French Tax Burden Less Damaging to Investment Than Thought

July 19, 2010

Even with a tax rate of 43% in 2008, France is the fifth most attractive place to start a business, taking into account the costs of employment, installation, transportation, taxes, equipment and energy

The tax burden in France, often cited as a deterrent to foreign investment, is actually less onerous than thought, a study released on July 19 found.

A report by the French international investment agency AFII said France's "attractiveness from the standpoint of costs and taxation should increase."

It said: "France is the European country with the lowest (business) implantation costs."

Worldwide, France is the fifth most attractive place to start a business, taking into account the costs of employment, installation, transportation, taxes, equipment and energy.

While the country's tax rate, 43% in 2008, is one of the highest, tax receipts finance a wide range of social services, according to the AFII.

"The effective tax charge on companies on France appears to be much weaker than the nominal rate on enterprises would suggest."

Despite a nominal corporate tax rate that is among the highest, receipts from such taxes represent only a small part of French gross domestic product -- 3% in 2008 -- because of a relatively narrow base, according to the study.

It added that since the reform of tax credits for research in 2008, France now offers the world's most advantageous fiscal regime for corporate research and development.

The United Nations Conference on Trade and Development in 2008 listed France in second place behind the United States in its ranking of countries open to direct foreign investment and in third place behind the United States and China in 2009.