France

Introduction

 

About France

France has the world's sixth largest economy and is the third largest economy in the EU. A major driver in its economy is its chemical industry which helped to stimulate other manufacturing activities and let to economic growth. France has the second largest market in Europe with its large domestic base.

Various regulatory reformations have been implemented to increase competitiveness of its economy. Entrepreneurship is further propagated through strong protection of property rights, in addition to its efficient regulatory framework. France has also signed tax treaties with over 120 countries.

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

France's banking system is privatised and has maintained stable credit ratings with a steady loan performance and strong capital and liquidity.

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

 

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.
In-house Banks (IHB) In-house banks provide corporate treasurers with another method of centralising and consolidating their business.
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 29th in the world for financial-market development in The Global Competitiveness Report 2015-2016.
  • It ranks France 40th in the world for the soundness of its banks. It rates it reasonably highly for the ease of access to loans, venture capital 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 175 commercial banks operating in France, including 92 branches of 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 USD 181 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.

 

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 33.33%. It is being reduced progressively to 28% by 2020.
  • Large companies pay a social contribution tax of 3.3% on CIT liability above EUR 763,000. Companies with a turnover equal to or above EUR 1 billion pay an additional contribution of 0.04%.
  • Companies pay an additional 3% tax on dividend distributions unless certain conditions are met.
  • Resident companies pay tax on their French-sourced income. Non-resident companies are taxed on income attributable to French business activity and real estate located in France.
  • Turnover tax (VAT) is charged at a standard rate of 20%. Certain goods and services qualify for lower rates of 10%, 5% and 2.1% or are zero-rated.
  • Registration duties range from 0.1% for the transfer of shares to 3% for the transfer of goodwill and 5.09% for the transfer of real estate.
  • A financial transaction tax of 0.3% is levied on equity securities and similar securities.
  • Withholding tax (WHT) is levied on net profits from French branches of non-resident, non-EU corporations at a rate of 30%, unless it is reduced by a tax treaty.
  • 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 tax-deductible if certain conditions are met. Twenty-five percent of the net finance expenses of a company subject to French CIT is not deductible.
  • Foreign tax credits may be provided where tax has been paid on certain foreign-sourced income.
  • Payments to resident corporations are not subject to WHT. Non-resident companies where there is no tax treaty generally pay a rate of 21% or 30% on dividends and nothing on interest. Where a tax treaty is in place, 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 through charging no WHT on interest.  
  • 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, such as 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 378 banks in France, which include commercial, savings, cooperative rural and foreign banks and branches of foreign banks.
  • The banking sector is dominated by four banks: BNP Paribas, Crédit Agricole, Société Générale and BPCE. BNP Paribas is the leading bank in terms of assets and the Belgian government is the largest stakeholder with a 10% share. 

 

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) 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), and 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 operates economic activity in France or is the location of effective management.
  • Legally, there is no distinction between resident and non-resident companies 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.

 

Payments

 

Payment Systems

TARGET2

The Eurozone's Real-time Gross Settlement (RTGS) system

  • Operates on behalf of the Eurosystem.
  • Three Eurosystem central banks – Banca '’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 CORE (European multilateral deferred net settlement system; see below).
  • 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 approximately 125 direct and 203 indirect participants.

 

EURO1

The Eurozone's RTGS-equivalent net settlement system

  • Operated by EBA Clearings.
  • Processes high-value (no maximum value threshold) and urgent Euro-denominated domestic and cross-border payments.
  • Payments processed with immediate finality and are irrevocable.
  • There are 52 participant banks and 14 participating banks in France.

STEP1

The Eurozone's net settlement system

  • Operated by EBA Clearings.
  • Processes low-value (no minimum value threshold) and non-urgent Euro-denominated commercial payments.
  • STEP1 open to all banks in the EU and has access to EURO1 platform.

 

STEP2

 

Pan-European Automated Clearing House (ACH)

  • Operated by the EBA Clearings.
  • 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.
  • There are 137 participant banks.

SEPA

(Single Euro Payments Area)

EU integrated-payment infrastructure

  • Pan-EU standardised electronic payment system, set up for settlement of EUR-denominated credit transfers and direct debits.
  • Not applicable to urgent, high-priority transactions. There is no value threshold.
  • Jurisdictional scope of SEPA is the 28 EU member states plus Iceland, Norway, Liechtenstein, Switzerland, Monaco and San Marino.

