France Market Profile - Treasury Management | DBS Corporate Banking

Corporate Treasury & Cash Management in France

At a glance

About France

France is the world's seventh largest economy and the third largest in Europe. France has a diversified economy driven by tourism, manufacturing and pharmaceuticals, while its main exports are transport equipment. France is the second most populous country in the European Union (EU). 

Various regulatory reforms have been implemented in France to increase the competitiveness of its economy. Entrepreneurship is encouraged through strong protection for intellectual property and an efficient regulatory framework. France has signed tax treaties with over 100 countries.

France is well-connected to Europe and the rest of the world with its world-class transportation infrastructure, enabling it to serve as a gateway to Europe, the Middle East and Africa.

France's banking system is privatised, and its banks have maintained stable credit ratings with steady loan performance and high levels of capital and liquidity.

The country’s main export partners are Germany, Spain and Italy.

Corporate Treasury in France

France is the second-largest economy in the eurozone and one of the founding members of the EU. In this section, we highlight some of the key factors relevant to treasury and cash management in France. 

Financial Market Development

Paris is ranked 25th in the 2021 Global Financial Centres Index by Z/Yen Group. 
France has a solid business infrastructure and a sound legal environment. The efficiency of its workforce is improving. 
There are no foreign-exchange controls in France.

Sophistication of Banking Systems

There are more than 350 banks and credit institutions operating in France, including 20 banks with headquarters outside of the EU. All of the large international commercial banks have either a branch or a representative office in France. 
France’s foreign-exchange market accounts for 2% of the daily global turnover, according to the Bank for International Settlements.
France has a well-developed debt market with both government and corporate bonds widely available. The market is dominated by public-sector issuers. Outstanding debt securities stood at USD5,532 billion at the end of December 2021.

Regulatory Bodies

The banking industry is regulated by the Autorité de Contrôle Prudentiel et de Résolution (ACPR), which is attached to the central bank, Banque de France. As a eurozone country, France is also covered by the Single Supervisory Mechanism (SSM).
Banque de France has set up a Climate Change Centre to monitor and coordinate its activities relating to sustainable finance and climate change.

Tax

The corporate income tax (CIT) rate is 26.5% for companies with turnover of less than EUR250 million and 27.5% for companies with turnover above this level, for the tax year on or after 1 January 2021. Companies with a turnover of up to EUR10 million pay a reduced rate of 15%.
Companies pay a social contribution tax of 0.16% on revenue excluding Value Added Tax (VAT) and after a deduction of EUR19 million relief. 
Resident companies and non-resident companies are subject to tax on their French-sourced income. Foreign income is not taxable until it is repatriated to French-resident corporations. Withholding tax (WHT) is levied on net profits after tax from French branches of non-resident and non-EU headquartered companies at a rate of 26.5%, which will reduce to 25% in 2022, unless a tax treaty allows for a reduction. 
The standard turnover tax (operates as VAT) rate is 20%, with certain goods and services qualifying for lower rates of 10%, 5.5% and 2.1%. Certain goods and services are VAT exempt. 
Capital gains are generally taxed as ordinary income. However, a reduced rate of 10% is available for capital gains on the disposal of patents, and significant relief is available on the sale of shares in subsidiaries held for at least two years. 
Interest income is taxed as corporate income. Interest expenses are generally tax-deductible if certain conditions are met. For financing by a related party, net financial expenses cannot exceed the higher of either EUR3 million or 30% of the taxpayers adjusted taxable income. 
Registration duties range from 0.1% for the transfer of certain shares, to 3% for the transfer of goodwill with a transfer price between EUR23,000 to EUR200,000, and 5% for the transfer of goodwill with a transfer price in excess of EUR200,000, to 5.8% for the transfer of real estate. Certain exemptions may apply. 
A financial transaction tax of 0.3% is levied on equity securities and similar securities. 
Payments to resident companies are not subject to WHT, but a rate of 12.8% or 26.5% on dividends and 0% on interest will be withheld on payments made to non-resident companies where there is no tax treaty. Where a tax treaty is in place and the non-resident can provide a Certificate of Residence, rates range from 0% to 26.5% on dividends. In the majority of cases, no WHT is charged on interest. 
France has tax treaties with more than 105 countries and territories. 
France is a signatory to the Organisation for Economic Co-operation and Development’s Multilateral Competent Authority Agreement, through which information is exchanged between tax administrations, to provide a single, global picture on some key indicators of economic activity within multinational enterprises.

