Branch, subsidiary or liaison office in France: which structure should you choose when setting up a foreign company?

When a foreign company plans to establish a presence in France, several legal options are available. The choice between a branch, a subsidiary, or a liaison office depends on the nature of the planned activities, the desired level of autonomy for the French structure, and the legal, tax and administrative consequences associated with each form.

This article provides a comprehensive and up-to-date overview of the legal and fiscal framework, to help foreign businesses identify the most suitable structure for their strategic goals.

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A sparse legal framework, built on analogy with the concept of a secondary establishment

The legal regime governing foreign branches in France remains underdeveloped. There is currently no clear legal definition of a branch under French law, which creates a degree of uncertainty in practice.

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

In practice, registration procedures are often initiated in advance. Late registration can lead to administrative issues, particularly regarding the allocation of a SIRET number, URSSAF registration, or the onboarding of employees.

In the absence of a specific definition, the notion of a foreign branch is assessed by analogy with the concept of a secondary establishment for French companies, as defined in Article R.123-40 of the Commercial Code. This leads to the application of three main criteria:

• the existence of a permanent establishment distinct from the foreign company’s head office;
• the exercise of an autonomous and sustainable business activity in France;
• the ability of the local establishment to legally bind the foreign entity in dealings with third parties.

While this comparative method is helpful, it may be insufficient in practice when the local activity evolves into something more autonomous or begins to resemble the operation of a subsidiary.

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The “permanence” criterion: a flexible but decisive standard

Once this legal framework has been outlined, the practical question becomes how to assess the requirement of a permanent establishment for branch registration purposes.

In reality, “permanence” does not require an indefinite or long-term presence. It is understood in a functional sense: what matters is whether the activity in France is sustained, economically significant, and supported by adequate resources.

Contrary to common belief, a physical office is not required. The permanent character of an activity is determined by the continuity and means of operation deployed locally — whether human or material.

Here are some examples:

• Pop-up stores: If a fashion company opens a temporary store in Paris for a few days or weeks, the permanence and sustainability conditions are not met, and there is no obligation to register a branch.
• Corners in department stores: If a brand sets up a more stable presence — for several months — in a place like Galeries Lafayette or Printemps, the criteria for a branch may be met, and RCS registration may be required.
• Long-term construction projects: Companies involved in infrastructure, energy, or aerospace sectors may operate in France for a year or more under public or private contracts. In such cases, the duration and economic relevance of their activity often lead to a reclassification as a permanent establishment. This can have important fiscal implications, especially under international tax treaties (notably the concept of a permanent establishment).

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Human presence: a supporting, but not decisive, factor

Having a physical presence in France — such as local staff — is an important indicator, though not sufficient in itself to constitute a branch.

The presence of only one employee does not automatically mean that a branch exists. What matters is the employee's role and the extent of the local activities. In practice, as soon as the structure includes multiple employees (2, 3, 4, 5 people), the likelihood that it qualifies as a branch increases, due to the growing autonomy and scope of operations.

This analysis will be further developed below when comparing the branch with the liaison office, which is subject to much stricter requirements.

Once all relevant conditions are met — significant human presence, operational autonomy, permanent establishment — registration as a branch with the RCS becomes mandatory.

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The branch: an economic extension of a foreign company

From a legal standpoint, a branch is not an independent entity. It has no separate legal personality, no independent assets, and no distinct liability. It is a mere extension of the foreign parent company, forming an economic and legal unit with it.

This lack of autonomy has practical implications in terms of both liability and business operations. Here’s a summary of the advantages and disadvantages:

Advantages of the branch

• Simplified registration process: Unlike a subsidiary, creating a branch does not require opening a local bank account or setting up share capital. Registration is faster and more flexible.
• Enhanced commercial credibility: The branch benefits from the reputation and financial strength of the parent company. Third parties can rely on the parent company’s track record and financial statements, which can facilitate contracts and negotiations. In contrast, a newly formed subsidiary has no history and may require the group’s support to gain trust.
• Easier access to regulatory authorizations under the EU freedom of establishment: In certain regulated sectors, branches may benefit from mutual recognition of authorizations obtained in the home country, unlike subsidiaries, which are treated as new legal entities and must undergo full licensing procedures.

