  • Messaging is in line with ISO 20022 or SWIFT FIN standard.

TARGET2-Banque de France

(Trans-European Automated Real-time Gross Settlement Express Transfer system)

The Eurozone's Real-time Gross Settlement (RTGS) system
  • Operates on behalf of the Eurosystem.
  • Three Eurosystem central banks – Banca d’Italia, Banque de France and Deutsche Bundesbank – provide the Single Shared Platform (SSP) of TARGET2.
  • Processes high value and urgent EUR-denominated domestic and cross-border credit transfers.
  • Activates final settlement of participants’ net balances from STEP2 (pan-European Automated Clearing House).
  • Settles transactions in real time and with immediate finality.
  • Transactions are processed electronically using SWIFT.
  • Final settlement is done across participant banks’ correspondent accounts held at the SSP.
  • France has 133 direct and 194 indirect participants.

EURO1

Pan-European RTGS-equivalent net settlement system
  • Operated by EBA Clearing.
  • Processes high-value (no maximum value threshold) and urgent euro-denominated domestic and cross-border payments.
  • Payments processed with immediate finality and are irrevocable.
  • Operates SWIFT messaging.

STEP1

Pan-European net settlement system
  • Operated by EBA Clearing.
  • Processes low-value (no minimum value threshold) and non-urgent euro-denominated commercial payments.
  • STEP1 is open to all banks in the EU and has access to EURO1 platform.
  • Operates SWIFT messaging.

STEP2

 

Pan-European Automated Clearing House (ACH)
  • Operated by EBA Clearing.
  • Processes low-value, non-urgent and bulk euro-denominated retail payments.
  • Provides straight-through processing for interbank transactions.
  • Settlement done same or next day, depending on time of submission.
  • A pan-European real-time infrastructure for EUR-denominated transactions is under development by EBA Clearing and Italy's SIA Group (one of the operators of STEP2).
  • Cross-border transactions can be processed through SWIFT and overseas correspondent banks.

 

 

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 87% of the value of cashless payments in 2016, but only 18% of the volume (Banque de France).
  • 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% of the value of total cashless payments and 19% of volume in 2016 (Banque de France).

 

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 53% of the volume of cashless payments, but only 2% of the value in 2016.
  • In 2016 there were 82 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.

 

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 used frequently, though mainly for small transactions.
  • 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

France Treasury Management Market Profile_Inforgraphic

 

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

2 (Progressive) max rate will be reduced to 31% from 1 January 2019

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

 

Recent developments

 

PayTrip Launches Prepaid Card in France

Fintech PayTrip has launched a prepaid card in France to make it easier and cheaper for people to send money to family who live in Africa. The card, which can also be used by parents to make money available to their children without opening a bank account for them, reduces the time for a transfer to take place from a few days to a few minutes. PayTrip raised EUR1 million earlier this year from private investors and banks.

Read more.

 

Ban on Anonymous Cryptocurrencies Proposed

A ban on anonymous cryptocurrencies, also known as privacy coins, has been proposed by the head of the National Assembly’s Finance Committee. The coins offer complete anonymity as their design prevents the holder from being identified. In a report on crypto assets and blockchain, Eric Woerth proposed a ban on the dissemination and trade of the coins. The report also addressed issues relating to the use of cryptocurrencies for fraud, tax evasion and money laundering.

Read more.

 

Customer Needs Top Fintech Agenda

Customer needs and the digitisation of customer services are top of the agenda for fintechs as the industry faces new challenges and opportunities, Paris Fintech Forum 2019 heard. Digital banks have been able to attract customers by offering enhanced services, but building a profitable business remains challenging. As a result, digital banks are looking to move into other business areas, such as lending. A panel at the conference agreed that scaling and sustainability were the biggest challenges the new banks faced.

Read more.

 

This Market Profile is brought to you by DBS. Get in touch with us for further insights on doing treasury in France and take advantage of our innovative solutions to empower your business. Click here to find out more.

 

 

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.

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