Branch, Subsidiary or Liaison Office in France: Which Structure to Choose for Establishing a Foreign Company?

Branch, Subsidiary or Liaison Office in France: Which Structure to Choose for Establishing a Foreign Company?

 

When a foreign company plans to establish a presence in France, several legal structures are available. The choice between a branch, a subsidiary or a liaison office depends on the nature of the planned activity, the degree of autonomy desired for the French entity, and the tax, social and legal implications associated with each option.

This article provides an overview to guide readers in their initial reflections.

 

An incomplete legal framework for foreign company branches in France: analogy with the concept of a secondary establishment.

The legal regime for foreign company branches in France remains underdeveloped. French law provides no clear statutory definition of a branch, creating uncertainty for both practitioners and authorities.

The Commercial Code merely states, in Articles L.123-1, L.123-3 and R.123-112, that any foreign company opening an establishment in France must register it with the Trade and Companies Register (RCS) within 15 days of commencing operations.

In practice, this registration is often anticipated. Late filing may cause administrative difficulties, particularly regarding the allocation of a SIRET number, registration with URSSAF (social security contributions), hiring of employees or the filing of initial tax returns.

In the absence of a specific statutory definition, practice draws an analogy with the concept of a “secondary establishment” for French companies under Article R.123-40 of the Commercial Code. Three main criteria are generally applied:

• the existence of a permanent establishment distinct from the foreign registered office;
• the conduct in France of an autonomous and ongoing business activity;
• the local establishment’s capacity to legally bind the foreign company vis-à-vis third parties.

Although this reasoning by analogy is functional, it can create confusion, particularly where the French activity gradually becomes more independent or the establishment begins to operate in a manner similar to a subsidiary.

 

Legal qualification of a branch in France. The permanence criterion: flexible but decisive

Once the general framework has been set, the next question is how the requirement of a permanent establishment is assessed in practice to justify registration of a branch in France.

Permanence does not necessarily imply an indefinite or even very long duration. It is not about establishing a presence “for life,” 50 or 99 years. Case law and administrative practice adopt a functional approach: what matters is the intention to maintain a significant economic activity for a certain period, with the necessary operating resources.

Contrary to a common belief, permanence does not require physical premises (such as offices, warehouses or factories). The criterion may be satisfied where the local entity has the material or human resources to carry out economic activity on a continuous basis.

A few examples illustrate this approach:

• Pop-up stores: where a foreign fashion company opens a short-term promotional or event-based retail space in Paris, the permanence requirement is usually not met if the installation lasts only days or weeks. In this case, registration of a branch is not required.
• Corners in department stores: by contrast, where a foreign brand maintains a relatively stable retail outlet over several months in a department store (e.g. Galeries Lafayette, Printemps), the activity is considered sufficiently durable and autonomous to justify branch registration with the RCS.
• Long-term construction projects: foreign companies involved in public or private works (construction, aeronautics, nuclear, etc.) may be active on projects lasting one, two or three years. In such cases, the duration of the project becomes central to the assessment of permanence. This issue is particularly sensitive where it overlaps with tax considerations, notably the concept of a “permanent establishment” under international tax treaties—a matter to which we shall return later.

 

The branch qualification: human presence and complementary assessment criteria

The absence of physical premises does not exclude branch qualification. However, human presence in France is an important, though not decisive, factor.

Having a single employee does not automatically imply the existence of a branch. Much depends on the role carried out by that person and the extent of local activity. In practice, the more employees the local structure has (two, three, four or five people, for example), the more likely it is to qualify as a branch, given the functional autonomy and intensity of operations.

This distinction becomes particularly relevant when differentiating a branch from a liaison office, which is subject to much stricter limitations.

Where all the conditions are met—significant human presence, autonomy of activity and permanence—the branch must be registered with the RCS.

 

Legal characteristics of a branch in France: a mere extension of the foreign company

From a legal standpoint, a branch is not an autonomous entity. It has no separate legal personality, no independent assets, and no distinct liability. It is simply an extension of the foreign company, with which it forms a single legal and economic unit.

This lack of autonomy carries practical implications in both liability and business operations. The key advantages and disadvantages can be summarised as follows:

Advantages of a branch

• Ease of creation: unlike a subsidiary, a branch does not require the opening of a French bank account or the creation of share capital. Registration is faster and less burdensome.
• Enhanced commercial credit: a branch benefits from the reputation and financial strength of its parent company. Third parties may consult the parent company’s consolidated or historical financial statements, offering greater reassurance. A newly created subsidiary, by contrast, will have no such track record and will need group support to build confidence with partners or clients.
• Simplified access to regulatory authorisations within the EU: where an activity is subject to authorisation, a branch may sometimes rely on mutual recognition of approvals obtained in the home State. This process is generally easier than for a subsidiary, which is treated as a new legal entity and must undergo a full authorisation procedure.