Disadvantages of the branch

• No limited liability: Any obligations incurred by the branch are fully and directly attributable to the foreign company. This includes contractual liabilities, tax debts, and litigation risks.
• Potential commercial limitations: In some sectors, clients or partners prefer — or require — to contract with a company governed by French law. The lack of separate legal personality may be a barrier to business development, especially where a French legal presence is expected or required.

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The liaison office: a non-commercial structure to monitor closely

The distinction between branch and liaison office is crucial — particularly for tax purposes. Failing to register a commercial activity as a branch is a legal issue, but the most serious consequences arise when the French tax authorities requalify an activity as taxable, while it was presented as non-commercial. This can trigger severe financial penalties for undeclared taxable operations.

By definition, a liaison office is not allowed to carry out commercial activity. It is strictly limited to preparatory or auxiliary functions, such as:

• market research,
• feasibility studies,
• communication or publicity campaigns,
• storage or logistics activities, as long as they are not directly linked to sales.

That said, the concept of “market research” must be handled with caution. Sending a team to explore the French market, study consumer behavior or test a marketing strategy is fine. But the moment the activity involves active solicitation, product presentation or contractual negotiations, it crosses the line into commercial activity — and thus requires branch registration.

In practice, many foreign companies begin with a liaison office to test the market and minimize initial costs. But close monitoring is required: once salespeople are hired or client relationships formalized, the structure may need to be reclassified as a branch, triggering full registration and tax obligations.

This is crucial not only to avoid tax risks, but also to ensure that advisors properly document the evolution of the local activity and adjust the structure when necessary.

Liaison office vs branch: key administrative and registration differences

The distinction between a liaison office and a branch also plays out in terms of administrative requirements and registration formalities.

1. Registration with the French Trade and Companies Register (RCS)

A branch, due to its commercial nature, must be registered with the RCS within 15 days of starting activity in France (Articles L.123-1 and R.123-112 of the Commercial Code). It is then assigned a SIRET number and is considered an operational establishment of the foreign company in France.

By contrast, a liaison office, being non-commercial, does not require registration with the RCS. This is a critical point, as there has long been confusion on this issue. For a time, it was possible to wrongly register liaison offices via the online “guichet unique”, but this is no longer allowed.

Today, the guichet unique no longer permits registration of liaison offices as such. If a number is required (e.g., to obtain a SIRET), the foreign company itself, without a permanent establishment in France, is registered for limited administrative purposes.

2. URSSAF registration in case of local employees

It is common for a liaison office to employ staff in France, for example to conduct market research or non-commercial prospecting. In such cases:

• The foreign company must register with URSSAF to comply with French social security obligations.
• This is a social security registration, not a recognition of a permanent establishment.
• It allows the company to declare new hires, pay social contributions, and comply with French labor law.

3. Other cases of registration outside the RCS

Some specific situations require registration via the guichet unique, without involving a permanent or commercial establishment:

• Specific tax declarations: for example, if a foreign company owns property in France, it may be liable for the 3% annual tax on the market value of real estate (TVVI) under Article 990 D et seq. of the French Tax Code. If no exemption applies, the company must register with the French tax authorities (DGFIP) solely to file and pay this tax.
• Agricultural or artisanal activities: if a foreign company conducts agricultural or craft activities in France, or hires employees in such sectors, the relevant authority — such as the MSA (Mutualité Sociale Agricole) — will validate the registration. Though rare, this must be considered in certain industries.

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The importance of tax qualification: a decisive issue

While the distinction between a liaison office and a branch is initially legal in nature, it becomes especially significant when viewed from a tax perspective. In practice, it is often taxation that defines the real impact of the chosen structure — which is why the advice of a tax lawyer is essential, particularly in borderline cases.

The key factor separating the two forms is commerciality, which is primarily assessed from a fiscal standpoint. This directly determines exposure to what may be broadly referred to as “commercial taxes”, i.e., corporate income tax (CIT) and value-added tax (VAT).

1. Corporate income tax (CIT)

A branch, as a stable establishment conducting business in France, is subject to French corporate income tax. It must:

• maintain a separate accounting system, allowing isolation of income generated in France;
• file an annual corporate tax return (Form 2065) with the French tax authorities.

