US citizens who form or acquire interests in French companies face a layer of US tax obligations that French nationals do not. France governs the entity’s French corporate tax, TVA, and employment obligations. The US imposes separate reporting requirements and potential current-year income inclusions on the US shareholder, regardless of whether the entity distributes any profits.
The core issue is entity classification. French commercial entities are per se corporations under US Treasury regulations and cannot be treated as partnerships or disregarded entities for US tax purposes. This fixed classification determines the entire US tax treatment: foreign corporation, potential CFC, Form 5471 filing obligation, and exposure to Subpart F and GILTI.
French Entity Types and US Classification
Main Commercial Entities
| Entity | Full Name | US Classification |
|---|---|---|
| SARL | Société à responsabilité limitée | Per se corporation |
| SAS | Société par actions simplifiée | Per se corporation |
| SASU | SAS unipersonnelle (single-member SAS) | Per se corporation |
| EURL | SARL unipersonnelle (single-member SARL) | Per se corporation |
| SA | Société anonyme | Per se corporation |
| SNC | Société en nom collectif | Not per se; check-the-box eligible |
The SCI (Société Civile Immobilière) is not a commercial entity and is not on the per se list. Its US classification depends on its membership structure and is addressed in the context of French real estate holdings.
No Check-the-Box Available
Treas. Reg. §301.7701-2(b)(8) lists French SA, SARL, SAS, and their variants (SASU, EURL) as per se corporations. The check-the-box election under Treas. Reg. §301.7701-3 is not available to these entities. Classification is fixed from the date of formation or acquisition. A US person cannot subsequently elect to treat a SARL as a disregarded entity or a partnership.
SARL vs. SAS: Key Structural Differences
The choice between SARL and SAS has no US classification consequence (both are per se corporations), but it affects French social contribution treatment for the manager-owner.
| Feature | SARL | SAS |
|---|---|---|
| Manager title | Gérant | Président |
| Social security status (majority manager) | TNS (travailleur non-salarié) via URSSAF | Assimilé salarié (employee equivalent) |
| Social contribution level | Lower | Higher, but more comprehensive coverage |
| Structural flexibility | More constrained by statute | Highly flexible articles of association |
For US citizens who are also French social security contributors, the TNS vs. assimilé salarié distinction affects the total cost of owner compensation. See French Social Charges for rates by regime.
French Corporate Tax (Impôt sur les Sociétés)
French IS-subject entities pay corporate income tax on profits at the following rates:
| Taxable Income | Rate | Condition |
|---|---|---|
| First €42,500 | 15% (reduced rate) | SME conditions met (see below) |
| Above €42,500 | 25% (standard rate) | SME or non-SME |
| All income | 25% | If SME conditions not met |
SME conditions for the 15% reduced rate:
- Annual turnover (CA HT) does not exceed €10 million
- Capital (capital social) is fully paid in
- At least 75% of capital held by individuals (or by companies themselves meeting the SME conditions)
A French company wholly owned by a single US individual shareholder can qualify for the 15% reduced rate if the turnover and capital conditions are satisfied.
Local Business Taxes
The CVAE (Cotisation sur la Valeur Ajoutée des Entreprises) was abolished effective January 1, 2024. The CFE (Cotisation Foncière des Entreprises), a local property-value-based business tax, continues to apply to entities and individuals conducting professional activity in France.
CFC Classification and US Inclusions
When CFC Rules Apply
A French corporation is a Controlled Foreign Corporation (CFC) under IRC §957 when US shareholders (each owning ≥10% of vote or value) collectively own more than 50% of the total combined voting power or total value. A sole US owner of a French SASU or EURL is a CFC from the first day of ownership.
A US person owning ≥10% of a French corporation is a “US shareholder” under IRC §951(b) and is subject to Subpart F inclusions, GILTI inclusions, and Form 5471 filing obligations whether or not the entity qualifies as a CFC on the collective-ownership test.