Disadvantages of a branch

• No limited liability: all commitments undertaken by the branch fully and directly bind the foreign parent company. Debts, litigation or tax liabilities arising in France fall upon the parent, without any separation of responsibility.
• Possible commercial limitations: some clients or partners, particularly in regulated or localised sectors, prefer to contract with a company incorporated under French law. The absence of separate legal personality may thus hinder commercial development, especially where the legal nationality of the contracting entity carries strategic importance.

 

The liaison office in France: a non-commercial structure requiring close monitoring

The distinction between a branch and a liaison office is crucial, particularly from a tax perspective. Failing to register with the Trade and Companies Register (RCS) as a branch is, strictly speaking, a legal irregularity. But the more serious consequences arise when the French tax authorities determine that the activity conducted in France is in fact commercial and taxable, while the local entity has been declared as a mere liaison office. In such cases, significant financial penalties may be imposed for concealing taxable activity and failing to make the required declarations.

A liaison office is fundamentally different from a branch in that it cannot, under any circumstances, carry out commercial activity. Its functions are strictly limited to auxiliary or preparatory tasks, such as:

• market research;
• feasibility studies;
• communication or advertising operations;
• logistical or warehousing activities, provided these are not linked to direct sales.

That said, the notion of “market research” must be handled with care. For example, sending employees from a foreign company to analyse the French market, study consumer behaviour, conduct marketing surveys or organise visibility campaigns is generally permissible. However, as soon as such activities take the form of active canvassing, product demonstrations, or initiating contact with a view to concluding contracts, the line is crossed into commercial activity. At that point, the use of a liaison office is excluded.

In practice, many foreign companies begin their presence in France through a liaison office, often as a way to test the market and keep initial costs low. But it is essential to monitor the evolution of local activity: once commercial functions emerge (hiring of sales staff, contractual activity, canvassing), the structure must be requalified as a branch—and therefore registered with the RCS.

This is not only a matter of legal and tax compliance for the foreign company, but also of professional responsibility for its advisors, who must document the development of local activity and issue warnings if it begins to cross into undeclared commercial activity.

Liaison Office vs. Branch in France: Administrative Distinctions and Registration Formalities

The differences between liaison offices and branches are also reflected in administrative requirements and registration procedures.

1. Registration with the Trade and Companies Register (RCS). A branch, because it carries out commercial activity, must be registered with the RCS within 15 days of commencing business in France (Articles L.123-1 and R.123-112 of the Commercial Code). It is then issued a SIRET number and is recognised as an active establishment of the foreign company in France.

By contrast, a liaison office, being non-commercial in nature, is not registered with the RCS. This distinction is essential, as in practice there was long-standing confusion. For a time, certain liaison offices were mistakenly registered through the one-stop business portal (guichet unique), but this option has since been removed.

Today, the one-stop portal no longer allows the registration of a liaison office as such. Where formalities are nevertheless required (e.g. to obtain a SIRET number), it is the foreign company itself, without establishing a branch in France, that is registered for limited purposes.

1. Registration with URSSAF when hiring employees. It is possible—and common—for a liaison office to employ one or more staff in France, for example to conduct market research or non-commercial prospecting activities. In such cases:

• the foreign company must register with URSSAF to meet French social security obligations;
• this is a social registration only, and does not imply recognition of a permanent establishment in France.

This formal registration allows the foreign company to file hiring declarations, pay social security contributions and comply with French employment law.

1. Other cases of registration outside the RCS. Other specific situations may require registration via the one-stop portal, even without a permanent or commercial establishment:

• Specific tax declarations: for example, where a foreign company owns real estate in France, it may be liable for the annual 3% tax (TVVI) on the fair market value of the property (Article 990 D et seq. of the French Tax Code). If it is not exempt, it must register with the tax authorities (DGFIP) solely to file and pay this tax.
• Agricultural or craft activities: where a foreign company engages in agricultural or artisanal activities in France, or employs workers in this context, registration must be completed with the competent body (e.g. AMSA). While this scenario is less common, it must be anticipated in certain sectors.

 

Liaison office or branch in France. The importance of tax qualification: a decisive issue.

Although the distinction between a liaison office and a branch is based initially on legal criteria, its real significance lies in taxation. In practice, tax treatment often crystallises the key issues, making the advice of a tax lawyer indispensable in borderline cases.

At the heart of the distinction is the concept of commerciality, which is assessed primarily from a tax perspective. This determines whether the entity is subject to what may be broadly referred to as “business taxes”: primarily corporate income tax (CIT) and value added tax (VAT).