Benefits for Regional Treasury Centres

Paris is the leading offshore renminbi centre in the eurozone. 
Cash concentration is available in France on a domestic and cross-border basis, as long as certain conditions are met: the operations must be at arm’s length, the participants must sign a treasury agreement and the agreement and cash-pool structure must be authorised by a special deliberation of the board. 
Notional pooling is available but because cross-guarantees are difficult to obtain, it is more expensive to arrange. 
France is a eurozone country with trading hours that overlap with Asia, Europe and North America.

Banking

Bank Accounts

Residents may hold foreign exchange and domestic currency accounts domestically and overseas, whereby domestic currency accounts are freely convertible into foreign currency.
Non-residents may hold foreign exchange and domestic currency accounts, whereby the domestic currency accounts may be held overseas and are freely convertible into foreign currency.
Interest is available to current accounts.

Legal and Regulatory

The Banque de France is an autonomous institution and a member of the European System of Central Banks (ESCB). The Autorité de Contrôle Prudential et de Résolution (ACPR or French Prudential Supervision and Resolution Authority) is an independent institution that is responsible for supervising the banking and insurance industries in France. The Minister for Economy and Finance is directly responsible for the regulation of these sectors.
The European Central Bank (ECB) supervises banks within the eurozone that are regarded as ‘significant’ through the SSM, while other ‘less significant’ banks are supervised by the national institution, such as the ACPR.
A company is resident if it is incorporated in France or locates its ‘effective management’ in France.
France has set up a financial intelligence unit, the unit for Treatment of Intelligence and Action Against Clandestine Financial Networks Unit (TRACFIN), which is a member of the Egmont Group.
Individuals entering or leaving the EU are required to declare currency of EUR10,000 to customs.

Payments

The Payment Services Directive (PSD2), which is law across all EU Member States, provides enhanced consumer security in the developing financial technology (fintech) environment i.e. for electronic payments, such as mobile payments, credit transfers, online payments and direct debits.

Measures include:

Prohibition of surcharges on credit/debit card payments.
Imposition of strict security requirements, including the protection of financial data.
Increased competition between European payment service providers.
Greater consumer rights, such as ‘no questions asked’ refunds on direct debits in euros.

Additionally, France’s National Strategy for Cashless Payment Instruments is a five-year road map (2019-2024) for: promoting secure and trustworthy electronic payment systems; fostering technological innovation in the payments sector; and contributing to European efforts to deepen the single market for payments.