Subpart F Income
Subpart F income (IRC §951) is included in the US shareholder’s gross income in the current year, regardless of whether the French entity distributes any earnings. For a French operating company earning active business income in France, Subpart F income is typically minimal. Passive income streams within the entity (dividends from subsidiaries, interest, royalties, capital gains) may trigger Subpart F inclusions.
GILTI and the High-Tax Exclusion
GILTI under IRC §951A requires US shareholders to include their pro rata share of the CFC’s net tested income (above a 10% return on qualified business asset investment) in current-year US income.
French IS and the HTE: The GILTI High-Tax Exclusion (HTE) under Treas. Reg. §1.951A-2(c)(7) applies when the effective foreign rate on tested income exceeds 18.9% (90% of the 21% US corporate rate). French IS at the standard 25% rate exceeds this threshold; income taxed at 25% generally qualifies for the HTE and is excluded from the US GILTI inclusion.
The 15% reduced rate tranche: The first €42,500 of IS income for qualifying SMEs is taxed at 15%, which falls below the 18.9% HTE threshold. This portion of income may not qualify for the HTE and may be includable in the GILTI calculation even when the entity pays French IS.
The §250 Deduction: Unavailable to Individual Shareholders
Under IRC §250, a US C-corporation that includes GILTI in income may deduct 50% of the GILTI amount, reducing the effective US rate to 10.5% before the indirect foreign tax credit. Individual US shareholders cannot claim the §250 deduction. A US citizen who owns a French SAS or SARL in their own name is taxed on any GILTI inclusion at full individual ordinary income rates.
IRC §962 election: Individual US shareholders may elect under IRC §962 to be taxed as if they were a US corporation on GILTI and Subpart F inclusions. This allows access to the §250 deduction and the indirect foreign tax credit under §960. The §962 election is structurally complex: it produces a second layer of US tax when the CFC’s previously included earnings are actually distributed. The election must be modeled across both the inclusion year and the anticipated distribution year before it is made.
Dividend Repatriation
French Withholding Tax
When a French IS-subject entity distributes a dividend to a non-resident shareholder, France withholds at source. The domestic rate for non-EU/EEA shareholders is 25%. The US–France tax treaty (Article 9) reduces this:
| Recipient | Treaty Rate |
|---|---|
| Company holding ≥10% of voting stock | 5% |
| All other beneficial owners (general rate) | 15% |
| Qualifying pension funds and tax-exempt organizations | 0% |
Claiming treaty rates requires filing Form 5000 (attestation de résidence fiscale) with the French paying agent before the distribution. Failure to file results in withholding at the full domestic rate.
French Resident Shareholders
For a US citizen who is also a French tax resident, dividends received from a French entity are subject to the PFU at 30% (12.8% French income tax component plus 17.2% prélèvements sociaux), or to the progressive barème by election. The company’s withholding at source is credited against this liability. See French Income Tax System for PFU mechanics.
Inter-Company Dividends (Régime Mère-Fille)
For French IS-subject holding companies receiving dividends from qualifying French subsidiaries held for at least two years with at least 5% ownership, 95% of the dividend is exempt from IS. The remaining 5% (the “quote-part de frais et charges”) is included in IS income. This participation exemption applies at the corporate level; it is not available to individual shareholders.
Form 5471 Filing Obligations
US persons with qualifying interests in French corporations must file Form 5471 with their annual US Form 1040 or Form 1120. The relevant filing categories are:
| Category | Who Files | When |
|---|---|---|
| 3 | US person acquiring 10% or more of a foreign corporation | Year of acquisition |
| 4 | US officer or director of a foreign corporation with ≥10% US ownership | Any year the conditions are met |
| 5 | US shareholder of a CFC | Any year the corporation is a CFC |
A sole US owner of a French SASU who serves as its président falls simultaneously into categories 3, 4, and 5 in the year of formation and in each subsequent year.