 

CORE

Mulitlateral deferred net settlement system

  • Operated by Systèmes Technologiques d’Echange et de Traitement (STET).
  • CORE is used for the clearing and settlement of all domestic retail payments. It is SEPA-compliant.
  • 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 (CSM), SEPA.EU. The migration of France’s SEPA Direct Debits have been migrated onto SEPA.EU. It accepts SWIFTNet and settles payments through TARGET2. SEPA Credit Transfers is due to be fully migrated by 2018.
  • There are approximately 10 direct participants, including the Banque de France, and 347 indirect participants.
  • 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.
  • Cheques and paper-based payments are truncated into electronic images and are then typically processed through CORE. There is a maximum threshold of EUR 800,000.
  • Cheques over EUR 5,000 or irregular cheques (circular cheques (chèques circulaires) (cannot be truncated into electronic images) are presented physically through Centre d'Échanges Physiques de Cheques to the drawn bank.

 

 

 

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. They accounted for 88% of the value of cashless payments, but only 18% of the volume in 2015 (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 EUR 15 million and for social security payments (Banque de France).

  • The Sepa Credit Transfers (SCT) scheme is used for retail transactions and is available for urgent and high-priority payments (no maximum threshold) 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 been migrated to SEPA EU.

  • Direct debits are processed through CORE or STEP2 and settled by SEPA.

  • Direct debits accounted for 16.5% of the value of total cashless payments and 16.2% of volume in 2015.

 

Cheques

  • Cheque usage is still a common form of cashless payment for retail transactions. It is in decline, however, as it is overtaken by 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 11% of the value of cashless payments and 4% of the volume in 2015.

 

Card Payments

  • Payments cards are growing in popularity, especially debit card use for low-value transactions.

  • This is reflected by the fact that card payments accounted for 51% of the volume of cashless payments, but only 1.8% of the value in 2015.

  • There are 81 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.

  • There are 60,490 ATM terminals in France, and all ATMs and POS terminals are EMV-compliant.

 

Other Payment Schemes

  • There are many electronic money schemes available as reloadable prepaid cards and e-purse schemes. GCB jointly operates the reloadable Moneo e-purse scheme, which has 14.2 million in circulation in 2014. YouPass is an e-purse particularly popular for online gaming.

    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

Recent developments

 

Finastra Joins Finance Innovation Hub

Software firm Finastra has joined Finance Innovation, France’s innovation hub that connects financial services companies with FinTechs to help drive collaboration. The group said the move gave it a range of opportunities to work with FinTechs in the region and grow local participation in its open innovation platform FusionFabric.cloud, developing new apps and making the platform more easily available to banks and other financial institutions both in France and potentially globally.

Read more about the development here

 

France to Develop ICO Legal Framework

The Government plans to create a legal framework for companies raising funds through cryptocurrencies, known as Initial Coin Offerings. Finance Minister Bruno Le Marie is proposing an action plan that would give regulator Autorité des marchés financiers the option to authorise companies to issue tokens to raise funds as long as they meet certain criteria to protect investors. France hopes to become the first major financial centre to have an ICO legislative framework.

Read more about the development here.

 

Groupe BPCE to Launch Samsung Pay

Groupe BPCE is set to launch mobile payment solution Samsung Pay in France on an exclusive basis for Banque Populaire and Caisse d’Epargne customers. The move will enable customers to make payments through Samsung smartphones wherever contactless Visa payments are accepted. The payment system has been developed in collaboration with Natixis Payment Solutions, the mobile payments arm of Groupe BPCE.

Read more about the development here.

 

Bank Charge Increases Slow in Face of Competition

French banks raised customer charges at a slower pace this year as they face rising competition from new low-cost online lenders. Growth in charges slowed in January, when lenders typically set their rates for the year ahead, after fees rose at their fastest pace in nearly 20 years in 2017, according to data from state statistics institute INSEE. Analysts have predicted the entry of internet banks, which now have a 5% market share, could spark a price war in the sector.

Read more about the development here.  

 

 

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 Outlook database, October 2016; CIA World Factbook; Trading Economics; PwC

Please note that the information contained in this document, assembled based on information available and accurate as at July 2017, is of a general nature only and is subject to change whether for economic, political, social or other reasons.

 

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Last updated on 07 Jun 2018