Didier Hémion, partner at Primexis, writes about France’s changing investment climate and how calls for reform look set to yield a more favourable landscape in 2015.
As 2014 drew to a close, there were signs that France is moving to create a more favorable investment climate and especially for foreign investors. While France has always been cited by investors for its quality infrastructure of transportation and communication, skilled workforce and geographical position in the heart of Europe…there has also been a constant demand for less regulation and more flexibility. Help may be on the way.
Word Bank Report Recognizes Positive Changes
In this year’s edition of the World Bank report "Doing Business 2015 -Going Beyond Efficiency", an annual comparative study of business regulations in 189 economies, France was recognized in two key areas that are always mentioned by investors as needing improvement: starting a new business and labor market regulations. "France made starting a business easier by reducing the time it takes to register a company at the one-stop shop (Centre de Formalités des Entreprises)." And perhaps more importantly to investors looking at France: "France substantially amended its labor market regulations, including provisions dealing with large-scale collective redundancy processes."
In this 2015 report, three new indices were introduced: measuring conflict of interest, minority shareholder protection and shareholder governance. Worldwide, France is cited along with four other economies as the highest scoring in these areas. These rankings are especially important for investing companies needing to be covered by SOX regulations.
France’s Economic Minister Pushes Reforms
On December 17th, France’s Economic Minister Emmanuel Macron, addressed foreign investors and laid out some key reforms that the government believes are positive steps toward making France a more attractive environment. At the top of investors’ priorities are lowering the cost of labor, greater flexibility in hiring and redundancy, and simplification of social contributions, all of which are addressed in Macron’s new measures. Specific to foreign investors’ needs, fast tracking on visas for start-up founders, researchers and engineers was also addressed by the introduction of "les passeports talents". The government is banking on these new measures, combined with the 2012 tax credit for businesses known as "credit impôt competitivité et emploi", to shift investor opinion on France to that of a more attractive and friendlier investor environment.
French European Commissioner for Economic Affairs Pierre Moscovici , has also weighed in on the government’s intentions, stating that France is a country "which has huge forces but (…). which needs obvious and major reforms….We need a reform agenda that is continuous and very ambitious because France is a country that is stalled in competitiveness." President François Hollande’s message is expected to speak about both the changes being implemented and those to come when he personally presents these measures to an international audience at the Davos summit in January.
President Hollande who swept into power in 2012 identifying his real adversary as "the world of finance" now seems to be doing an about-face faced with the realities of a stagnant economy. By 2014, French trade union chief Jean-Claude Mailly described the situation as " he (Hollande) was the enemy of finance; he has become the President of the corporations." The truth lies somewhere in between. So what are the facts?
Individual tax: The infamous 75% tax on those earning over 1 millon euros introduced in 2012…is gone this February. The 2004 "impatriate" tax scheme, created and designed to lessen the tax burden for foreigners working with international corporations, has been extended under the new law. Individual tax gains realized by the scheme have steadily progressed (7.350€ in 2007 to 12.195€ in 2013). Sabine Binisti, Partner and tax specialist on international tax mobilty at the Paris based law firm TaJ, calls it one of the most favorable impatriate tax schemes in Europe.
Corporate tax: A steady decline in corporate tax has been agreed upon. The current 33% rate lessens to 32% by 2017 and 28% by 2020. Although corporate skepticism about government ability to deliver on these reductions runs high, France offers a wide range of tax breaks and incentives to companies, including credits for hiring older workers and setting up in a poor region. By far the most significant incentive is a research and development tax credit of 30 per cent.
Cutting Red Tape: The American Chamber of Commerce in France hails the recent "collaborative work between companies and the administration" as progress on a key investor demand : administrative simplification. In their 2014 report on "American Investors Morale in France" they specifically cite the announcement to overhaul payroll record keeping. Corporate registration has also become easier by the creation of a single entity, a Center for Company Formalities. Administrative simplification has become a key talking point for all of French Economic Minister Emmanuel Macron’s new initiatives.
End to retro-active taxes: A huge step forward was made in December when French Finance Minister Michel Sapin announced the end of a practice of retro-activity for taxes, except in cases where it would benefit companies. The possibility of retro-activity had been major obstacle for corporate planning and accounting.
We at Primexis, like the rest of the business community in France and internationally, will be closely monitoring these changes and those to come. What is clear is that there is positive movement.
By Didier Hémion, partner and international business services head at Primexis