Penalties: The failure-to-file or incomplete-filing penalty is $10,000 per form per tax year. After IRS notification of a failure, an additional $10,000 penalty accrues for each 90-day period of continued non-filing, up to $50,000 additional per year. Unfiled Forms 5471 may also result in a 10% reduction in the allowable foreign tax credit for the relevant tax year. Penalties are assessed per form per year; multiple entities and multiple unfiled years produce compounding exposure.
Technical References
Per se corporation classification is established by Treas. Reg. §301.7701-2(b)(8). The CFC definition is in IRC §957. Subpart F income is governed by IRC §951 and §952 through §965. GILTI and the HTE are governed by IRC §951A and Treas. Reg. §1.951A-2(c)(7). The §250 deduction is in IRC §250. The §962 election is in IRC §962 and Treas. Reg. §1.962-1. Form 5471 penalties are in IRC §6038(b). French IS rates are set by Article 219 CGI. The participation exemption is governed by Article 145 CGI. Treaty dividend withholding rates are in Article 9 of the US–France Income Tax Treaty (1994, as amended by the 2004 and 2009 Protocols).
Frequently Asked Questions
Can a US citizen own a French SARL or SAS?
Yes. There is no nationality restriction on forming or holding shares in a French SARL, SAS, SASU, or EURL. The significant consequence for US citizens is on the US tax side: these entities are per se corporations under US Treasury regulations and cannot be treated as pass-through entities. The US shareholder is subject to CFC rules, Form 5471 filing obligations, and potential GILTI and Subpart F inclusions.
What is the French corporate tax (IS) rate?
The standard French corporate income tax rate is 25%, applied to all taxable profits. A reduced rate of 15% applies to the first €42,500 of taxable income for qualifying SMEs whose annual turnover does not exceed €10 million and whose capital is at least 75% held by individuals. Income above €42,500 is taxed at 25% even for qualifying SMEs.
Do I have to file Form 5471 for my French company?
Yes, if you are a US person owning 10% or more of a French SARL, SAS, SASU, EURL, or SA. Filing categories 3, 4, and 5 under the Form 5471 instructions cover the acquisition of a qualifying interest, serving as a US officer or director, and holding a CFC interest. A sole US owner of a French SASU typically falls into all three categories simultaneously. The failure-to-file penalty is $10,000 per form per tax year.
Does French corporate tax eliminate US GILTI exposure?
For income taxed at the French standard rate of 25%, generally yes. The GILTI High-Tax Exclusion applies when the effective foreign rate exceeds 18.9% (90% of the 21% US corporate rate). Income subject to French IS at 25% typically qualifies for the HTE. However, income taxed at the French reduced rate of 15% (the first €42,500 for qualifying SMEs) falls below the 18.9% threshold and may not qualify for the HTE.
Can I claim the §250 deduction as an individual US shareholder of a French CFC?
No. The §250 deduction, which reduces the effective US rate on GILTI to 10.5% for C-corporations, is available only to US corporate shareholders. A US citizen who owns a French SARL or SAS in their own name is taxed on GILTI inclusions at full individual ordinary income rates. The §962 election is available as an alternative mechanism but carries its own structural complexity.
What withholding tax does France apply to dividends paid to US shareholders?
France’s domestic withholding rate on dividends paid to non-EU/EEA shareholders is 25%. The US–France tax treaty (Article 9) reduces this to 15% for general recipients and to 5% for companies holding at least 10% of the distributing entity’s voting stock. To claim treaty rates, the US shareholder must file Form 5000 (attestation de résidence fiscale) with the French paying agent before the distribution.
Is the SCI treated the same as a SARL for US tax purposes?
No. The SCI (Société Civile Immobilière) is not on the US Treasury per se corporation list and may be classified as a partnership or disregarded entity for US tax purposes, depending on its member structure. The SCI carries different US classification and reporting consequences than commercial entities such as the SARL or SAS.
What happened to the CVAE business tax?
The CVAE was abolished effective January 1, 2024. Any reference to CVAE as a current French business tax obligation is incorrect for fiscal years ending in 2024 or later. The CFE (Cotisation Foncière des Entreprises), a local tax based on the rental value of business premises, continues to apply.