Even if the branch does not publish standalone financial statements, it must still keep a dedicated set of books, sufficient to determine the taxable profit attributable to its French activity. This separation is crucial to avoid reassessment in case of a tax audit.

2. VAT: a broader and independent field

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

Certain operations (intra-EU sales, service provisions, e-commerce, etc.) trigger a VAT registration requirement, without implying physical presence or commercial activity under company law.

In these cases, the foreign company must obtain a SIRET number through the guichet unique, solely for the purpose of submitting its VAT returns (typically using Form CA3). This registration is purely fiscal and does not equate to the recognition of a stable establishment.

This distinction is vital: a foreign company may be liable for VAT in France while not subject to corporate tax, and vice versa. Such situations require careful legal and tax analysis.

3. Social obligations: an equivalent regime

From a social security perspective, obligations are identical for branches and liaison offices. In both cases:

• as soon as staff are employed in France, the foreign company must register with URSSAF;
• it must declare new hires, pay social contributions, and comply with French labor laws.

Thus, the legal structure (branch vs liaison office) does not affect social obligations. The mere employment of personnel on French territory automatically subjects the company to French social security rules.

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The subsidiary: an autonomous legal entity under French law

Although not the primary focus of this article, it's essential to outline the key differences between a subsidiary and a branch to provide a full overview of the options available to foreign companies seeking to establish in France.

1. A distinct legal entity with its own legal personality

A subsidiary is a French company registered with the local Trade and Companies Register. It has its own legal personality, separate assets, and limited liability, and is fully subject to French legal and regulatory requirements.

Unlike a branch, the subsidiary:

• can enter into contracts and legal proceedings in its own name;
• is liable for its own obligations, theoretically shielding the parent company from direct exposure;
• must comply with French corporate law rules, including governance, bookkeeping, and annual shareholders’ meetings.

2. “Limited liability” — often nuanced in practice

Although liability is formally limited to the capital contributed by shareholders, this protection is often mitigated in real-world situations. When a subsidiary is 100% owned, the parent company frequently provides:

• guarantees to secure loans or leases,
• reassurances to suppliers and clients,
• financial support for business development.

Therefore, in the event of insolvency or litigation, the parent company’s exposure may increase despite the legal separation.

3. Comparable tax and accounting obligations

From a tax perspective, both the subsidiary and the branch are subject to French corporate income tax and VAT, provided they carry out economic activity in France. The belief that a branch is inherently cheaper from a tax perspective is not always accurate.

In particular:

• The subsidiary must prepare and publish full financial statements under French rules;
• The branch, although not publishing its own accounts, must keep separate books for its French activity to calculate taxable profit.

In addition, a branch must file the parent company's financial statements with the commercial court every year, along with a certified French translation — which can be more expensive than preparing simple French accounts for a subsidiary.

4. Administrative advantages of the branch

A branch enjoys lighter formalities, notably:

• no need to hold annual general meetings,
• no requirement to recapitalize if equity falls below legal thresholds,
• no constraints relating to share capital.

However, these simplifications must not obscure the higher risks associated with insufficient separation between the French and foreign entities, both in legal and tax matters.

5. Applicable law

The subsidiary is governed entirely by French law.
The branch, by contrast, is subject to:

• the law of the home country for internal corporate affairs (governance, decision-making, etc.),
• French law for local matters such as employment, taxation, and regulatory compliance.

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Conclusion: choosing based on strategic goals and exposure

Choosing between a liaison office, branch, or subsidiary should be the outcome of a careful assessment of your company’s strategic goals, the nature of the planned activities in France, and the associated legal, tax, and administrative implications.

A liaison office is a suitable temporary solution for non-commercial exploratory phases. A branch allows for a fast and flexible setup but fully exposes the foreign parent company. A subsidiary, while more formal, offers legal and operational independence along with a clear separation of liability.

In every case, the fiscal dimension — especially the distinction between preparatory and commercial activity — is decisive. It is highly recommended to consult with a qualified tax advisor at the outset.

Taxlhab assists international groups, SMEs, and ETIs with their setup and legal structuring in France. We offer support at all stages: risk assessment, entity selection, registration, legal and tax follow-up — in close coordination with your in-house or external advisors.

Contact us to discuss the structure best suited to your plans for expanding into the French market.

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