Payment Systems

CORE COmpensation REtail	Multilateral deferred net settlement system	Operated by Systèmes Technologiques d’Échange et de Traitement (STET). CORE is used for the clearing and settlement of all domestic retail payments. It is Single Euro Payments Area (SEPA) compliant. Processes low-value, non-urgent and bulk EUR-denominated retail payments, including France’s lettres de change relevée (LCRs), billets à ordre relevé (BORs) and most cheque payments. CORE enables an ongoing bilateral exchange of payments between direct participants. There are approximately ten direct participants, including the Banque de France, and 356 indirect participants. Cheques and paper-based payments are truncated into electronic images and are then typically processed through CORE. There is a maximum threshold of EUR800,000. Cheques over EUR5,000 or irregular cheques (circular cheques, chèques circulaires, which cannot be truncated into electronic images) are presented physically through Centre d'Échanges Physiques de Cheques to the drawn bank.
SEPA Single Euro Payments Area	Pan-European payment infrastructure	Initiated by the European Payments Council (EPC). Operates a common set of payment instruments, infrastructures, procedures and standards for euro transactions within Europe. Electronic retail payments within SEPA are regarded as domestic payments. SEPA is not applicable to urgent, high-priority payments or cheques. SEPA countries include 28 EU member states and four European Free Trade Association member states (Iceland, Liechtenstein, Norway and Switzerland). A Europe-wide legal framework for payments, PSD2, was launched in 2016, which essentially provides security for electronic payments inside and outside of the EEA. There are two SEPA payment instruments: SEPA Credit Transfer (SCT) and SEPA Direct Debits (SDD.
SCT SEPA Credit Transfer	Pan-European instant payments system	Operated by the EPC. 585 participants. This scheme provides EUR-denominated credit transfers up to a maximum of EUR15,000 within ten seconds, and is available 24/7, year-round. Currently there are eight participating countries: Austria, Estonia, Germany, Italy, Latvia, Lithuania, the Netherlands and Spain. The network will progressively cover all 34 European countries with access to SEPA.
SDD SEPA Direct Debits	Pan-European direct debit system	Operated by the EPC. 585 participants. There are two types of SDD: SDD Core for consumers and SDD Business to Business (SDD B2B) for businesses. Operates whereby the payer must give approval via a mandate provided by the biller electronically or on paper. Otherwise known as creditor-driven mandate flow.
RT1	Pan-European real-time EUR credit transfer system	Operated by Euro Banking Association (EBA Clearing) (EBA = Euro Banking Association), which also operates EURO1, STEP1, STEP2 and Italy's SIA Group (one of the STEP2 operators). 28 participants. A pan-European real-time infrastructure for EUR-denominated SEPA transactions. Supports transactions compliant with SEPA Instant Credit Transfer scheme (SCT Inst). Messaging is in line with International Organization for Standardization (ISO) 20022 or Society for Worldwide Interbank Financial Telecommunication (SWIFT FIN) standard.
TARGET2-Banque de France (Trans-European Automated Real-time Gross Settlement Express Transfer system)	Real time gross settlement (RTGS) for the eurozone	Operates on behalf of the Eurosystem. Three Eurosystem central banks – Banca d’Italia, Banque de France and Deutsche Bundesbank – provide the Single Shared Platform (SSP) of TARGET2. Processes high value and urgent EUR-denominated domestic and cross-border credit transfers. Activates final settlement of participants’ net balances from STEP2 (pan-European Automated Clearing House). Settles transactions in real time and with immediate finality. Transactions are processed electronically using SWIFT. Final settlement is done across participant banks’ correspondent accounts held at the SSP. France has 132 direct and 169 indirect participants.
EURO1	Pan-European RTGS-equivalent net settlement system	Operated by EBA Clearing. Processes high-value (no maximum value threshold) and urgent euro-denominated domestic and cross-border payments. Payments processed with immediate finality and are irrevocable. Operates SWIFT messaging.
STEP1	Pan-European net settlement system	Operated by EBA Clearing. Processes low-value (no minimum value threshold) and non-urgent euro-denominated commercial payments. STEP1 is open to all banks in the EU and has access to EURO1 platform. Operates SWIFT messaging.
STEP2	Pan-European Automated Clearing House (ACH)	Operated by EBA Clearing. Processes low-value, non-urgent and bulk euro-denominated retail payments. Provides straight-through processing for interbank transactions. Settlement is done the same or the next day, depending on time of submission. A pan-European real-time infrastructure for EUR-denominated transactions is under development by EBA Clearing and Italy's SIA Group (one of the operators of STEP2). Cross-border transactions can be processed through SWIFT and overseas correspondent banks.

Payment Instruments

Credit Transfers

All credit transfers are automated in France.
Credit transfers are a popular form of cashless payment, particularly for high-value transactions, and have grown in line with electronic payments. They accounted for 91.9% of the value of cashless payments in 2020, but only 18.5% of the volume (European Central Bank).
High-value and urgent credit transfers are settled through TARGET2 in real time. Low-value and non-urgent credit transfers are settled through CORE and are used for payroll, supplier and third-party transactions.
Credit transfers are mandatory for tax transactions for companies with a gross turnover of over EUR15 million and for social security payments (Banque de France).
The SCT Inst scheme is used for retail transactions and is available for urgent and high-priority payments up to a maximum of EUR15,000 within the SEPA.