1. Corporate Income Tax (CIT). A branch, as a permanent establishment conducting economic activity in France, is subject to CIT. It must:

• keep separate accounts, allowing the results generated in France to be identified;
• file an annual tax return (Form 2065) with the French tax authorities.

Even though a branch does not publish annual accounts separate from those of the foreign company, it must still maintain distinct accounts to identify its French taxable results. This segregation is critical to avoid reassessment in the event of a tax audit.

1. VAT: a broader and autonomous scope. The VAT regime is even more complex. A foreign company may be liable for VAT in France without having a permanent establishment or opening a branch.

Certain operations (intra-EU deliveries, provision of services, online sales, etc.) trigger the obligation to appoint a tax representative or register for VAT in France, even without a physical presence or commercial activity under company law.

In such cases, the foreign company must obtain a SIRET number through the one-stop portal, enabling it to file VAT returns (notably Form CA3). This is purely a tax registration, not recognition of a permanent establishment, and obligations are limited to VAT compliance.

This is a crucial point: a foreign company may be subject to VAT in France while remaining outside the scope of CIT—and vice versa. Each situation requires careful analysis.

1. Social obligations: an equivalent regime. From a social security perspective, the obligations are the same whether the foreign company operates in France through a branch or a liaison office. In both cases:

• as soon as employees are hired in France, the company must register with URSSAF;
• it must file hiring declarations, pay social contributions and comply with French employment law.

The legal status of the structure (branch or liaison office) has no impact on these obligations. The employment of staff on French soil automatically triggers submission to French social security rules.

 

The subsidiary in France: an autonomous legal entity under French law

Although the subsidiary is not the central focus here, it is important to highlight the key differences between this structure and a branch, in order to provide a complete overview of the options available for a foreign company establishing a presence in France.

1. A distinct entity with legal personality. A subsidiary is a French company incorporated under French law and registered with the Trade and Companies Register (RCS). It has its own legal personality, an autonomous pool of assets, and its liability is limited to the contributions of its shareholders. It is subject to all applicable French legal and regulatory provisions.

Unlike a branch, a subsidiary:

• can sue and be sued in its own name;
• bears its own liability, theoretically shielding the parent company from direct risk;
• must comply with French company law, particularly regarding governance, bookkeeping, annual approval of accounts, and so forth.

1. “Limited” liability… but often nuanced in practice. While a subsidiary enjoys limited liability, this protection is often less absolute in practice. In reality, where a subsidiary is wholly owned by a foreign parent, the parent company frequently provides guarantees, particularly:

• to facilitate access to financing or specific markets;
• to reassure suppliers and contractual partners;
• or to provide direct financial support for the subsidiary’s development.

In such cases, if the subsidiary fails, the benefit of limited liability may be weakened where the parent has acted as guarantor or assumed direct commitments.

1. Tax and accounting: a comparable burden. From a tax perspective, both subsidiaries and branches are subject to corporate income tax (CIT) and value added tax (VAT), insofar as they conduct economic activity in France. The assumption that a branch is systematically less burdensome from a tax standpoint is misleading. Specifically:

• a subsidiary must prepare and publish its own annual accounts in accordance with French law;
• a branch, although it does not publish its own accounts, must nevertheless maintain separate bookkeeping sufficient to determine its taxable results in France;
• furthermore, each year the branch is required to file the foreign parent company’s accounts with the French commercial court registry, accompanied by a certified translation—often a costly process, sometimes exceeding the administrative costs of maintaining a subsidiary.

1. Administrative advantages of a branch. From an administrative standpoint, a branch benefits from lighter formalities:

• no annual general meeting to convene;
• no obligation to recapitalise in case of losses;
• no constraints relating to share capital.

However, this simplicity should not obscure the heightened legal and tax risks, particularly where the scope of activity is mischaracterised or where there is insufficient separation between foreign and French operations.

1. Applicable law. A subsidiary is governed entirely by French law for all matters (governance, contracts, liability, taxation). By contrast, a branch is subject:

• to the law of the parent company’s home country for its internal functioning (management, governance, decision-making);
• to French law for matters relating to its operations in France (employment contracts, taxation, social security, etc.).

 

Conclusion: choosing according to objectives and risk profile

The choice between liaison office, branch and subsidiary can only be made after a thorough analysis of strategic objectives, the nature of the intended activity in France, legal, tax and social constraints, and medium- to long-term commercial expectations.

A liaison office is a temporary, non-commercial solution, particularly suited to exploratory phases. A branch offers a faster set-up and lighter administration but directly exposes the foreign company. A subsidiary provides maximum legal autonomy and a stronger shield of liability separation, at the price of greater formality.

In all cases, the tax criterion, particularly the distinction between preparatory activities and commercial activities, remains decisive. Consulting a tax lawyer at the earliest stage is essential.

Contact me to discuss your French market entry project.

Sandro ASSOGNA