Regulations are about to evolve in France, in particular with regards to immigration and taxation which are likely to present new constraints for foreign employers and intra-group mobility for their employees.
- A bill of law for controlled immigration in line with the Directive 2014/66/EU has just been approved by the National Assembly on the 23rd of April 2018 and partially amended by the Senate at first reading on 26th of June 2018. This bill strengthens intra-group transfers of third country nationals in France.
- In parallel, the introduction of a withholding income tax at source in France has been confirmed as of the 1st of January 2019 which is not without implications for foreign employers.
New French immigration constraints
Adoption of the Directive 2014/66/UE
The EU Directive 2014/66/EU adopted in May 2014 lays down the conditions for the entry and residence of executives, experts or trainee employees from third countries in the context of a temporary intra-group transfer to a Member State.
Although this Directive originally intended to facilitate intra-group transfers of third-country nationals within the EU through the introduction of a single residence and work permit valid in different EU Member States, it ultimately proved to be particularly restrictive for multinational companies and even more constraining than national regulations previously in force.
Indeed this Directive has introduced restrictive conditions for obtaining and renewing such immigration permit:
- A precondition of group seniority of at least 3 to 12 months (at the discretion of each EU member states), immediately before the starting date of an assignment within EU is required.
- The duration of such immigration permit (ICT Card) for experts and managers is limited to a maximum of 3 years (1 year for trainees). This period of validity consequently limits the length of intra-group transfer of third country nationals within EU to 3 years going against international social security regulations according to which social security secondment within EU member states can go up to 5 to 6 years.
- Furthermore, any renewal of the ICT card is subject to a period of residence outside EU up to 6 months, meaning that the employee will have to leave the EU for a maximum of 6 months before having his immigration card being renewed. This can however be avoided if the employee obtain a resident permit within the country of assignment.
Current applicable legislation in France
The Directive has since been transposed in France by the adoption of the Immigration law n°2016-274 in March 2016. Two new residence permits have been created, in particular a multi-year residence ICT card for posted employee of a maximum duration of 3 years. Such an ICT card is delivered to seconded employees in France under specific conditions as part of an intra-group mobility in order to occupy a senior management position or to bring its expertise in France. In line with the Directive, a prerequisite of 3 months of Group seniority has since been required (regardless of the entity within the Group) and not necessarily within the company requesting the secondment in France.
New bill of law in France – What is new?
Almost two years after the transposition of the Directive 2014/66/UE in France, a new bill of law has just been adopted by the National Assembly in France.
The main objective of this bill, which is still under examination by the Senate, is to regulate asylum request but indirectly also impact the intra-group transfers of third country nationals in France. This bill in line with EU Directive, strengthens the applicable law in France and makes it harder for companies:
- to obtain ICT card in France for their third country nationals by requesting a prior seniority of 6 months within the Group and not only 3 months as previously required;
- as well as its renewal by requesting that the employee leaves the EU territory for at least 6 months before any renewal request.
What is the impact for multinational groups?
This bill could therefore impede multinational companies ability to bring highly qualified managers and experts in France, compromising France’s attractiveness and more generally limit intra-group mobility in France and within the EU.
Direct tax withholding for employees assigned in France and implication for foreign employers
France is still one of the few countries that does not yet operate a withholding tax system. To this day, French tax residents pay taxes on income on their tax return filings on an annual basis; with exceptions, particularly for non-residents receiving French source income subject to tax deduction at source (which should remain unchanged).
From the 1st of January 2019, income tax will be levied directly on income at the time it is received. Deduction at source will not affect the methods of calculation, but new recovery methods are introduced. The deduction at source will be mandatory.
For French tax-residents, distinction should be made between:
- Foreign-source income (received in return for work carried outside of France) paid by a foreign employer which will remain subject to the current advance payment system unless otherwise provided for by a tax treaty;
- French-source income (paid in return for work carried in France) to a tax-resident in France who will be subject to the new direct withholding tax system, this whether the income is paid by an employer established in France or abroad.
New withholding tax & seconded employees in France
Income paid by foreign employer, for instance Swiss companies to their employees (Tax resident in France) in return of work carried in France, will be subject to the new direct withholding.
New declarative modalities for foreign employers
Pursuant to the General Tax Code, the employer is liable for withholding tax when income paid are wages, whether or not established in France.
Foreign employers whose employees are not affiliated to the French social security scheme but under a foreign social security system (for instance Swiss system) will be required to subscribe to the PASRAU declaration. Whereas employers, whose employees are covered by the French social security scheme, will be required to subscribe to the DSN (“Déclaration Sociale Nominative”).
A SIRET number seems required to allow PASRAU online declarations. Social and tax consequences are likely to arise from the request of a SIRET Number, depending on the form used, which could lead to the creation of an establishment in France. Such consequences should be analyzed prior to any request for a Siret number. The request for a Siret number should only be intended to open access to make PASRAU declarations and should not have any other consequences likely to arise from the creation of an establishment in France.
Legal obligation to appoint a representative in France
There is a legal obligation to appoint a tax representative in France for any foreign employer not established in the EU. Only companies established within the EU or the European Economic Area may be exempted from appointing a representative in France. The tax representative, pre-accredited by the competent tax authorities, will undertake to fulfil the formalities on behalf of the foreign employer and, where applicable, to pay the withholding taxes to the competent French tax authorities. Foreign employers’ representative can either be a trustee (fiduciary or chartered accountant firm) or a subsidiary of the Group in France.
Full details of the new system have not yet been officially communicated. Precisions are expected as of October 2018 from the tax competent institution for foreign employer (SIEE) which has been informed of the specific nature of managing payroll for employees on international mobility and the difficulties for subsidiaries in France to use a PASRAU declaration while using the DSN for their own employees.
There will be some flexibility on the part of the SIEE; compliance deadlines, for foreign companies, will likely to be granted in the first half of 2019. Hence our recommendation is to wait until October before filling any form, so as to give the SIEE the necessary time to specify the modalities to follow.