Direct Debits (auto debits)

Direct debits are used for low-value, regular payments, such as utility bills.
The national direct debit instruments, France's niche titre interbancaire de paiement (TIP) and télérèglement (TLR), have migrated to SEPA.eu.
Direct debits are processed through CORE or STEP2 and settled by SEPA.
Direct debits accounted for 4.7% of the value of total cashless payments and 19.1% of volume in 2020 (European Central Bank).

  Card Payments

Payment cards are the dominant form of cashless payments, especially debit cards used for low-value transactions with touch-and-go contactless payment facilities. They accounted for 57.4% of the volume of cashless payments but only 1.6% of the value in 2020.
In 2020, there were 87.13 million payment cards in circulation in France. The main credit card brands are Visa and MasterCard, although American Express and Diners Club are also in use, as well as the domestic cards Cetelem and Cofinoga.
Most cards are processed through the national payment card operator, Groupement des Cartes Bancaires (GCB). GCB has 117 participants, including Visa and MasterCard, which are co-branded with other payment card brands. All cards are Europay, MasterCard and Visa (EMV) and SEPA compliant. Card payments with domestic cards are cleared through CORE.

Online Payments

The French government supports innovation and development in the fintech sector through the adoption of a more ‘relaxed’ approach to the regulation of digital startups and businesses in recent years as well as to the streamlining of registration procedures.
With the rise of mobile and other online transactions, digital payments are a growing sector, accounting for 22% of cashless payments and 67% of online banking services.
Mobile banking has also seen a steep rise in popularity, as most domestic banks offer their own apps, such as Hello Bank by BNP Paribas and Boursorama Bank by Société Générale. Other non-bank payment providers—Lydia and CityZi for example—have also jumped into this highly competitive market. Mobile commerce represents 21% of the EUR81.7 billion e-commerce market.
Digital wallets are gaining popularity and represent 20.9% of e-commerce payments, with PayPal having the largest market share, but potential security concerns are somewhat stunting growth. The dominant e-commerce payment method is bank card, accounting for 53.9% of online transactions.

Digital Currencies

France initially adopted a cautious approach to the cryptocurrency market, imposing high tax rates and advocating strict regulation. However, the government’s stance has recently changed in favour of promoting cryptocurrency markets and blockchain innovation.
The EU’s overall view of bitcoin is that “no member state can introduce its own currency”. Cryptocurrency exchanges are legal, depending on the country, and should be under the Anti-Money Laundering Directive, according to the European Commission.

Cash, Cheques and Other Payment Schemes

Despite the rise of digital and electronic payment options, cash is still used for over 50% of transaction volume, though only 15% of transaction value.
Cheque usage is still a common form of cashless payment for retail transactions, though it is in decline due to the growth in electronic payments. France is the largest user of cheques in the EU.
Cheques are truncated into electronic images and cleared through CORE. Circular cheques (above EUR 5,000 in value or irregular cheques) must be presented physically between banks through the Centre d'Échanges Physiques de Cheques. Cheques accounted for 1.7% of the value of cashless payments and 4.9% of the volume in 2020.
France operates two types of bills of exchange: lettres de change relevée (LCRs) and billets à ordre relevé (BORs), which are both negotiable and transferable. LCRs are electronic trade bills resembling post-dated cheques in terms of use, are used for commercial transactions and are intended to be initiated by the creditor. However, LCRs are often issued by the debtor. BORs are electronically processed promissory notes and are initiated by the debtor. BORs and LCRs are truncated into electronic images and processed through CORE.

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Sources (Intro & Corporate Treasury):
IMF, World Economic Forum, Trading Economies, CIA World Factbook, PwC, Bank for International Settlements, Autorité de Contrôle Prudentiel et de Résolution, DBS, OECD.

Sources (Banking & Payments):
Bank for International Settlements, Association for Financial Professionals, OECD, European Central Bank, Swift, Goethe University House of Finance, DBS, The Banks, J.P. Morgan, Banque de France, Reuters.